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New Student Loans Require Payments While in School

Sallie Mae, the largest private lender in the student loan market, will no longer defer interest until graduation. Starting today, all new student loans require payments while in school.

Payments while in school will be up to $160 per month. Payments after graduation will also go up, from $250 to $328 (but with a shorter repayment term of 15 instead of 30 years).

Some people will be up in arms about this “huge change” in student lending.

But I prefer to look at this is a healthy change: the student loan business in the past has been just as dodgy as the home mortgage business, and students and their families have been much too willing to take out larger loans than necessary to finance a quality college education.

The new Sallie Mae provisions may help reorient expectations. Of course, the changes won’t be without their negative consequences.

Some deserving students at the lower end of the socio-economic scale may have less access to funds. But these same students, if they are talented, also have access to greater need-based aid and Pell grants.

I think the biggest losers, actually, will be some of the third and fourth-tier private colleges that have ridden high in the past decade or so, due to the demographic bubble and the willingness of families to gorge themselves on student loans. Some tuition-driven colleges may find they have fewer students to fill their beds in the future.

Mark Montgomery
Educational Consultant

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  1. How are they expecting students to be able to repay these loans while still attending college? The economy we live in is worsening daily…this will only compound the problem. This is just another way to increase the wealth of the 1%…

  2. Hi, Monique, and thanks for your comment. I understand your frustration. However, I’m not sure of the connection between these changes in Sallie Mae loans and your conclusion that “this is just another way to increase the wealth of the 1%”.

    My feeling is that the problem in the US is that we–as a society–have not decided whether higher education is a right or a luxury. We also cannot decide whether it is a public or a private good.

    At the moment, Americans (which includes all voters) seem to believe that higher education is an investment each individual must make. If you plan to take out private loans, it also seems that you must work part time at least to pay back part of of the loan while you are in college. I’m not saying I completely agree with our social decisions, but I also know that education is an investment in yourself.

    Also keep in mind that the poorest among us have access to other loan programs that do not require payment while in college, and that colleges can give students access to the Federal student loan program–which is different from the private loans offered by Sallie Mae. Further, the Obama administration proposes expanding these Federal loan programs for lower income students. So I’m not sure I see the grand conspiracy you do.

    Thanks again for your input.

  3. Excellent article, and I actually think the “repayment while in college” is a good idea, for the students themselves. It makes the loans “real” rather than seeming like “free money.”

    Also, those financial aid officers fail to advise students on the real monetary worth of any given degree. I guarantee that the $70,000 in Stafford loan debt that I accrued for a bachelor’s and then master’s degree in history is worth much more than the degrees themselves. I will not in my lifetime have a career related to history that compensates, salary-wise, for the enormous cost of this education. Had I begun paying the loans while in school, I think I would have wised up and realized the value of money vs. the value of a generic liberal arts education much sooner.

  4. Thanks for your helpful comment, Jessica. Keep in mind, however, that the issue is not a “professional degree” vs. a “liberal arts” degree. It’s about taking out loans to pursue your passion. I know of many professionally oriented students who have taken out way too many loans to finance their education, and then regretted the decision. As one student said to me, “accounting is accounting: it’s a skill.” Why pay megabucks for an expensive accounting degree when an inexpensive one would perhaps serve the same professional purpose? By the same token, one can get a “liberal arts” degree and get a lot out of it…without putting a lot of money into it.

  5. I am currently a college student, with no job and a full load of classes (I am taking 19 credit hours this semester). I really do not understand how someone can think students will be able to pay their loans off while in school, doesn’t that defeat the entire purpose a student takes out the loan in the first place? If I had enough money to pay for all my college expenses I would not be taking out any loans. This idea is rediculous. College students will not be able to pay their loan payments and will therefore result in a bad credit report. I understand that some students take out more than is needed, but that is there fault, they should look at their expenses and be able to get a rough estimate of what is needed. Hopefully someone will realize that no thought was put into this new plan and go back to the way things were.

  6. Hi, Lacey, and thanks for your comment.
    Part of the problem here is that too many students think that “financial aid” is “free money.” If you don’t agree, try searching for “financial aid” on Twitter and see what kids are saying about how they are going to use their aid checks. The point is that loans on the private market do have a price, and students do not see the price, usually, until they have gone into debt up to their eyeballs. The new policies will help students think twice about incurring debts that they cannot afford.
    Again, this policy does NOT apply to Federal loans. A grace period still applies for those. So borrow the maximum under the Federal loan progarms, if you want and if you can.
    Best of luck!

  7. I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

  8. Thanks very much for the compliments and for subscribing. I’ll look forward to the conversation!

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