Are Sallie Mae student loans federal or private?

When you hear Sallie Mae, you probably think of student loans. There’s a good reason for that: Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans but it has gone through several shifts. In 1972, Congress created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

In 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae before 2014, there’s a chance it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

Currently, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans

Federal student loans are educational loans from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans

Private student loans are educational loans from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. If you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well. You might also have a choice between a fixed or variable interest rate.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you are shopping from bad credit student loan lenders.

Anyone who meets the lender’s eligibility requirements can take out private student loans. That said, private student loans are typically only a good option once you’ve exhausted your federal aid options.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all your certified school expenses.

That said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit scores differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

What is the best way to borrow money for college?

Before applying for private student loans, consider all your borrowing options, including federal and alternative loans. If you still need to fill a gap in your overall college costs, start with the loans with the lowest interest rates.

Perkins loans are need-based and have a fixed rate of 5.00 percent, while direct subsidized and unsubsidized loans are available to all undergraduates, with an interest rate of 6.53 percent. Parent PLUS loans are available at an interest rate of 9.08 percent. Alternative loans, such as state loans and home-equity lines of credit, may make sense in certain circumstances.

To apply for federal student loans, you can submit the FAFSA for free. Private student loans can be applied for directly through the lender’s website. To accept a federal student loan, you’ll need to sign and return your financial aid offer, go through entrance counseling, and sign a Master Promissory Note. To accept a private student loan, you or your cosigner will accept the terms of the loan and sign it electronically, and your school will need to certify your eligibility.

Borrowers should consider setting up an automatic payment program to help avoid missing a payment and potentially lower the interest rate.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Be sure to do your research upfront before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.