The private college lending market is fighting a case of nerves these days, as Uncle Sam takes over more and more of the student loan sector. The federal government recently announced it will stop subsidizing private college loans. That’s bad news for private lenders, who saw their share of the college student loan market fall by 50% from 2008 to 2009, according to the College Board.
Feeling threatened and angry at the federal government for muscling them out of the college loan territory, private lenders are fighting back with lower loan deals — and that’s good news for college students.
That news is getting even better, though, as Sallie Mae — the leading college loan lender in the U.S. — announced it will lower interest rates on its signature Smart Option Student Loan.
As of May 10, rates on Smart Option Student Loans will range between 2.88% and 10.25%, with the rate tied to the London Interbank Offered Rate (LIBOR). Sallie Mae’s old rate range of 4.38% to 12.88% is now out the window.
The lender will also:
- eliminate its disbursement fee.
- let borrowers earn 2% of their total loan interest payments back if they pay all of their monthly student loan bills on time.
- grant borrowers a .25% interest rate reduction if they agree to pay their bills via automatic deduction.
The SOSL offers a bit of a wrinkle for student loan borrowers: Students actually pay interest while still in college, and thus graduate with less debt and shed their college loan debt more quickly, Sallie Mae says.
According to the lender, students who participate in the Smart Option program save 50% in finance charges over the life of the loan. Citing a college student who borrows $10,000 for school, Sallie Mae says that student would save $8,800 over the life of the loan with earlier interest payments.
“Keeping up with interest on my student loans out of pocket may not seem like much, but every bit counts and will save me money after graduation,” says Felicia Corcoran, a sophomore from Middleboro, Mass., who attends the Massachusetts College of Pharmacy.
Sallie Mae claims that borrowers in its Smart Option program have saved a total of $1.1 billion over the life of their loans. That’s a strong selling point for private college loan lenders, who need all the help they can get in a market where Uncle Sam casts a larger shadow than ever.
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