What Are Students and FA Directors Saying About Sallie Mae's Smart Option Loan? (Update)

Sallie Mae recently announced a new repayment structure for their new private (or alternative) loan product, Smart Option.  In short, students would be required to make interest-only payments while in school and their repayment terms once out of school would range from 5-15 years.  I thought it would be interesting to see what students and financial aid administrators on college campuses are saying about it:

• "Sallie Mae changes repayment options"(The Daily Collegian, Penn State)
  
  • But the idea of pay-a-little-now, save-a-lot-later may just be a "nice thought," said Anna Griswold, Penn State's associate vice president and executive director for student aid..."If a student can afford to make the monthly payments, would they have needed a loan at all?" Griswold said. "It kind of left us scratching our heads."

• "I guess it depends on the extent of the loans, but I don't know anyone who would not take the option to pay their loans later instead of right away," Miller said (Genevieve Miller - bioengineering student).

• Sallie Mae trots out early-repayment loan (Pittburgh Tribune-Review)
  
  • "Duquesne University junior Claire Cosgriff, 20, of Buffalo said the program is a good option for some students, but not her.  "With my schedule and my major, I can't work that often," said Cosgriff, an elementary education major who owes about $10,000 in federal student loans that she will not have to repay until after graduation. "It's not in my budget. The money I do make is for my living expenses."

  • Stephanie Hendershot, director of financial aid at Robert Morris University, said the Smart Option program might appeal to parents who want the loan in their children's names while they help with payments.  "For students doing it on their own, it probably wouldn't be a good option," she said, doubting they would have money to make payments while in school.

• New loan plan means pay now for students (Daily Iowan)
  

  • Mark Warner, the director of UI Student Financial Aid, said when it comes to private loans, “consumer beware.”  While he noted the benefits of the shorter payback of loans, he said for some students — such as those who are not obtaining any financial support from parents — the change could be a setback.  “If the student is unable to make interest payments while in school, then that will provide hardship for that student,” he said.  Warner said the new option appears to be better for students who have a cosigner who helps make those payments. And avoiding the traditional accumulation of debt could also be a benefit, he said.

  • Comment made by cdawg to the article:

This is what I predict: since students will have to pay interest while in school, it will take them even longer to get through school. My reasoning is that they need to take on less school and more work to afford school. So instead of doing 15 credits-- they may only do 12, over 2 years-- that's 12 credits, another semester-- when they paid tuition for full time status-- up to 18 credits. This will for sure add another year and tuition is technically paid twice. The problem has been shifted not solved.

• A new student loan (editorial in MnDaily.com, University of Minnesota)
  

  • Indeed, students should seriously consider Sallie Mae’s offer. It eliminates deceptive practices to which students have fell victim when shopping for a private loan. It also makes paying back the loan after four years of college much easier: if you take out $20,000 under terms from Sallie Mae, you will see after you graduate that you owe exactly $20,000, with no deferred interest.

    Nevertheless, Sallie’s new practice must not become an industry norm. With other loans such as the popular Minnesota SELF Loan requiring similar monthly interest payments, many families will not be able to pay interest on several loans. But if other student loan giants such as Wells Fargo eliminate deferred interest options, students and families who cannot afford to make immediate payments would be put in a dangerous bind.

• Student loan repayment starting earlier for some (Los Angeles Times)

  • Dylan Rubin, 19, a University of Southern California sophomore who is an unpaid intern in Los Angeles Mayor Antonio Villaraigosa's office, would have found himself in that situation. His loans to pay for tuition and expenses are as much as $10,000 a year.  "I would not be going to USC" if the new terms were already in effect, Rubin said. "I would have picked a public college that cost less if I had to start to pay on the loans when I was in school."

  • Phillip Cabrera, 25, is in his last year at Pasadena City College and plans to start at California State University, Fullerton, in the fall. He said he would be willing to work to meet increased expenses.  "I will need student loans, but I have no job and I have been looking since December," Cabrera said.  He has applied for work at banks and restaurants but has been tripped up by the poor economy and his need to have flexible hours that fit with a class schedule.  "It's really tough," he said.

• Would you pay interest while still in college?  (Kentnewsnet.com, Kent State University)

• "I think it's a terrible thing," sophomore history major Ed Koltonski said. He added most students in college are financially "hanging by the skin of their teeth as is."

• Junior political science major Tiffany Pate agreed.  "If I could pay loans in college, then I wouldn't take out loans," she said. 

• "If a student is able to make an interest payment while in school, I would suggest this program that will save (them) money over the long run," said Mark Evans, Kent State director of financial aid.

• Loan provider to enforce stricter payment policies (The Ithacan Online)

• Freshman Beth Ruggles is using loans to cover her college expenses, including a private loan from Sallie Mae. She said she is concerned about being able to complete monthly payments on time with the new policy change. “It’s definitely going to affect my ability to pay back my loan,” she said.

• Largest U.S. student lender Sallie Mae makes changes to loan plan (The Tufts Daily)

• The process of making monthly payments while still in school may prove impossible for some students, however, Tufts Director of Financial Aid Patricia Reilly said.  The change at Sallie Mae leaves fewer options for student borrowers and their families who cannot afford to make monthly payments while still enrolled at the university, Reilly added.  "The bad thing about [the new loan] is that for students who have high need or who are unable to make even the interest payments on the loan ... Sallie Mae may be no longer an option," Reilly said.


• Credit crisis hits student borrowers (The GW Hatchet)

• "Sallie Mae did this to make sure students understand this is a loan that needs to be paid off," Small [Dan Small, executive director of financial aid at George Washington University] said. "That's their thought process, and on paper that sounds very logical, but I don't know if that is going to serve our students well."

• New loan requires earlier payments (The Independent Collegian)

• Deja Davis, a freshman majoring in psychology, said if she were able to make payments while still in school, she would not have to take out loans at all.  “The reason I took out a loan in the first place is because I can’t pay the money now, so how am I going be able to pay [Sallie Mae] while I’m still in school?” Davis said. “If I had the money for that, I would be paying the school directly, not taking out a loan.”

• Sherri Jiannuzzi, the assistant director of loans at UT, said the loan is not a bad idea, but it’s not for everyone.  “It’s going save the student money if they are having a smaller loan, but not if they are using it to fund their whole education,” Jiannuzzi said.

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Thanks to Mike for this comment: 

But the idea of pay-a-little-now, save-a-lot-later may just be a "nice thought," said Anna Griswold, Penn State's associate vice president and executive director for student aid..."If a student can afford to make the monthly payments, would they have needed a loan at all?" Griswold said. "It kind of left us scratching our heads."

 Anna, if a home borrower can afford to make the monthly payments, would they have needed a loan at all? The answer is a resounding YES. How many homeowners do you know that CAN afford monthly payments (try tens of millions) that didn't need a loan (try 1/1000th of those)? Student loans are little different than any other lending situation in that regard. 

 

The reality of today's credit market (in case you didn't notice Anna, there's been a crisis going on) is that if a student cannot afford to make the monthly (interest-only) payments than they might not get a loan at all. But clearly some students can and must make interest-only payments if that's what lenders need to justify lending money in the first place. A loan not issued is much worse than a loan that's interest-only.