In School Deferment, No Longer An Option

I’ve been feeling like the bearer of bad news lately. It seems every time I sit down to write a blog it’s about something negative going on in the market. And although this blog is no different, it does have a silver lining.
It was just announced last week that Sallie Mae, who provides 6 billion dollars per year in student loans, is discontinuing their private Signature loan product in favor of a short-term version that requires students to make interest only payments while in school. This is both good and bad news.
The good news is that a student will save thousands of dollars over the life of their loan as they will avoid negative amortization and will have a shorter loan term. The bad is that the borrower is still required to make monthly payments while in school.
The loan example that SLM likes to use is if a student borrows $17,000 over two years. For the first semester the student would be responsible for $40 per month, but that figure would rise each semester, reaching $160 by the second semester of the students sophomore year. After graduation the student would have a $328 monthly payment for six years. Under this new plan the student would repay about $28,000 total, opposed to the Signature loan program, which held a longer repayment term and would have cost about $45,000.
Still, while students “appreciate” the cost savings on the back end, is is the money on the front end that is the real killer. Not all students can afford to make payments while in school. For those students I am happy to report there are still options.
Fortunately not all lenders are forcing students to make payments while in school. If you are interested in taking out a private loan that still has a loan deferment benefit while in school