Monday, March 30, 2009

New Changes to Student Loans, From Obama and Sallie Mae.

Whenever a youth is ascertained to possess talents meriting an education which his parents cannot afford, he should be carried forward at the public expense.
James Madison

Obama is giving it a shot: trying to make Pell Grants an entitlement and cut student lenders out of business in favor of direct loans. But these measures have been tried and defeated before. Private lenders, led by Sallie Mae, have already started to battle again this time.

What's different this time? The credit crunch.
Exhibit A: Sallie Mae's new version of private, unsubsidized student loans replaces the "signature loan" with the "Smart Option" loan. The interest on these loans must be repaid while students are still in school. This reduces the overall cost of the loan as well as shortening the repayment period (avoiding negative amortization that comes with putting off the interest payments until graduation).

But that means Sallie Mae is getting less money out of each borrower, in exchange for reducing the risk; and the in-school payments make more apparent the full cost of private loans, which are often blithely ignored by families today. If families and students can't come up with the monthly interest payments, they will be more likely to stick to government loans and grants, or make hard decisions about whether they can actually afford the tuition in the first place.


Anonymous said...

Great post! Now who are some key senators and congressmen that need to be written to make sure that the private companies can't block this?

Max Harper said...

You are absolutely right, taking student loan at an earlier period before graduation is easier, but when it comes to repayment it becomes a burden for both parents and student when it is not paid in time. So if you are taking a student loan try to repay it before graduation so that you don’t have to think much about your further studies expenses or loan.

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