Sallie Mae Announces New Student Loan Option

March 23rd, 2009

The letters “S-O-S” rarely stand for anything good, but today that changes thanks to Sallie Mae’s new private loan, the Smart Option Student Loan. Compared to private loans offered by other companies, the Smart Option Student Loan will let students pay off loans nearly a decade sooner than they would have under normal circumstances while saving approximately 40 percent off what they would have paid.

The key to these fast savings — or rather, the catch? Instead of hitting students with the bill upon graduation, the Smart Option Student Loan lets students start paying off the loan’s interest while they’re still in college. (Not that everyone can do that, but if you can it’s a viable option worthy of further exploration.) Though nothing goes towards the principle amount, according to Sallie Mae — and, OK, the math — doing that on a monthly basis can substantially decrease the amount you will ultimately owe upon graduation.

Consider this, if you take out a $10,000 loan at a 6% annual interest rate, you’ll owe an additional $600 in interest at the end of your freshman year. By the time you graduate, you could owe nearly $3,000 more on that first loan thanks to that 6% rate –- and that’s only considering one of four loans! (Each year of schooling is considered a separate loan when it comes to calculating interest.)

Students who can swing a monthly payment while in school can get a head start on paying that interest down. So rather than let four years of it hit you where you least suspect it, Sallie Mae’s Smart Option Student Loan lets you nip things in the bud. Sallie Mae estimates that a student with an initial loan of $7,700 could save nearly $9,000 by applying for the Smart Option Student Loan as opposed to other offers for private loans. Another A+ perk? It enables those who are able to make monthly payments to build up their credit score.

On a personal note: I had a student loan very similar to this when I was in college and it made my loan payments so much easier to handle once I had graduated. The only problem was that, by my senior year in college, both my tuition rate and interest rate had jumped enough to make the monthly payments a little more than I had anticipated. What helps though, is to put some money aside during your first two years of college and apply this chunk of change to any additional interest you may owe during your third and fourth years. Remember, during the first year of your Smart Option Student Loan, you’ll only being paying down the interest on one loan, but by your senior year, you’ll only be making payments on four.

For more info, visit Sallie Mae’s Education Investment Planner.

– Genevieve M. Blaber

Entry Filed under: College Admissions, General