Sallie Mae cuts rates of interest on student loans

NEW YORK - Sallie Mae is lower interest rates which it charged on its loans to students. But the cut price probably won't attract a wave of new borrowers.

Officially called SLM Corp., Sallie Mae offers loans for education with variable interest rates tend to be higher than the rates on federal student loans. Most federal loans are delivered with a fixed rate of 6.8%.

As a result, private student loans are generally considered as last resort paying college, after the scholarships, grants and federal loans have been exhausted.

An Executive of Sallie Mae, Charlie Rocha, note that private loans may nonetheless help to bridge the gap after max families out of federal student loans.

The new CAP on the rate of Sallie Mae will be 9.875% over LIBOR, which is the interest rate that banks charge each other for loans. The new lowest available fare will be LIBOR more than 2 per cent, which reflects a reduction in percentage rate half.

It is noted that the reference, such as LIBOR interest rates, are at historically low rates, which means the rate of interest linked to them are poised to rise gradually.

"The impact will not feel suddenly," said Greg McBride, an analyst with Bankrate.com. But he said expenses may increase significantly for borrowers in the next few years.

The exact interest rate that Sallie Mae loans varies according to the credit of the borrower score and the chosen repayment option type.

Students who choose to pay interest on the loan while in school are given to more favourable rates. Sallie Mae encourages this option because it minimizes the impact of compound interest and lowers the cost of borrowing in the long term.

Students can also choose to make payments monthly $ 25 while they are at school to cover the interest charges or defer payments completely only after graduation. The option to stay comes with higher interest rates.

Sallie Mae is throwing in an other sweetener for borrowers. Loans disbursed between July 1 and October 1, ready will come with free tuition for insurance for a year.

Cover of insurance up to $5,000 in tuition, room, Board and other costs if a student is forced to withdraw from the medical reasons.

For many families, however, the advantage may not outweigh the protection measures accompanying federal student loans.

For example, federal student loans come with guidelines that allow borrowers to defer payments if they cannot find work after their graduation. Interest still "emerging", but the loan remains in good and due form.

With private loans, lenders usually decide to grant the adjournment the case by case basis. The recovery period is also generally much shorter too.