New Student Loans Require Payments While in SchoolMarch 24, 2009 |
The running joke about
As of Monday, that will no longer be the case for students borrowing from Sallie Mae, the nation’s largest private
The company, formally known as SLM Corp., is replacing its signature
The upside is that the cost of a private
Families would also
This is because the interest payments students make while in school would avoid negative amortization, where the
The loans will be available for the 2009-2010 calendar year.
As an example of how the loans will work, Sallie Mae paints the scenario of a
For the first semester of freshman year, the
Once out of school, the
This would be paid off over the next six years at $328 a month. Under the previous setup, the
The new requirement will lower the total cost of the
For Sallie Mae, the impetus for the change is easy to see. Interest payments from students while they’re in school improves cash flow for the company, noted Mark Kantrowitz, publisher of FinAid.org, which tracks the college financial aid industry. The loans are also less risky since families that can’t pay while in school are weeded out.
Sallie Mae expects its default rate will drop substantially as a result of the change, Hewes said. In the last fiscal quarter, 4.5 percent of the company’s private
It’s not clear yet how the change will impact the volume of
In addition to lowering the total price of a
“Students tend to over borrow, not realizing how much interest they’re paying. With this, students will know exactly what it’s costing them,” he said.
As a result, he noted that more will turn to cheaper federal loans and grants.
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