Tell Sallie Mae to Stop Double Dipping

Graduates with student loan debt frequently need to request what is known as a forbearance, which is an agreement between the lender and borrower to delay the borrower's payments during a financial hardship.  A forbearance can be as short as 1 month or last up to a year.  Sallie Mae, America's largest student loan lender by billions of dollars, currently charges hundreds of dollars in fees for an unemployment forbearance. These fees are on top of the interest which continues to accrue and capitalize during the period of forbearance, which results in hundreds of dollars in additional profit to Sallie Mae.  Not only does this fee result in double dipping by Sallie Mae, but it comes at the expense of recent graduates who are desperately trying to keep up with their expenses while unemployed and looking for work.  Tell Sallie Mae you expect America's largest lender to abide by fair practices and terminate these unnecessary fees by Signing this Petition.   

Click here for more information on this petition.

Isn't Granting A Forbearance Enough?  

     The practice of granting a forbearance is common in the financial industry because it benefits the lender as well as the borrower.  While a default might be bad for a borrower's credit report, it is far worse for the lender.  

     Specifically on student loans where no collateral is given, a lender must turn to the legal process in an effort to enforce the debt.  And in many cases an individual may simply be unable to pay and have no assets for the lender to seize.  This is why the forbearance is actually in the lender's interest.  Essentially, the borrower is contacting the lender and saying "I want to pay the debt I owe you but I am suffering from a financial hardship.  Will you postpone my payments for a few months?"  A financial hardship is most commonly unemployment.  And in today's depressed economy, unemployment is common among recent graduates.

    Finally, the lender does not suffer when it grants a forbearance.  Interest continues to accrue and capitalize on the loans during the forbearance.  

What Is Capitalization Of Interest?

     Capitalization means that the very interest being charged on the loans is added to the loan balance, making the interest payments for the following month even higher.  During capitalization of interest, the principle loan amount increases.

     Here is an example with some simple round numbers to illustrate the meaning of capitalization.  If you have a balance of $1000 and the interest is 15%, the interest on your balance at the end of the month is $150.  Now let's say you take advantage of a forbearance because you are unemployed.  With capitalization, the interest is added to your original balance of $1000 making your new balance $1150.  The following month, the interest on your loan will be $172.50 instead of $150.  The amount of interest the lender makes each month actually increases during a forbearance with capitalization of interest.  

Questions or Opinions?  Leave a comment!