What this means to you:

A new loan provided by Sallie Mae will require students to pay the interest while they’re attending school. It may be helpful for some but not everyone.

Sallie Mae’s new loan requires students to pay interest while in college. Any student applying for a private loan for the 2009-2010 school year from Sallie Mae will receive the new Smart Option Student Loan.

“The new loan reduces the overall cost by encouraging students and parents to pay a little now, which means that they will save a lot later,” Sallie Mae corporate communications representative Erica Eriksdotter said in an e-mail.

Students won’t see their balances grow while they are in school, she said. The repayment term will vary by customer, but it will most likely be reduced from 15 years to seven years. Customers will save about 38 percent.

Under the new model, a student borrowing $7,700, the average private loan, would pay about $70 of interest a month while in school. After graduating college, students will owe $146 a month. Loans already disbursed will remain unchanged.

Eriksdotter said Sallie Mae advises students to first look for grants and scholarships, then borrow federal student loans such as Stafford and PLUS loans. If money is still needed, private loans are the last option.

“If a student is able to make an interest payment while in school, I would suggest this program that will save (them) money over the long run,” said Mark Evans, Kent State director of financial aid.

Evans said about 3,100 Kent State students took out private loans for the 2007-2008 school year, almost double the 1,550 students who borrowed private loans in 2003-2004. Around 22,000 borrowed a federal loan in 2007-2008.

Evans said this loan is not for students who can’t make those interest payments while in school because “in a tough economy, finding additional resources for some is impossible.”

Most students do not think this is an option for them.

“I think it’s a terrible thing,” sophomore history major Ed Koltonski said. He added most students in college are financially “hanging by the skin of their teeth as is.”

Junior political science major Tiffany Pate agreed.

“If I could pay loans in college, then I wouldn’t take out loans,” she said.

Some people, however, believe this attitude could change.

“The cultural image students have that they don’t have to pay while they’re in school can change,” said John Hupalo, former chief financial officer of First Marblehead Corp., in a article from the Chronicle of Higher Education. “Maybe they’ll start paying more on their loans and less on buying new songs for their iPods.”

Pate doesn’t think this approach will work with college students.

“Telling young adults to sacrifice is a hard sell,” she said.

This is the case for Kara McKay, freshman early childhood education major.

“I don’t think I would cut back on my cell phone just to pay a loan,” she said.

Pate said she would rather wait to pay off her loans when she is more financially stable.

“I could make loan payments in college,” she said. “I just don’t want to.”

Evans said this loan is “just an option for families to consider.”

Families should research the program and become aware of terms and conditions before applying, he said. Some lenders have up-front fees or disbursement fees.

Sallie Mae is not the first to use this model of lending. Some federal unsubsidized loans require students to pay interest in college, Evans said.

He said this model needs time to pan out before its success can be gauged.

“There needs to be creative steps taken … to work with students to have sources to pay for college and minimize money to pay back over the life of the loan,” he said.

Despite this option, some students are content with the current model of lending.

“I’m perfectly happy with the way things are,” Koltonski said.

Contact student affairs reporter Kelly Petryszyn at [email protected].