Graduate students may now be able to qualify for private student loans at lower interest rates from Sallie Mae, the education finance company announced on Wednesday.
Sallie Mae said it would lower the maximum interest rates on its “smart option” private student loans made to graduate students, reflecting their educational achievement and greater earnings potential.
Fixed-rate loans for graduate students will now range from 5.75 percent (where they start currently, for undergraduates and graduates) up to 8.875 percent, compared with as high as 12.875 previously. Rates for variable rate loans for graduate students will now range from the current 2.25 percent up to 7.5 percent, compared with as high as 10.125 percent previously. (The top rates for the loans will remain the same for undergraduates.)
The new rate ranges for graduate students are aimed at making the loans more competitive with the federal Plus Loan for graduates, which graduate students typically turn to if they don’t qualify for lower-cost federal loans (like Perkins loans and Stafford loans), or need to borrow more than the limits set for those loans.
Federal Plus Loans for graduates carry a fixed rate of 7.9 percent and a 4 percent origination fee.
Sallie Mae’s loans don’t have origination fees, but they lack some borrower protections available with federal loans, including income-based repayment plans that can help students stay on track with their loan payments. The federal government is looking at ways to make repayment options for private loans more flexible.
Students should consider carefully what type of loan might be best for them, based on their field of study and potential earnings, Charlie Rocha, senior vice president for student lending products at Sallie Mae, said in a telephone interview.
Students obtaining M.B.A. degrees, for example, and going to work in the private sector may expect higher salaries that will enable them to pay off their debt more quickly and may benefit from the lower interest rates now offered by Sallie Mae, he said.
But students who are going into the nonprofit or public sector, where salaries may be lower and there may be more of a need for a flexible repayment, may be better off with federal loans and the protections they offer.
The potential savings offered by Sallie Mae’s loans depend on the interest rate, as well as the repayment option chosen (students can choose to make interest-only payments, or lower fixed monthly payments, while in graduate school, or they can defer payments until after graduation). Sallie Mae says that for a $10,000 loan, borrowed at 6.75 percent over a term of 10 years, and deferred for two years, the savings compared with a federal Plus loan would be more than $1,800. The savings are greater if the rate is lower, and if payments are made while the student is in school.
The interest rate on the Sallie Mae loans is based on the borrower’s credit history, so only students with good, established credit are likely to qualify for the lowest rates. (The lowest rates have been available already, to qualifying students, though Sallie Mae doesn’t disclose what proportion of students have been able to obtain the best rates.) Students with less credit experience would probably pay rates at the higher end of the range, Mr. Rocha said.
The rates on the variable-rate loans can fluctuate, of course, so students must carefully consider whether they can afford higher payments if interest rates rise.
The rates are available as of April 1. Students must be in a master’s or doctorate program but can be enrolled either full-time or part-time.
Do the lower rates seem attractive to you? Or would you prefer the protections of a federal loan?
Article source: http://bucks.blogs.nytimes.com/2013/03/06/sallie-mae-lowers-top-loan-rates-for-graduate-students/?partner=rss&emc=rss
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