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New Student Loans Require Payments While in School

by Associated Press , March 24, 2009

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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 student loans defaulted.

It’s not clear yet how the change will impact the volume of student loans that are made. But Sallie Mae projects it will issue between $5.5 billion to $6 billion in private student loans this year, down from the $6.3 billion in loans it made last year.

One reason loan volume won’t be hugely impacted is that banks and lenders have already tightened lending standards in the past year, Kantrowitz said.

In addition to lowering the total price of a loan, another potential upside of the change is that families will become more aware of just how costly private student loans can be.

“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.



© Copyright 2005 by DiverseEducation.com

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