Haris Ashley
Sallie Mae is a private lender that offers private student loans for undergraduate, graduate, and career training programs. While Sallie Mae is not federally insured, it previously provided federally backed loans. As of 2014, all of Sallie Mae's student loans are private, and its federal loans have been sold to another servicer. However, Sallie Mae's deposit accounts are FDIC-insured up to the maximum allowed amount. Federal student loans are distributed directly by the government and offer benefits such as flexible repayment options and loan forgiveness, while private loans may have competitive terms for borrowers with excellent credit.
| Characteristics | Values |
|---|---|
| Type of company | Sallie Mae is a private lender but it used to provide federal loans |
| Current loan type | All Sallie Mae loans are private |
| Previous loan type | Before 2014, Sallie Mae provided federal loans under the Federal Family Education Loan Program (FFELP) |
| Current loan services | Sallie Mae offers private student loans for undergraduate, career training, and graduate programs |
| Insurance | Sallie Mae Bank accounts are FDIC insured up to the maximum amount allowed |
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What You'll Learn
Sallie Mae's history as a federal loan provider
Sallie Mae has a long history as a student loan provider. The company was created in 1972 by Congress as the Student Loan Marketing Association (SLMA), a government-sponsored enterprise (GSE) to support the company's mission of providing stability and liquidity to the student loan market.
In 2004, the structure and purpose of the company began to change. SLMA dissolved, and the SLM Corporation, or "Sallie Mae", was formed as a fully private-sector company without GSE status. The company began privatizing its operations in 1997, a process it completed at the end of 2004 when Congress terminated its federal charter, ending its ties to the government.
Sallie Mae started under the federal government and provided loans through the Federal Family Education Loan Program (FFELP). In 2004, the company privatized and began issuing private loans while still offering FFEL loans. Sallie Mae stopped offering federal loans when the FFEL program ended in 2010, but it continued to service federal loans through 2014.
In 2014, Sallie Mae spun off its loan servicing operation and most of its loan portfolio into a separate, publicly traded entity called Navient Corporation. Navient is the largest servicer of federal student loans and acts as a collector on behalf of the Department of Education. Since 2014, Sallie Mae has only provided private student loans.
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Private vs. federal loans
Federal student loans are educational loans provided by the U.S. government to eligible students or their parents/guardians to help cover the cost of higher education. They are typically the best first choice for student borrowers due to their low eligibility requirements and unique borrower protections. They are also unsecured loans, meaning eligibility is not based on your credit score, and they offer a range of repayment options. Federal loans can be subsidized or unsubsidized and have an interest rate that changes with each year's loans. Direct Subsidized Loans are for students with demonstrated financial need, as determined by federal regulations, and there is no interest charged while an undergraduate student is in school at least half-time. Direct Unsubsidized Loans, on the other hand, are not based on financial need, and interest is charged during all periods. Federal loans also offer partial loan forgiveness with certain payment plans and multiple repayment plans to fit the borrower's financial situation.
Private student loans, on the other hand, are issued by banks, credit unions, and online lenders. They are a good choice for students who have reached the federal student loan borrowing limit or who don't qualify for federal loans. Private loans are also a good option for borrowers with strong credit. They typically have interest rates tied to credit scores and usually have stricter repayment regulations. Private loans may be a necessary option for students whose federal loans do not cover all their college costs.
Sallie Mae is a private lender that currently offers private student loans for undergraduate, career training, and graduate programs. However, it used to provide federally-backed loans before 2014.
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Benefits of federal loans
Federal loans are generally the best first choice for student borrowers. They offer numerous benefits that private loans do not. Here are some advantages of federal loans:
No co-signer or credit check required
Federal student loans are not based on credit, which means that students can take on the responsibility without asking a family member or friend to co-sign. Most students are not eligible to qualify for a private student loan without a co-signer.
Fixed interest rates
Federal student loan interest rates are fixed, meaning they do not change over the life of the loan. Private loans can have variable rates, which may cause sudden or significant increases in monthly payments if interest rates rise.
