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Sallie Mae Student Loan Review – Are Private Loans the Smart Option?

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Sallie Mae Smart Option Student Loan®

  • Loan Options: Undergraduate, graduate, career training
  • Repayment Options: Interest repayment, deferred repayment, fixed repayment
  • Loan Terms: Five to 15 years
  • APR: Fixed and variable options with higher rates across the board on career training loans; all interest rates tied to the one-month Libor
  • Discounts: 0.25% discount for autopay

Sallie Mae’s private student loan is its flagship credit product. Depending on the loan type, it’s known either as a Smart Option Student Loan (undergraduate, career training) or simply as a Sallie Mae student loan (graduate and professional studies).

Sallie Mae student loans have flexible repayment terms and offer theoretically uncapped borrowing ability — unlike federal student loans. However, they have some drawbacks, including the potential for cost uncertainty on variable-rate loans and some limitations for career training loan borrowers.

Before applying for a private loan with Sallie Mae, ensure you fully understand your chosen product’s rates, terms, and possible downsides.

Types of Sallie Mae Student Loans

Depending on your career track and goals, Sallie Mae offers three types of student loans, each of which has a slightly different mix of features. Notably, none have origination fees, and all can build credit for students and graduates preparing to enter the workforce.

All Sallie Mae education loans are available to U.S. citizens and permanent residents as well as eligible non-U.S. citizens with a citizen or permanent resident co-signer. Borrowers may attend eligible degree or training programs full-time, half-time, or less than half-time. Borrowers can apply for co-signer release after making 12 on-time principal and interest payments following graduation.

Sallie Mae offers separate education financing options for parents: parent loans to finance higher education expenses and K-12 loans to finance private primary and secondary school education. These loans aren’t issued in students’ names and don’t build credit for students whose education they finance.

Undergraduate Student Loans

The Smart Option Student Loan caters to undergraduate students at degree-granting institutions, including two-year and four-year colleges and universities. No matter how much education funding they need, all borrowers enjoy four months of free study help from Chegg — a $100 value.

The Smart Option Student Loan allows you to borrow the full amount of your attendance costs. That generally includes direct expenses, such as tuition, activity fees, and room and board. It also includes indirect expenses like transportation to and from school, school supplies, and pertinent electronics. But if you obtain any additional financial aid through your school or another lender, Sallie Mae subtracts that amount from your loan.

Note that you don’t automatically receive the full amount you request. Based on your FICO credit score and financial profile, Sallie Mae reserves the right to disburse less than the full amount of your tuition. However, unlike many competing loans, there are no annual or lifetime borrowing limits on any student loan.

To receive this loan, you must have at least $1,000 of outstanding attendance costs that aren’t being covered by another financing source, such as your school’s financial aid program or federal student loans. Your Smart Option Student Loan comes with a repayment term of anywhere from five to 15 years, which you choose at the time of your loan’s disbursement. You can’t change this term unless you refinance your loan.

There are no origination fees, and as with all educational loans in the U.S., there are no prepayment penalties.

You can choose from a fixed or variable interest rate. Current fixed interest rates range from 4.25% annual percentage rate, or APR, to 12.59% APR, depending on your credit score and credit history, your loan repayment option, and whether you’re using a co-signer. According to Sallie Mae, interest rates on co-signed loans may fall on the lower end of the APR scale, and approval is far more likely with a creditworthy co-signer.

Meanwhile, variable interest rates on Smart Option Student Loans currently range between 1.13% APR to 11.25% APR. Sallie Mae calculates these rates by adding a fixed percentage to the one-month Libor (London Interbank Offered Rate), a measure of the interest rate at which international banks lend to each other. However, its exact level depends on each borrower’s creditworthiness, repayment choice, and co-signing status.

Overall, fluctuations in the one-month Libor mean variable loan rates may rise or fall monthly at any point after Sallie Mae issues the loan. There’s no limit to the amount they can increase in a given month or year, but individual states may impose caps on these rates.

When you opt into autopay, you qualify for an automatic 0.25% APR rate reduction contingent upon successful automatic payments. If you miss even one auto debit due to insufficient funds (resulting in a failed withdrawal), Sallie Mae reserves the right to reinstitute the higher rate.

By comparison, subsidized direct federal loans for undergraduates, which pay no more than $5,500 per year and $23,000 in the aggregate, feature fixed interest rates of 2.75% for the 2020 – ‘21 academic year (subject to change).

Unsubsidized direct federal loans, which allow dependents to borrow up to $7,500 per year and nondependents to borrow up to $12,500 per year, also carry fixed interest rates of 2.75% (also subject to change).

Borrowers whose parents (or who themselves) earn too much to qualify for subsidized direct federal loans often use unsubsidized federal loans to cover the first several thousand dollars of their attendance costs and rely on private loans from lenders like Sallie Mae to make up the difference.

