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Sallie Mae trots out early-repayment loan

Students borrowing for college can save money and pay off debt faster under a new loan program.

But there's a catch: They start making payments while in college.

The Smart Option Student Loan Program, which Sallie Mae debuted Monday, allows typical borrowers to pay off the balance of the private loan nine years sooner and save an estimated 40 percent over the life of the loan. That could be about $8,700, compared with other private student loans, for a freshman borrowing the average loan amount of $7,700.

"It is our experience that today's students are financially savvy and families are looking for responsible, affordable options to help them pay for college, so we think families will see this loan as the smart option," Sallie Mae spokeswoman Patricia Nash Christel said in an e-mail.

Sallie Mae is the nation's biggest provider of college savings programs. It manages $180 billion in education loans serving 10 million students and parent customers.

This program replaces Sallie Mae's Signature private loans. The first money from the program will be disbursed June 1, but Sallie Mae recommends students first exhaust all the federal loan money they can get.

In that case, the Smart Loan is a good option, argues Mark Kantrowitz, publisher of FinAid.org, a Web site on financial aid.

Kantrowitz, 41, of Cranberry estimates students who borrow $8,000 from this program would pay $60 to $70 a month in interest while in college.

"That's doable," he said. "That's the cost of three DVDs ... a month."

Duquesne University junior Claire Cosgriff, 20, of Buffalo said the program is a good option for some students, but not her.

"With my schedule and my major, I can't work that often," said Cosgriff, an elementary education major who owes about $10,000 in federal student loans that she will not have to repay until after graduation. "It's not in my budget. The money I do make is for my living expenses."

Stephanie Hendershot, director of financial aid at Robert Morris University, said the Smart Option program might appeal to parents who want the loan in their children's names while they help with payments.

"For students doing it on their own, it probably wouldn't be a good option," she said, doubting they would have money to make payments while in school.

The repayment term for Smart Option loans ranges from five to 15 years. Other private loans could be repaid over 30 years. The adjustable interest rate is tied to an international benchmark.

Kantrowitz warns against "negative amortization," taking deferments and allowing the interest to balloon over 20 to 30 years.

"The students will be repaying their debt when their children are in school," he said.

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