Lender Sallie Mae will ease interest rates on student loans
NEW YORK —
A Sallie Mae executive, Charlie Rocha, notes that private loans can nevertheless help bridge the gap after families max out federal student loan limits.
The new cap on Sallie Mae’s rate will be 9.875 percent plus LIBOR, which is the interest rate banks charge each other for loans. The new lowest available rate will be LIBOR plus 2 percent, which reflects a half-percent rate reduction.
It’s worth noting that benchmark interest rates, such as LIBOR, are at historic lows, meaning the interest rates tied to them are poised to rise incrementally.
“The impact is not going to be felt in one fell swoop,’’ said Greg McBride, an analyst with Bankrate.com. But he said costs could rise significantly for borrowers over several years.
The exact interest rate Sallie Mae assigns loans varies, depending on the borrower’s credit score and the type of repayment option. Students who choose to pay interest charges on the loan while they are in school are given more favorable rates. Sallie Mae encourages this option because it minimizes the impact of compound interest and lowers the cost of the loan over the long term.
Students can also opt to make $25 monthly payments while they’re in school to defray interest costs or defer payments until after graduation. The deferment option comes with the highest interest rates.
Sallie Mae is throwing in another sweetener. Loans disbursed between July 1 and Oct. 1 will come with free tuition insurance for one year. The insurance covers up to $5,000 in tuition, room, board, and other fees if a student is forced to withdraw because of medical reasons.
For many families, however, the perk may not outweigh the safeguards that come with federal student loans.
For example, federal loans come with guidelines that allow borrowers to defer payments if they can’t find work after graduation. Interest continues accruing, but the loan remains in good standing.
With private loans, lenders usually decide whether to grant deferment on a case-by-case basis. The period of relief is also generally much shorter.
Candice Choi writes for the Associated Press. 
