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When it comes to private student loans, loan giant Sallie Mae speaks out of both sides of its mouth. Case in point: Sallie Mae officials say they go out of their way to persuade students to exhaust their federal student loan eligibility before taking out more costly private loans. Not exactly.

It's true that on its website and in some of its marketing material, the company urges students to follow "Sallie Mae's 1-2-3 approach to paying for college," which recommends that they first apply for grants and scholarships, then for federal loans, and if a gap remains, then, and only then, consider taking out private loans. "Remember you should only use private student loans as extra funding after you've used all other sources of financial aid," a Sallie Mae podcast on the 1-2-3 approach states. "As with any student loan, always be conservative. You want to borrow only what you absolutely need to pay for school, not your lifestyle."

Sounds like good corporate citizen behavior, right? We thought so, until we saw the advertisement here on the Google search engine in which the primary selling point for Sallie Mae's private loans is that students don't have to file the Free Application for Federal Student Aid (FAFSA) to get them.

In other words, Sallie Mae is marketing the convenience of applying for private loans, in contrast to federal loans. Unlike cheaper, safer federal loans, there are no lengthy forms to fill out and you can get "quick preapproval." Students can obtain up to $40,000 in loans, so there is little need to apply for federal loans in the first place. All you have to do is click on the ad and you are taken to a page that includes a link to the "quick online application and pre-approval process."

Why does Sallie Mae's marketing matter so much? Because according to the Institute for Higher Education Policy, 20 percent of dependent students -- one in five students -- with private loans take out no federal student loans, even though they're vastly cheaper. An additional 19 percent of private loan students who also have federal loans fail to borrow up to the federal limits.

To read more, please visit, HigherEdWatch.org

Originally posted to blmiller on Wed Oct 31, 2007 at 05:49 AM PDT.

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