College Loans and Sallie Mae

My son will turn 2 next month, so it will be a while before he starts college, but one of my wife's relatives will be coming to the U.S. as a foreign student.

She got a partial scholarship to cover some of the cost, and her college recommended Sallie Mae (the quasi-government organization that deals with student loans) for the rest. She asked us to co-sign her loan.

So, I started researching the student loan process - and Sallie Mae foreign student loans in particular.

It looks like a good choice for her will be their "Signature Student Loan". She can apply online, complete the first part of the application, and then create a co-signer confirmation number and pin for us.

Then, we can log into the website and complete our part.

Their loan rate is based on the Prime Rate, which is set monthly by the U.S. Federal Reserve Bank. Depending on the school, credit history, etc. it could be anywhere from Prime -1% to Prime + 3%, or higher.

The current monthly Prime Rate is 8.250%. But, the prime rate does change with time. For example, back in December 2005, it was 7%. In May 2006, it was 8.75%.

So, for example, if you got a loan in Dec. 2005 for Prime + 1%, you would have started paying 8% interest. It would have gone up to 9.75% in May 2006, and would be 9.25% now.

So, its definitely more variable then, say, a mortgage.