The Smart Option Student Loan comes with three repayment options:

  • Interest Repayment Option. This option is the most cost-effective on a long-term basis. You begin making interest payments on your loan while you’re still in school. For example, on a $15,000 loan with a 5% interest rate, you’d pay about $63 in interest each month while enrolled. Sallie Mae says this option saves borrowers an average of 20% relative to the deferred repayment option.
  • Fixed Repayment Option. This option also requires you to start paying off your loans during school. You make a fixed monthly payment of $25 before you graduate. Sallie Mae says the fixed repayment option offers an average savings of about 10% over the life of the loan compared to the deferred repayment option. If your loan comes with a variable interest rate, rising rates could result in a longer repayment window.
  • Deferred Repayment Option. Deferred repayment is the most flexible (but potentially costly) of these choices. It allows (without requiring) you to defer your loan repayments until six months after you graduate from school. This deferment interval is called a separation period (also called a grace period). Your loans still accumulate interest while you’re in school and during the six-month separation period following graduation. It provides flexibility, but the trade-off is a higher interest rate than loans disbursed under the interest repayment option. According to Sallie Mae, the difference amounts to about 1% for both variable and fixed interest rates.

For all options, it’s important to note that your monthly payment rises significantly after graduation. If you select a fixed interest rate on your loan, the remainder of your balance will be amortized over the rest of the loan’s term based on the interest rate at which the loan was issued. In other words, once your new payment is established after you graduate, it won’t change. If you selected a variable rate instead, your monthly payment amounts will vary.

Sallie Mae Student Loan for Graduate School Students

Sallie Mae also offers a private student loan product for graduate and professional students, including law school, dental school, medical school, and MBA students. Sallie Mae also offers distinct loans for medical and dental students entering their residency years as well as for law school-bound students who need to prepare for the bar exam under the graduate student loan umbrella.

Sallie Mae touts its graduate student loan as a superior alternative to the popular PLUS loan for graduates — a federal student loan disbursed by the Department of Education — primarily because it sometimes comes with a better rate and more flexible repayment terms.

Like the Smart Option Student Loan, Sallie Mae offers fixed-rate and variable-rate versions. The graduate loan’s minimum disbursement amount is also $1,000. The maximum is the full school-certified cost of attendance.

Sallie Mae’s graduate student loan rates vary by product (that is, the MBA loan and medical school loan can have different rates). But they’re comparable to undergraduate loan rates and tied to the one-month Libor. For each borrower, exact rates vary according to creditworthiness, repayment arrangement, and co-signer status. There’s no disbursement fee, and loan terms typically range from five to 15 years.

Like the Smart Option Student Loan, Sallie Mae’s graduate vehicle offers deferred, interest, and fixed repayment options that adhere to the same basic parameters. As with all other student loans, there’s never a prepayment penalty associated with the loan. Borrowers can get the same 0.25% interest rate reduction deal for loans paid by auto debit.

Career Training Smart Option Student Loan

Sallie Mae’s Career Training Smart Option Student Loan is for students who attend vocational, certificate, or career-training programs at community colleges, workforce training centers, and specialized academies. Such programs might include automotive repair courses, child development certification programs, culinary arts training, entry-level health care training, and contracting or trade jobs.

Like Sallie Mae’s other two primary types of student loans, this loan allows you to borrow up to 100% of your total attendance costs, less any additional financial aid, provided you require at least $1,000 in assistance. It also comes with a repayment window of five to 15 years. Unlike the other two, you can only repay it using the interest repayment or fixed repayment options.

Sallie Mae’s career training loan is available with a variable or fixed interest rate, both of which range about 1 to 3 percentage points higher than rates on Sallie Mae undergraduate and graduate student loans. It features a 0.25% interest rate discount for borrowers who pay their loans with automatic debit.

But the lack of a deferred repayment option can increase the financial burden for borrowers who haven’t yet graduated.


Sallie Mae’s private student loans are unusually flexible and reasonably priced, making them attractive to various student borrowers.

1. Theoretically Uncapped Borrowing Ability

Unlike direct federal loans, all three of Sallie Mae’s student loan products offer uncapped borrowing ability up to the full cost of attendance, less any financial aid received. In theory, you could pay for the entirety of your undergraduate, graduate, or vocational education with these loans.

Sallie Mae independently confirms your cost of attendance — a figure that includes your tuition, room and board, and activity fees. And the company reserves the right to award less than 100% of that amount. But the fact that the company doesn’t cap its disbursements gives its loans an advantage over its Department of Education counterparts, which have annual and aggregate borrowing limits for subsidized and unsubsidized loans to undergraduate and most graduate students.

2. Flexible Repayment Options

Sallie Mae offers three repayment options on its graduate and undergraduate loans: interest, deferred, and fixed. It offers two repayment options on its career training loans: interest and fixed. Some private student lenders, such as PNC Bank, offer a similar range of choices. Others, such as Wells Fargo, only offer deferred repayment.

Sallie Mae’s website does a good job of explaining its repayment options in easy-to-understand terms. By contrast, Wells Fargo’s website buries the explanation of its deferred repayment plan in a fine-print footnote.

