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Opinion: Let’s talk about sex
Published March 27, 2024

SELF Loans losing popularity as result of 2008 federal law

The University did not include the SELF Loan in students’ electronic Financial Aid Award Notices this year, and some students are wondering why.

Kara Motta, a University of Minnesota dance major, has taken out SELF Loans before. But when she tried to fill out her eFAAN this year, she was surprised to see that the loan wasn’t included in the list of her awards.

The University did not include the Student Educational Loan Fund program — or SELF Loan — in students’ electronic Financial Aid Award Notices this year, and some students, like Motta, are wondering why.

Motta instantly e-mailed One Stop to find out and learned that the loan is no longer available through the University. The loan is, however, still available.

The state-run, low-interest student loan program intended to assist Minnesota students is now being lumped in with private loan programs.

The program was never a problem for the University’s financial aid office, but things could get messy in the coming years in the wake of a federal law.

The federal government passed the Higher Education Act of 2008 to alleviate the mishandling of funds by those running state loan programs — a widespread problem at the time.

In Iowa, for example, people working for the state-run loan program were getting paid more based on how many students took out loans, said Tricia Grimes, policy analyst for the Minnesota Office of Higher Education.

The law, designed to better regulate the loan industry and simplify the application process, makes a distinction between federal and private loans. Because the SELF Loan is grouped with other private loans, schools are having a harder time marketing it.

Since its passage, the University has seen a significant drop in students taking out SELF Loans.

“It’s the unintended consequence of the law,” Kris Wright, the University’s director of student finance, said.

In the 2008-2009 academic year, 10,641 students on the University’s Twin Cities campus took out a SELF Loan. That number dropped 26 percent the following year, to 7,823.

Marilyn Kosir, who manages the SELF Loan program for the state, said she’s skeptical about the future of the program.

“This number will keep dropping off if new borrowers do not find out about the program,” she said.

The program receives no taxpayer funding and carries the same interest rate for all students.

Grimes said she’s concerned that the Parent Loan for Undergraduate Students — or the PLUS loan — will replace the SELF Loan because most students will follow their university’s suggestion. The PLUS Loan is a federal loan borrowed by the parent on behalf of his or her child.

“Students are going to say, ‘I am going to do what the University is suggesting because they know this stuff better than I do, and I am just going to follow their recommendations,’ ” Grimes said. “Their recommendation is going to include the PLUS Loan and not our SELF Loan.”

Motta said she’s been offered the PLUS Loan before but told a financial aid official that she’d rather have the SELF Loan because she didn’t want her parents to have to take out a loan on her behalf.

A SELF borrower must have a “credit-worthy” co-signer who is at least 24 years old, but a parent’s signature is not required.

The SELF Loan requires students to pay interest while they’re still in school but doesn’t allow that interest to be capitalized or compounded while deferring payment until graduation.

“[This] helps a lot because then you don’t end up with so much more capitalized interest that you have to pay back,” Wright said. “The amount of the loan does not keep growing.”

According to the OHE, the SELF Loan interest rate is currently at 3.9 percent. Loan repayment takes place quarterly and begins 90 days after the loan is given. Undergraduate students can borrow up to $7,500 per year under the program.

The number of calls coming into the OHE spiked this past week from families wondering why SELF is not listed on this year’s eFAAN, Kosir said.

As the program’s popularity decreases, officials in the OHE agree they’ll need to ramp up their marketing efforts.

A SELF Loan ad campaign, likely to include social media outlets like Facebook and Twitter, is hoped to heighten interest among students.

The OHE will try “really small, targeted marketing strategies,” the office’s spokeswoman Barb Schlaefer said, including students who took the ACT.

But for those charged with keeping the SELF Loan alive, there’s frustration.

In the past, “the schools marketed the program for us,” Kosir said, “because it was a good program.”

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