Sallie Mae announced March 6 that it's lowering the top interest
rate on its fixed rate student loans for graduate students. The
lowest rate on its Smart Option Student Loan will remain at 5.75%,
but the top rate drops on April 1 from 12.875% to 8.875%, which is
just slightly higher than the 7.9% rate on federal Direct PLUS
loans for graduate students.
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The top variable rate on the Smart Option Student Loan also will
fall to 7.5% from 10.125%. The lowest rate will remain at 2.25%.
The rates applicants receive depend on their credit history.
Sallie Mae also offers a fixed-rate loan for undergraduates but
is not lowering the top rate of 12.875%. Sallie Mae spokeswoman
Patricia Nash Christel says the lender is extending lower rates to
graduate students to recognize their education achievement as well
as their increased employability and earnings power.
Sallie Mae's announcement comes just a few weeks before graduate
schools typically send out acceptance and financial aid award
letters. So applicants who are accepted into a program but don't
receive financial assistance from the school will have to start
comparing loan options.
Sallie Mae introduced its fixed-rate loan less than a year ago.
Although the top interest rate will still be slightly higher than
the federal Direct PLUS loan rate, Christel says that the Smart
Option Student Loan has no additional fees. The federal PLUS loan,
on the other hand, has a 4% origination fee. However, federal loans
offer more flexible repayment plans than private student loans.
Having that flexibility can be important for graduates who can't
find a job and can't afford their loan payments.
However, graduate students who qualify for Sallie Mae's lowest
rate on its fixed-rate private loan could come out ahead if they
find a job after graduation and don't need flexible repayment
options (two big ifs). For example, students with a $10,000 Smart
Option Student Loan with a fixed rate of 5.75% would pay a total of
$15,737 over the life of the loan if they deferred payments until
after graduation. They would pay $17,585 with the federal
government's loan with a 7.9% interest rate and 4% origination fee.
That's why, Christel says, Sallie Mae encourages applicants to
weigh all available financing options, rates, fees, and total costs
along with their career plans in mind.
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