Folks, this is just the beginning. Its Sallie Mae now, but just wait -- this is how it begins. Student loan terms make it nearly impossible to go to college, but, our dear government leaders will create a program for students to "serve their country" in exchange for a college education. There won't be any other way for the majority of young people to afford college so they will have no choice but to "serve".
AP
NEW YORK – There's a running joke about student loans: Don't ever graduate because you don't have to start paying them back until you do.
Starting Monday, that will no longer be the case for students borrowing from Sallie Mae, the nation's largest private lender to students.
Its signature loan is being replaced with a shorter-term version that requires students to make interest payments while in school.
For some families, that may push private loans out of reach in the already tight credit market.
But a benefit is that the cost of a private student loan will be cut by about 40 percent, said Jack Hewes, chief lending officer for Sallie Mae, which is based in Reston, Va.
Borrowers would also repay loans in five to 15 years, compared with the previous 15 to 30 years. Despite the shorter terms, Sallie Mae says, the monthly bills upon graduation won't rise dramatically.
The reason: The interest payments students make while in school will prevent negative amortization, in which the loan balance grows because of deferred interest.
The loans will be available for fall beginning Monday.
Everardo Amaya, 17, a senior at Spruce High School in the Dallas ISD said the monthly interest payments aren't a bad idea.
"That sounds better than paying the whole thing at once," said Amaya.
He's been accepted at an out-of-state school on a partial scholarship. But he'd like to stay in state, and his parents don't want him to get college loans. "They're all freaked out about them."
Amaya says he's heard of people being stuck with college debt for years. "They still have debt and they're, like, 40 years old and I'm, like, 'How is that possible?' "
Lisette Gil, 17, a senior at Skyline High School, also in DISD, has been accepted at the University of Texas at Austin. She has not yet received a financial aid package.
"I've been trying to get scholarships," said Gil, whose family isn't able to pay for her college, even though their income is considered too high for some types of assistance. "We're in debt," she said. "They don't even consider me for some of these scholarships."
She said asking students to pay interest on college loans while they're in school isn't a good idea. "I mean, the reason we're borrowing money is because we don't have any money. We don't have a job. It doesn't really make sense."
For Sallie Mae, the impetus for the change is readily apparent. Collecting 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 because families that can't qualify under the new criteria are weeded out.
Sallie Mae expects its default rate to drop substantially with the change, Hewes said. In the last fiscal quarter, 4.5 percent of the company's private student loans defaulted.
It's not clear how the change will affect the volume of student loans. But Sallie Mae projects that it will issue $5.5 billion to $6 billion in private student loans this year, down from $6.3 billion last year.
One reason loan volume won't be significantly affected is that banks and other lenders have already tightened lending standards, Kantrowitz said.
Another potential upside of the change is that borrowers will become more aware of a private student loan's price.
"Students tend to overborrow, not realizing how much interest they're paying. With this, students will know exactly what it's costing them," Kantrowitz said.
As a result, he said, more will turn to cheaper federal loans and grants.
The Associated Press and staff writer Joanna Cattanach contributed to this report.
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/032109dnbusstudentloans.3ae31f7.html
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