Here's a smart option on student loans: Pay a little now, save a lot later

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Most college students defer payments on student loans until after graduation, but Sallie Mae, the nation’s leading saving, planning and paying

RESTON, Va., March 17, 2010—Most college students defer payments on student loans until after graduation, but Sallie Mae, the nation’s leading saving, planning and paying for education company, is urging students to consider a new idea: pay a little now to save a lot later.

As families make college admission and financial aid decisions for next school year, Sallie Mae recommends building interest payments on student loans into the budget. Keeping up with accruing interest prevents loan balances from growing each month beyond the original balance. After graduation, when it’s time to pay down the principal, young professionals start out their careers with smaller IOUs. That means they can pay off their debt faster than their fellow alums who deferred their interest.

“Understanding interest and how it works is just one indication of a college student’s financial literacy,” noted Laura Levine, executive director of the Jump$tart Coalition for Financial Literacy. “Many students may not realize the savings they can experience by keeping interest in check, and it can be significant.”

Sallie Mae offers tips for smart money management during college through its Be Debt Savvy Web site at www.SallieMae.com/savvy.

“I was determined to pay off my loan by the end of the year instead of waiting till I am completely done with school,” says Misty, a Sallie Mae customer from Winamac, Ind., who worked part time in the dining hall at Purdue University to make payments on her loan. “My parents taught me a lot about credit growing up, and my Sallie Mae loan was a great opportunity for me to build good credit.”

“I always encourage students to at least pay the interest on loans while they are attending school to avoid paying interest on accruing interest,” says Crystal Klipp, a financial aid counselor at California Lutheran University in Thousand Oaks, Calif. “Also, paying a little extra each month can save thousands of dollars in interest by paying down the principal more quickly.”

Last year, Sallie Mae introduced the Smart Option Student Loan, a new private loan that features interest-only payments during college. By paying interest each month, customers can keep their balances from growing higher each month, graduate with less student loan debt and pay off faster.

For example, a typical freshman borrowing a $10,000 Smart Option Student Loan would make payments of principal and interest for only seven years after graduation rather than 15 years. The customer would save approximately $9,500—or more than half the cost in finance charges—compared to other private student loan alternatives in which no payments are made until after graduation. Under this scenario, a graduate who kept up with interest while in school would send in the last payment on the loan at the age of 29 instead of 37.

Customers who selected Sallie Mae’s Smart Option Student Loan since it was launched in March 2009 and who continue to make on-time payments are on track to save an estimated $1.1 billion in total over the life of their loans. Now, that is borrowing smart.

Even though her student loan didn’t require it, Gail Legaspi-Gaull, now an employee at Sallie Mae, made interest payments on her student loans while she pursued an MBA at New York University. “When I started business school, I was determined to keep my finances under control,” she says. “It made a huge difference when I saw my loan balance at graduation, compared to my friends’ who put off their interest.” Stories like these helped inspire the creation of Sallie Mae’s Smart Option Student Loan as a responsible choice for customers looking to save money and pay off their student loans faster.

Sallie Mae advises families to follow the 1-2-3 approach to paying for college: first maximize scholarship and grants, along with savings and income. Second, tap federal student loans. Third, fill any gap with a pay-interest-as-you-go private education loan.

Media: For more information, contact:

Patricia Nash Christel (703) 984-5382

Erica Eriksdotter (703) 984-5628

SLM Corporation (NYSE: SLM), commonly known as Sallie Mae, is the nation’s leading saving, planning and paying for education company. Sallie Mae’s saving programs, planning resources and financing options have helped more than 31 million people make the investment in higher education. Through its subsidiaries, the company manages $176 billion in education loans and serves 10 million student and parent customers. In addition, the company’s Upromise program has enabled 11 million members to earn more than $525 million in rewards to help pay for college. Its Upromise affiliates also manage more than $23 billion in 529 college-savings plans. Sallie Mae offers services to a range of institutional clients, including colleges and universities, student loan guarantors and state and federal agencies. More information is available at www.SallieMae.com. SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

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