Students or parents borrowing money for college can get a hefty interest savings under a change in the student-loan program announced Friday morning by the state Board of Regents.
The revised loan procedure could save $1,400 on a four-year, $16,000 loan, said Chalmers Gail Norris, associate higher-education commissioner for budget and finance.The new policy is a change in how interest in calculated on the Supplemental Loans for Students and Parent Loans, which are called PLUS loans. Supplemental Loans for Students are loans available to students that don't require a needs assessment to qualify. PLUS loans provide parents of students with up to $4,000 annually for each son or daughter.
Supplemental Loans for Students, PLUS and the Stafford Loan - the subsidized student loan that requires no payments while the student is in school - are guaranteed by the Utah Higher Education Assistance Authority, the agency set up by the regents to operate the state's student-loan programs.
Norris said under the new policy, which is effective immediately, interest on Supplemental Loans for Students and PLUS loans will be capitalized - added to principal - only once, prior to the time the borrower initially begins making loan payments.
In the past, interest on Supplemental Loans for Students and PLUS loans were capitalized as frequently as quarterly, so the new policy of one-time capitalization can result in significant interest savings over the life of the loan, Norris said.
He said the policy change was prompted by a new policy by the Student Loan Marking Association, also known as Sallie Mae, the government-chartered, private corporation in the secondary student loan market.
Sallie Mae plans to announce its switch to the one-time capitalization of Supplemental Loans for Students and PLUS later Friday, Norris said.
The Utah agency made the policy change "so we could remain competitive" with Sallie Mae, the higher education official said.
Additionally, all Sallie Mae loans for Utah students would be serviced out of state, so it is easier for students to borrow Utah Higher Education Assistance Authority-guaranteed loans, he said.
Norris cautioned against unnecessary student borrowing, but said sometimes it is a prudent investment in obtaining an education. He urged parents and students to consult with the student's school to determine if a grant, work or scholarship is available that would make borrowing unnecessary.
Norris said borrowers should consult the lenders to verify that its PLUS and Supplemental Loans for Students are guaranteed through the Utah Higher Education Assistance Authority. The interest rate on PLUS and Supplemental Loans for Students varies annually and is currently 11.49 percent.
Current lenders working with the Utah Higher Education Assistance Authority are: Family First Credit Union, First Security Bank of Utah, Guardian State Bank, Key Bank of Utah, Mountain American Credit Union, National JACL Credit Union, Olympus Bank, United Savings Bank, Universal Campus Credit Union, USU Community Credit Union, Valley Bank and West One Bank.