NEW YORK
The running joke about student loans: Don’t ever graduate, since you don’t have to start paying them back until you do.
As of Monday, that will no longer be the case for students borrowing from Sallie Mae, the nation’s largest private student lender.
The company, formally known as SLM Corp., is replacing its signature loan with a shorter-term version that requires students to make interest payments while in school. For many families, the move is expected to push private loans out of reach in an already tight credit market.
The upside is that the cost of a private student loan will be cut by about 40 percent, said Jack Hewes, chief lending officer for Sallie Mae, which is based Reston, Va.
Families would also repay loans between five and 15 years, compared with the previous 15 to 30 years. Despite the shorter term, Sallie Mae says the monthly bills upon graduation wouldn’t increase dramatically.
This is because the interest payments students make while in school would avoid negative amortization, where the loan balance grows because of deferred interest.