3. No Disbursement Fees

Sallie Mae student loans don’t have disbursement (or origination) fees, which are fees added to the loan’s principal but deducted from the disbursement to reduce the net amount the borrower receives. Their omission reduces Sallie Mae student loans’ net cost to borrowers.

Some private student loan lenders do charge disbursement fees, which they typically roll into the principal and use in interest charge calculations.

4. Autopay Discount for Most Borrowers

All three Sallie Mae student loan products offer a 0.25% interest rate discount for borrowers who make their loan payments via automatic debit and maintain sufficient funds to clear those debits. The 0.25% discount remains in force for the entire life of the loan, though Sallie Mae reserves the right to suspend this perk during forbearance (a temporary postponement of the borrower’s obligation to repay due to illness, unexpected financial hardship, or military service).

You can sign up for the 0.25% discount at any point after taking out your loan, but be aware that it doesn’t apply to payments that arrive late (or that you miss completely) due to insufficient funds. If you reinstate your automatic debit arrangement with a fully funded bank account after a missed or late payment, you become eligible for the discount again.


Sallie Mae’s student loans can create added cost and uncertainty for borrowers, with the career training loan a particularly weak option for borrowers seeking competitive pricing and maximum repayment flexibility.

1. Higher Interest Rates on the Career Training Loan

While interest rates on the graduate and undergraduate versions of Sallie Mae’s student loan compare favorably to those on similar loans from other major private lenders and the Department of Education, the career training version doesn’t fare so well.

Its current interest rate range exceeds that of the functionally identical Wells Fargo Student Loan for Career and Community Colleges by 2% to 3%. But the lack of an origination fee makes up some of the difference. If you need a loan for vocational training, it may be best to look elsewhere.

2. For Long-Term Savings, You Need to Pay More Upfront

While Sallie Mae advertises savings of up to 10% relative to its deferred repayment option with its fixed repayment plan and up to 20% with its interest repayment plan, there’s some pain associated with this perk.

You must pay more upfront than you would with a deferred plan: $25 per month until the end of your separation period for fixed repayment plans and an even higher amount for interest repayment plans. If you’re strapped for cash while in school, that’s easier said than done. So even though Sallie Mae makes no secret it’s in borrowers’ interest to opt for fixed or interest repayments, it’s not practical for everyone.

Instead of borrowing as much as you possibly can with a private student loan from Sallie Mae, it makes more sense to leverage the federal Stafford loan program for all it’s worth. Regardless of borrower creditworthiness, unsubsidized direct federal loans come with fixed interest rates much lower than the rates for which most Sallie Mae borrowers qualify.

So you can reduce the total cost of your college education by taking out the maximum unsubsidized direct federal loan amount for each year you’re in school. Once you’ve used up your direct loan eligibility for the year, you can use a Sallie Mae student loan to cover the difference.

3. Variable Interest Rates Create Some Uncertainty for Borrowers

On the global markets, interest rates fluctuate constantly. Monthly interest rates on Sallie Mae student loans with variable interest — which many borrowers choose to take advantage of low starting rates — are tied to the one-month Libor. That means their rates can change as much as once per month. In economic environments where interest rates rise consistently, they can go up as often as 12 times per year.

4. No Deferred Repayment Option for Career Training Loan

The deferred repayment option on the graduate and undergraduate versions of Sallie Mae’s student loan product gives cash-strapped students the option to make no loan payments until six months after graduating from school. That arrangement increases the total loan cost by allowing unpaid interest to accrue for the years that the borrower remains in school. But many borrowers appreciate the flexibility it provides.

However, there’s no such option for career-track students who take out a career training loan with Sallie Mae. If you use a Sallie Mae student loan to pay for a vocational certificate, you must choose either the fixed or interest repayment option. Both require you to make some payments while you’re in school, potentially reducing the amount you have to spend on housing, school supplies, food, and entertainment.

Final Word

Sallie Mae built its reputation as a student lender, and it continues to service millions of loans for students of all ages. With three varieties that serve undergraduates, graduate students, and career training students, the company’s private student loan is the most visible and popular offering in its loan portfolio.

All three varieties of Sallie Mae’s student loans allow you to borrow up to 100% of your total tuition and enhance your financial flexibility by choosing from two or three repayment programs. They also offer valuable perks like interest rate discounts when you opt into autopay.

But it’s worth noting that Sallie Mae’s repayment terms are shorter than those of the federal PLUS loans. And if you’re looking to obtain a career-specific vocational certificate in preparation for a future-focused career, you should also be aware that its career training student loan forces you to accept a variable interest rate and carries generally constrained repayment terms.

The Verdict

Our rating


Sallie Mae Smart Option Student Loan®

Sallie Mae’s student loans have something for just about every student, though terms and rates vary for undergraduate, graduate, and vocational students. Overall, Sallie Mae’s private student loan products make up a strong but imperfect lineup. Before you sign, see what alternatives are out there.

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

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