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Lower Student Loan Rates for Lawyers & Doctors?

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Sallie Mae, a corporation that services student loans, has announced lower loan rates on its postgraduate loans for students studying for the bar exam or starting a medical residency program or internship. The Bar Study Loan now offers a variable rate range from 3.74% to 12.74% and the Residency & Relocation Loan variable rate range is 3.21% to 9.62%. Both rates are tied to the London Interbank Offered Rate (LIBOR).

According to a news release outlining the new rates, the Bar Study Loan and the Residency & Relocation Loan can help cover postgraduate training costs that federal student loan programs do not, such as review course fees, bar and board exam fees, living expenses incurred while studying and taking exams, residency match programs and relocation expenses.

“Health professions and law students don’t put their books away at graduation,” said Charlie Rocha, senior vice president at Sallie Mae, in the news release. “They may still have months of studying and training ahead of them. With new, lower rates, the post-graduate loans from Sallie Mae offer these students an affordable option as they get started in their careers.”

Federal Direct PLUS loans, education loans from the government for graduate and professional degree students, are available to individuals who meet financial aid criteria, do not have an adverse credit history and are enrolled at least half-time in an eligible school, meaning a law school graduate can’t take out such a loan to cover bar exam expenses. However, any money left over from a PLUS loan will be paid to the borrower, which can then be used for other expenses. The interest rate for such loans is currently fixed at 6.41%.

Private loan approval is often subject to an applicant’s credit scores, so while it’s possible for students to qualify for these low rates, how much they pay may depend on their credit histories, in addition to LIBOR fluctuations.

“It’s not clear to me how often they are scheduled to reset, but if I were to assume annually, and since the current rate for 1-year LIBOR is 0.58%, the spreads that Sallie’s building into these loans is, in my opinion, extraordinary,” said Mitchell Weiss, a finance professor and contributor to Credit.com. “But that’s not [what] bothers me the most. These are private loans. That means they do not qualify for any of the government relief programs should graduates hit an economic roadblock or two.”

The loans offer a standard repayment option as well as interest-only payments for a certain period, and there are no payments required while the student is still in school. The loans also have a postgraduation payment grace period.

Student loans can be a tricky — they’re useful to students who need help paying for education expenses, but borrowing too much can be devastating, as student loan payments can take a huge chunk out of a person’s income, they cannot be discharged in bankruptcy, and late payments can lead to fees and drops in credit scores. The balance of outstanding student loans in the U.S. passed $1.2 trillion this year, making it Americans’ second-largest source of debt.

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