Lower interest rates and monthly payments on student loans are now available to Minnesota college grads, and state officials say it could be a big step in making college more affordable.
Lt. Gov. Tina Smith, Minnesota Higher Education Commissioner Larry Pogemiller and state lawmakers unveiled a new student loan refinancing program called SELF Refi at Winona State University on Thursday. Officials say they hope the program will help eligible borrowers manage and reduce their student debt.
If eligible for the lowest rates, a borrower with $40,000 in student loans at an 8 percent interest rate could save up to $200 a month or as much as $25,000 for the duration of their loan through the SELF Refi program, according information from Gov. Mark Dayton’s office.
Nearly any student-obtained loans qualify for the new program, Pogemiller said, including federal loans and private loans applied to educational expenses.
The primary goal in structuring SELF Refi was to create a long-term sustainable program, Pogemiller said.
“We have to be careful to design it in a way where people have good enough credit that we can maintain a low default rate,” he said.
The Minnesota Office of Higher Education will fund SELF Refi through the government sale of revenue bonds instead of taxpayer dollars, similar to the state’s SELF Loan program.
Criteria for eligibility include Minnesota residency, completion of a postsecondary degree and good credit, among other conditions. A minimum FICO score of 720 — or 650, with a cosigner who holds a 720 score — is required.
Borrowers must also have a debt-to-income ratio that doesn’t exceed 45 percent.
Minnesota ranks fifth in the nation for college debt and third for the proportion of students graduating with debt, according to the Project on Student Debt. The average Minnesota graduate takes on more than $31,000 in debt, and nearly 70 percent of graduates had loan debt in 2014.
University of Minnesota mechanical engineering freshman Sean Prior said Thursday’s announcement came as good news — in his first semester alone he accumulated $60 in interest fees.
“There definitely needs to be a change in how student loans are structured,” Prior said. “If you had to take out that much money for anything besides student loans, no one would finance you.”
Depending on the program’s success, it could cover current students, students with lower credit scores and Parent PLUS loans in the future, Pogemiller said.
Still, officials will hold off on expanding the program until the 2017 legislative session, when data on its success is available, said Rep. Gene Pelowski, DFL-Winona, who chaired the Higher Education Committee when the SELF Refi initiative passed.
“To extend it into people who are currently in college and having loans opens a rather large door,” Pelowski said. “We’re going to have to take a very close look at how the program works, at the number of people who are accessing it and then what it would probably take to extend it to any other category.”
