A new student loan

Sallie Mae’s loan jettisoning deferred interest for monthly payments shouldn’t become an industry norm.

Starting today, student loan giant Sallie Mae will change the provisions in its signature student loan requiring students to pay monthly interest on their loans while in school. This breaks practice across the student loan industry that enables students enrolled full-time at higher education institutions to defer their interest on their student loans until after graduation. But Sallie Mae notes that this deferred interest causes negative amortization âÄî the final loan amount growing drastically because of the deferred interest. Sallie Mae is right in that their plan will prevent negative amortization, but deferred interest must still remain an available lending option for students. Sallie Mae has a strategic interest in making these terms more restrictive. The company will enjoy fewer delinquencies because of the harder provisions, âÄúweeding outâÄù the people who are most likely to default. The company will also see an immediate revenue stream instead of one that is delayed four years until students graduate. Indeed, students should seriously consider Sallie MaeâÄôs offer. It eliminates deceptive practices to which students have fell victim when shopping for a private loan. It also makes paying back the loan after four years of college much easier: if you take out $20,000 under terms from Sallie Mae, you will see after you graduate that you owe exactly $20,000, with no deferred interest. Nevertheless, SallieâÄôs new practice must not become an industry norm. With other loans such as the popular Minnesota SELF Loan requiring similar monthly interest payments, many families will not be able to pay interest on several loans. But if other student loan giants such as Wells Fargo eliminate deferred interest options, students and families who cannot afford to make immediate payments would be put in a dangerous bind.