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There seems to be some confusion about repayment options on private loans based on several recent conversations that I have had. Let me repeat the title of this post again: Private student loans allow borrowers to make interest-only payments while a student is still in school. Every private student loan that I have studied offers borrowers the opportunity to prepay their loan without penalty. As such, private loan borrowers (excluding Sallie Mae Smart Option borrowers) have the flexibility to make ANY payments they choose on their private student loan during the in-school period. As Sallie Mae's website indicates, their Smart Option loan repayment features include:
"Monthly interest-only payments are required during the in school period and during the six-month separation period..."
As you will see below, NONE of the top eight lenders studied indicated that borrowers are not permitted to make interest-only payments during the in-school period. Several provided three options in repayment (Chase, SunTrust, PNC), others indicated that borrowers could make voluntary payments during the in-school period (Citibank, U.S. Bank), while others indicated that borrowers were not required to make payments during the in-school period (Wells Fargo, Discover). As noted earlier, Sallie Mae's Smart Option loan requires interest-only payments during in-school and separation period.
Here is how each of the eight major private student lenders disclose their repayment options and the ability of borrowers to prepay their private loans without penalty:
Chase
▶ Lists three options for their undergraduate loans
- Undergraduate Loan Program - Pay principal and interest while in school option
- Undergraduate Loan Program - Pay only interest while in school option
- Undergraduate Loan Program - Defer principal and interest while in school option
▶ "You have the right to prepay all or part of your loan at anytime without penalty."
Citibank
▶ Repayment option:
- "I may, but am not required to make payments during the Interim Period. If I choose to make voluntary payments during this period, I understand that all interest must be paid before the principal can be reduced."
▶ "I may prepay my Loan(s) at any time without penalty."
Discover
▶ Repayment option:
- "Interest will accrue but you are not required to make payments during the Deferred Phase."
▶ "You may prepay, in full or in part, the amount owed on this Note at any time without penalty.
PNC
▶ Offers three repayment options:
- "If I have elected the "Immediate Repayment" option (the applicable repayment option is stated on the first page of this Credit Agreement), there is no Deferment Period and my first payment will be 30-60 days after the final disbursement of my loan."
- If I have elected the "Interest Only" repayment option (the applicable repayment option is stated on the first page of this Credit Agreement), then interest payments will begin 30-60 days after the first disbursement of my loan..."
- "If I have elected the "Full Deferral" repayment option..."
▶ "I have the right to prepay all or any part of my loan at any time without penalty."
Sallie Mae
▶ Repayment option:
- "On or before the time of the first disbursement you will send me a statement setting forth an initial repayment schedule that provides for consecutive monthly payments of interest in the amounts necessary to repay the unpaid interest interest that will accrue at the Variable Rate then in effect over the Interim Period."
▶ "I have the right to prepay all or any part of my loan at any time without penalty."
SunTrust
▶ Offers three repayment options:
- "If the student has elected the "Immediate Repayment" repayment option, there is no Deferment Period and my Loan payments will begin after the Final Disbursement Date."
- "If the Student has elected the "Interest Only" repayment option, then interest payments on my Loan will begin after the first Disbursement Date and principal and interest payments on the Loan will begin after the Deferment End Date."
- "If the Student has elected the "Full Deferral" repayment option, no payments on the Loan will begin after the Deferment End Date on the date reflected on my Monthly Billing Statement."
▶ "I may prepay all or any part of the Loan at any time without penalty or charge."
U.S. Bank
▶ Repayment options:
- "I am not required to make payments during the Interim Period. If I choose to make voluntary payments during the Interim Period, I understand that all accrued interest must be paid before the principal sum can be reduced."
▶ "I have the right to repay all or part of my loan at any time without penalty."
Wells Fargo
▶ Repayment options:
- "I am not required to make principal and interest payments during the Interim Period."
▶ "I have the right to prepay this Promissory Note in part or in full at anytime without penalty."
So, the next time a lender rep. tells you that their private loan product is the ONLY private loan that provides an interest-only payment option while a student is in-school, you might want to share this blog post with them.
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