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New Student Loans Require Payments While in School

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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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