Interest charged
For Direct Subsidized Loans, there is no interest charged while an undergraduate student is in school at least half-time, during deferment, or during grace periods. The U.S. Department of Education pays the interest during these periods. For Direct Unsubsidized Loans, interest is charged during all periods and may be capitalized, potentially increasing the total federal loan cost.
Flexible repayment plans
Federal student loan borrowers have more flexibility with their repayment plans. There are plans for different income circumstances, including four different income-driven repayment plans. The Pay As You Earn Repayment Plan and the Revised Pay As You Earn Repayment Plan cap payments at 10% of the borrower's discretionary income. Additionally, federal student loans give borrowers more time to make payments, with loans only considered delinquent after three missed payments.
Reliable funding
Federal loans, also known as government loans, offer reliable funding that is distributed directly from the government. This makes them a dependable option for financing education.
It is important to note that while federal loans offer many benefits, private loans like those offered by Sallie Mae can also be considered to cover education costs if federal loans, grants, scholarships, and other options are insufficient.
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Private loan interest rates
Sallie Mae is a private lender that previously provided federally-backed loans. Since 2014, all Sallie Mae student loans have been private, and its federal loans have been sold to another servicer.
When considering a private loan, it is important to compare offers from different lenders to secure the lowest interest rates. The interest rate on a private loan can be either fixed or variable. A fixed-rate loan has an interest rate that remains the same throughout the life of the loan, while a variable-rate loan's interest rate may change periodically, usually based on market conditions.
Some lenders may offer promotional rates or discounts for certain borrowers, such as those with strong credit scores or those who agree to automatic payments from their bank accounts. Additionally, the Annual Percentage Rate (APR) of a loan includes not only the interest rate but also any additional fees that may impact the annual cost of the loan.
Before applying for a private loan, it is recommended to explore federal loan options first, as they often come with benefits that private loans do not offer, such as income-based repayment plans or public service loan forgiveness.
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Federal loan repayment options
Federal student loans are educational loans from the U.S. government to eligible students or their parents/guardians to help cover the cost of higher education. They are typically the best first choice for student borrowers due to their numerous benefits over private loans. Federal loans come with borrowing caps, but they do not require a co-signer or a credit check, and there is no interest charged while an undergraduate student is in school.
Sallie Mae is a private lender that previously provided federal loans under the Federal Family Education Loan Program (FFELP) until 2010. However, as of 2014, all of Sallie Mae's student loans are private, and its federal loans have been sold to another servicer.
If you have taken out a federal student loan, there are four repayment options available:
- Standard repayment: This is the default option, where you make equal monthly payments for 10 years. This option typically results in paying less interest over time compared to other federal repayment plans.
- Income-driven repayment (IDR): This option ties the amount you pay to a portion of your income, typically between 10% and 20% of your discretionary income. The repayment period is extended to 20 or 25 years, and any remaining debt at the end of the term is forgiven. IDR is a good choice if you are struggling to meet the monthly payments of the standard plan.
- Graduated repayment: This option starts with lower monthly payments that gradually increase every two years for a total repayment period of 10 years.
- Extended repayment: This plan also starts with low payments but increases the amount every two years for a total repayment period of 25 years.
You can apply for income-driven repayment with your federal student loan servicer or at studentaid.gov.
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Frequently asked questions
No, Sallie Mae is a private lender. However, it used to provide federally-backed loans. If you took out a loan with Sallie Mae before 2014, it may have been a federal loan.
Check studentaid.gov if you're unsure about your student loan status. If you don't find your loan information there, you have a private student loan.
Federal loans offer numerous benefits that private loans do not. They are provided by the U.S. government to eligible students or their parents/guardians to help cover the cost of higher education. They are a dependable option for financing education.
Private loans with a lender like Sallie Mae can cover up to 100% of your education costs, while federal loans come with borrowing caps. Private loans come with competitive terms for borrowers with excellent credit, with fixed or variable rate options available.
