Sallie Mae Cuts Interest Rates

Mega giant student loan company Sallie Mae has announced it is cutting interest rates by half a point on most student loans. This is good news, but the question is how much so? 

For some reason, people often confuse Sallie Mae as a government agency. This is probably because of Fannie Mae and Freddie Mac in the housing industry, but Sallie isn’t a government agency. Instead, it is a private company that provides private loans to students seeking higher education. 

In general, private loans are considered the next to last financing of last resort for college with credit cards being the absolute last resort. The reason is similar to the one you would expect with credit cards – they are expensive. Government loans carry interest rates in the 5 percent range. Private loans from Sallie Mae are going to be perhaps double this amount. That’s a lot of cheese! 

Just how high are the interest rates on Sallie Mae loans? It depends. The company does not just post borrowing rates. Instead, it basis its rates on the LIBOR benchmark and then adds a slice above that. As LIBOR moves, this rate also goes up or down. As I write this, the rate is a total of just below 11 percent. 

The important thing to understand is these interest rates will probably be going up in the near future and will certain do so during the life of the loan. Why? Interest rates in general are at their all time lows and the LIBOR rate is extremely low as well. Frankly, there is nowhere to go but up. 

Private loans are generally frowned upon when figuring out how to pay for college. That being said, millions of people use them to get their higher education and Sallie Mae is undoubtedly the leader in this area. I certainly used them!