Sallie Mae Offering Fixed-Rate Student Loans
Sallie Mae announced today that it will offer a fixed-rate private student loan starting May 21, in addition to the variable-rate loans it has been providing.
The rate for the Smart Option Student Loan, which will be available to undergraduate and graduate students, will range from 5.75% to 12.875% depending on the borrower's credit history and other criteria. (The average credit score for Sallie Mae customers in the first quarter of 2012 was 748.)
A cosigner is not required for student borrowers but is recommended to help students without strong credit records qualify for the loan and get a better rate, according to Sallie Mae. College graduates can apply for a cosigner release after making 12 consecutive monthly payments on time.
Although it's the nation's largest student lender, Sallie Mae isn't the first financial institution to offer a fixed-rate option for borrowers. Banks such as Chase, Citizens Bank, PNC, SunTrust and Wells Fargo already have been providing private fixed-rate student loans, and their rates are comparable to the rate Sallie Mae is offering on the Smart Option Student Loan. Sallie Mae's variable-rate loans range from 2.25% to 10.125%.
The rate on the federal government's Stafford loan is 6.8% for unsubsidized loans and 3.4% for subsidized loans (Congress sets the rates). The 3.4% rate for subsidized loans will jump to 6.8% for money borrowed starting in July unless Congress acts to block the increase. Families who need help paying for college should try to get federal loans first before turning to private loans. That's because even the rates on fixed-rate private loans can be higher than federal loan rates for borrowers without good credit scores. And private loans offer little relief for borrowers who have trouble repaying them; whereas the federal government offers several repayment options (see Strategies for Repaying Student Loans).