Sallie Mae Q&A: Your College Financing Questions Answered

Financial Literacy

It’s time to talk. Americans owe $1.7 trillion in student loans – and more than 92% of that debt is made and held by the federal government.

Higher education lays the foundation for future success, and loans can help make those successes and dreams a reality. But responsible repayment begins with responsible lending – that’s where Sallie Mae® comes in. We clarify the complex world of college financing and help students achieve their education goals. How? Let’s start at the beginning…

How do students pay for college?

Students and families pay for college through a combination of income and savings, scholarships, grants, and loans. After maximizing money that doesn’t need to be paid back, such as scholarships and grants, the next step in the college financing process is to fill out the FAFSA®. The FAFSA opens the door to thousands of dollars in federal, state, and school-based financial aid, including scholarships, grants, work-study, and federal student loans. Sallie Mae offers a tool that can help you fill out the FAFSA in as little as 7 minutes. After completing the FAFSA and evaluating financial aid offers from schools, if families need more to cover remaining costs, they can apply for credit-based private student loans to fill the gap. Private Lenders like Sallie Mae will look at creditworthiness and repayment history before approving loan applications.

How does Sallie Mae help?

Sallie Mae is best known as a private student loan lender, but as an education solution provider, we make it easier to understand, plan for, and finance higher education. We believe college should be affordable, equitable, and accessible for all students.

We offer several free resources like planning calculators and scholarship searches that help students build their plan – and pay for college – with confidence. Our free FASFA application tool helps students apply for financial aid in as little as 7 minutes. If families need more to cover remaining costs, we offer credit-based private student loans. We believe responsible borrowing starts with responsible lending, and make sure our customers will be able to pay back before we lend. In fact, approximately 97% of our customers are successfully managing their payments and a small number, roughly 2% of loans, default annually, a stark contrast from the federal student loan program.

Is Sallie Mae part of the federal government?

No. Sallie Mae is a private student lender – we offer private, credit-based loans.

Our name has been around for decades, but the company we are today is fairly new. Sallie Mae stopped originating federal student loans in 2010. Today, we exclusively offer private loans.

Even before we offer a private student loan, we help student and families build an effective and responsible plan to pay for college with a three-step approach. We advise them to start with free money and then explore federal student loans before considering a private loan.

What’s the difference between Sallie Mae and Navient?

Navient is a company that currently services federal student loans. The federal government issues federal student loans through the US Department of Education, and Navient – along with a handful of other federal servicers like Nelnet and, until recently, PHEEA – collects payment on those loans. The federal government holds 92% of all student loan debt. Federal loans are made to all who apply for them and have different performance characteristics. 40% of federal loans are delinquent within one year.

Sallie Mae, on the other hand, is a private student lender, offering only credit-based, private student loans. Sallie Mae does not originate or service federal student loans. Along with other private lenders, we make up only 8% of all student loans. What’s more, less than 2% of our loans default annually. As a private lender, we’re only successful if our students are successful.

What’s the difference between federal and private student loans?

The federal government is the largest provider of student loans, holding 92% of all student loan debt. Federal student loans are made to all eligible students who apply for them; they are issued directly to students, without underwriting, and, with some exceptions, in limited amounts.

Private student loans, on the other hand, are originated by credit unions, state agencies, and banks like Sallie Mae. They are recommended as supplemental support to students and families who have financed the bulk of their education with income and savings, scholarships and grants, and federal aid. Private student loans are made to students, often with a cosigner, and require an evaluation of creditworthiness before they’re issued.

What is a federal Parent PLUS loan, and how is it different from other federal student loans?

Federal Parent PLUS loans are made to students’ parents rather than to students themselves. Unlike federal student loans, federal PLUS loans are unlimited up to a school’s full cost of attendance, minus any financial aid the borrower’s child has already received. These loans do require a basic credit check.

Federal Parent PLUS loans come with higher origination fees and higher interest rates than other federal student loans. Additionally, repayment for these loans can begin right away. These factors, in conjunction with the unlimited nature of PLUS loans, mean that they can be difficult to pay back.

When and how do students start paying back loans?

Federal student loans are either direct subsidized loans, direct unsubsidized loans, or direct PLUS loans. Federal student loans are available to any eligible student who completes the FAFSA; they are not underwritten and do not assess the ability to repay. Depending on the loan, students can make payments while in school or defer payment until after college although interest will accrue during this time. Many federal student loans offer income-based repayment plans, which allow qualifying borrowers to make monthly payments based on a percentage of the borrower’s salary after college.

If families need more to cover remaining costs, private lenders like Sallie Mae offer credit-based student loans to fill the gap. When students are approved for a private loan, they can choose either a fixed or variable interest rate and from a variety of in-school repayment options that determine how much principal – the original loan amount – and how much interest is paid back each month. Sallie Mae pioneered the option of making small or interest-only in-school payments to reduce total debt and keep overall balances down. More than half of our customers choose to do this. In fact, choosing an in-school payment option may also lead to a more effective interest rate. Students can also choose to defer until six months after leaving school.

It’s critical that students understand their loan and repayment options before making the commitment. That’s why Sallie Mae provides resources and tools for students and families to help them navigate the college financing process. We conduct routine communication with students about their loans while they are in school, long before their first payment is due and provide annual student loan snapshots to help them understand how much they owe and what strategies they can implement to help them pay down faster.

How much do students typically rely on loans to pay for college? 

College financing looks different for everyone and not everyone borrows to pay for college. In fact, roughly 44% of bachelor’s degree recipients from public and private non-profit four-year colleges graduated with no student debt, according to College Board. In the 2020-21 school year, families reported spending an average of $26,373 on college, with borrowed money like loans covering 20% of that. Family income and savings covered over half of these total costs and scholarships covered another quarter.

We believe that responsible borrowing begins with responsible lending, and that we’re only successful when our students are. This approach has proven enormously successful for our borrowers: less than 2% of our loans default annually.