Sallie Mae expands into credit cards
Student loan provider unveils three types.
Sallie Mae, the student loan provider once sponsored by the government, is expanding into credit cards.
The company this month unveiled a suite of three credit cards aimed at college students, recent graduates and young professionals. Its new cards offer rewards for responsible financial behavior. They come 18 months after the company introduced personal loans.
But some consumer advocates warn that these young adults, many of whom have debt from school, shouldn’t mix their student loans with credit cards.
Card details
The cards have no annual fees and 0% APR for six to 12 months, depending on which of the three you get. After that, the interest rate rises to between 15.24% and 25.24%, roughly in line with the average rate for new credit cards.
The cards also are designed to encourage good money habits, said Donna Vieira, Sallie Mae’s chief marketing officer.
For instance, the Ignite card gives a 25% cash-back bonus after six consecutive on-time payments. The Accelerate card offers a similar bonus when cashback rewards are used to pay down student loans. The Evolve card promises 25% cash back from the top two purchase categories each month if you’re in good standing.
Other card features include an app for self-regulated spending limits, $600 in cellphone insurance and access to a free credit score.
The cards are available to Sallie Mae’s current borrowers in June and will open to the rest of the public in July.
It will be difficult for Sallie Mae to stand out in the credit card market, even with features specific to students and recent graduates working to pay off loans, said Matt Schulz, chief industry analyst at personal finance site CompareCards, a personal finance research site.
“I would imagine that it’s going to be challenging for these cards to make a big splash,” Schulz said. “This is clearly Sallie Mae wanting to establish themselves as more than just a student loan company.”
The company’s goal is to “diversify business to meet the needs of our customers after high school and college,” Vieira said. Sallie Mae isn’t trying “to compete with mass market cards” but instead design a card based on feedback from its borrowers, she said.
Young people and debt
One concern is that students already struggling to pay off college debt could be tempted to use the credit card to make loan payments, said Whitney Barkley-Denney, senior policy counsel at The Center for Responsible Lending, a consumer advocacy.
If they don’t pay the balance off in full each month, they could end up paying even more interest on their student debt, she said.
“It potentially sets up a lot of problems,” Barkley-Denney said. “It’s mind-blowing that a solution from a student lender to the financial problems of young adults is more debt.”
Sallie Mae doesn’t recommend that its customers use credit cards to pay off student loans, especially if it means transferring debt to a higher-interestrate product, said Rick Castellano, a spokesman for Sallie Mae, in an email. That’s why Sallie Mae cardholders earn a bonus only when they use rewards toward a loan payment, he said.
Still, students and recent graduates may want to keep their credit card company separate from their education lender or even their own bank, said Linda Sherry, director of national priorities at Consumer Action, another consumer watchdog group. “We think it makes more sense to hold a credit card at a different company than your bank or student lender,” Sherry wrote in an email. Otherwise, “(this) makes it way too easy to keep tabs on consumer use of financial products.”
Still, Schulz recommends establishing credit during college, specifically through a secured card that requires an initial down payment as collateral.
Many students need to learn good financial behavior. Nearly 2 in 5 college students with a credit card have made a late payment, a recent study by CompareCards found.