Why Sallie Mae Student Loan Payments Are Headed Downward
NEW YORK (TheStreet) -- Last week we looked at Sallie Mae's stance on how students and parents should work together on financing a college education.
Now the college financing mainstay has a new loan repayment policy designed to ease the burden of college loan borrowers -- at a time deferred student loans represented 43.5% of all student loans, according to TransUnion.
The Chicago-based credit rating services provider also says student loan balances have risen by 75% between 2007 and last year.
Those numbers took analysts at the company by surprise.
"With the economy either in recession or slowly coming out of it during the study period, we had expected that student loan balances might increase as consumers frustrated with the job market went back to school to work toward a different career path," says Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "However, the rate of growth we observed was truly eye opening."
The increasing inability of college loan borrowers to pay back their loans is a big reason Sallie Mae is readjusting its loan repayment terms.
The company's new Graduated Repayment Period program enables borrowers "in good standing" to buy some time with their student loans, allowing for one year's worth of interest-only payments after the loan's six-month grace period.
The program is available to any new borrower applying Sallie Mae's Smart Option Student Loan applicant for the 2013-14 academic year -- starting today.
Sallie Mae is touting the repayment adjustment as an innovative way of keeping student loan repayments as low as possible. The company says that a first-year borrower who applies for a deferment on a $10,000 loan would pay $144 per month on a 10-year repayment plan. With the new program, Sallie Mae says those loan terms are cut to $89 the first year of the repayment schedule, then $152 the second year, until the loan is completely repaid.
The program cuts the overall cost of the student loan by approximately $400 (for details, see there's a loan comparison chart here.)
Essentially, Sallie Mae is giving new college graduates a price break in their first year out of school -- a time most grads are struggling to find a job.
"Americans with college degrees are more likely to get hired and earn bigger paychecks, but newer graduates may need a more flexible option as they settle into a first job, create a budget and establish financial independence," says Charlie Rocha, a senior vice president at Sallie Mae. "This feature will serve our customers who need that extra time after graduation to land on their feet."