A new borrowing option for a low-interest, state-run loan program might change the way Minnesota students borrow money.
Student Education Loan Fund program, or SELF Loan, has opened a new fixed-interest rate alternative of 7.25 percent to students in need of immediate financial help.
In the past, the only available option was a variable rate which would change quarterly according to the standard market rate. While the amount students have been paying in interest has been decreasing in recent years, and is currently 3.85 percent, some are concerned economic changes could inflate costs.
“With so much uncertainty in the market recently, we had more requests for something that involved zero risk in terms of borrowing,” Minnesota Office of Higher Education spokeswoman Barb Schlaefer said.
The SELF Loan is available to Minnesota students who have exhausted their federal aid resources. It is distributed by the Minnesota Office of Higher Education but is self-supported through bonds sold by
the state.
The loan provides up to $10,000 per year to undergraduate students in a four-year degree program.
Since the launch of the fixed rate on Oct. 26, about 55 percent of the 1,400 new loan applications have been for the new fixed-rate option, Schlaefer said. The other 45 percent of new loan applicants still opt for the variable loan option.
Kris Wright, director of student finance at the University of Minnesota, said there hasnâÄôt been variable-rate inflation in a number of years.
“ItâÄôs not something that has been on a lot of peopleâÄôs minds recently, but with all of the deficit spending, I think itâÄôs becoming more of a concern,” Wright said.
The number of SELF Loans taken out has been steadily dropping in recent years.
Federal legislation has made it more difficult for the University to promote the loans, Wright said.
To provide more information to students, the Office of Student Finance has put the SELF Loan on the preferred lenderâÄôs list. Wright said the list allows the University to talk about loans it feels are the best for students.
“[The SELF Loan] is a very unique loan,” Wright said. “Very few states have any kind of program thatâÄôs really run with the full backing of the state in order to lessen the interest rate at no profit to the state or to the entity.”
David Laird, director of the Higher Education Board in the 1980s, said the SELF Loan was the first of its kind in the nation and is unique to Minnesota.
Laird also said the interest rate on these loans has always been significantly lower than the market rate. The future of the loan, Laird said, depends on what people think will happen with economy.
