Telling The Real Stories

New loan refinancing option affects 25% of SCSU students

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On Jan. 14, 2016 the Minnesota Office of Higher Education announced a new student loan refinancing initiative, called the SELF Refi, that can reduce the overall debt and monthly payments of Minnesota graduates who have students loans in excess of $40,000.

“Minnesota ranks fifth highest in the country for student loan debt, with the typical student carrying an average of $31,579 in debt,” said Lt. Governor Tina Smith during the announcement. “This is an important first step to improve college affordability and increase educational opportunities for all students.”

The program aims to reduce the amount of debt as well as the interest rates for repayment. The current interest rate for federal subsidized and unsubsidized loans is 4.29%, and borrowers who qualify for the SELF Refi program have the option between a variable interest rate that starts between 3%-4.35% or a fixed interest rate that ranges from 4.5%-6.95% depending on if the loan is refinanced to five, 10, or 15 years.

To be eligible a person must be a Minnesota resident, have earned a certificate, diploma, associate, bachelor, or graduate degree, and have loans totaling over $40,000. All federal loans will be accepted for refinancing, but with no grace period built in; the borrower must begin payments as soon as their application is accepted.

Graduates must also meet certain FICO credit score requirements to qualify for the SELF Refi program, needing a credit score of 720 with no co-signer, or 650 with a co-signer present. This may disqualify a number of SCSU graduates as CreditKarma.com reports the average credit score for 18-24 year olds is just 630.

While 25% of SCSU graduates carry a total loan debt in excess of $40,000, this plan is not for all who qualify as there is a disclosure statement that makes all graduates forfeit any federal benefits attached to their loans.

The most important benefit that would be forfeited includes the option to have an income-driven payment plan that adjusts the interest rate based on income, and also has provisions in place if the person finds themselves jobless, something the SELF Refi program does not.

This program was made possible by Governor Mark Dayton and the Minnesota Legislature when in 2014 they gave the Office of Higher Education the authority to refinance student loans through the sale of bonds. This program does not rely on public dollars raised through taxes, but instead on money raised by revenue bond sales.

“Our primary goal in structuring SELF Refi was to create a program that offers a cost savings for borrowers and is sustainable for the long term. If this program is successful, we are optimistic it can be expanded to include more student loan borrowers in the future,” said Larry Pogemiller, the current Office of Higher Education Commissioner.

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