Nearly 500,000 Minnesotans carrying large amounts of student loan debt could be eligible for a new state-run refinancing program intended to cut interest rates and potentially save a borrower tens of thousands of dollars.
Officials from the Minnesota Office of Higher Education announced the "SELF Refi" program Thursday. Graduates with FICO credit scores of 720 or higher are eligible. Others with credit scores of at least 650 could apply with the help of a co-signer who holds a 720 score.
The program is available to current Minnesota residents who have completed a degree and meet the credit score criteria. Students carrying between $10,000 and $70,000 of debt are eligible.
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About 70 percent of Minnesota students borrow loans to pay for college. The state is fifth in the nation when it comes to the debt students accumulate over their college years, and the average student graduates with about $30,000 in debt.
"It makes it just so much more difficult for them to do so much more in our economy, whether it is buy a house or start a small business or buy a car." Lt. Governor Tina Smith said. "If we want to have an economy that works for everyone in Minnesota, we cannot allow these high debt loads to put a crunch on our competitiveness."
Under the plan, a student who took out a $40,000 loan at 8 percent could reduce monthly payments by $200 to $300 and total interest costs by $25,000. In another example, a student who carries $70,000 in debt at 9 percent could save $52,000 refinancing.
"For some borrowers, this could be very significant," state Higher Education Commissioner Larry Pogemiller said.
College graduates who borrowed just before the height of the recession are now feeling the pinch. Lawmakers say they've started to try to repair the damage in 2013 and 2014 by freezing tuition and helping graduates refinance is the next step.
"This is an example of how we can help those who have carried the burden of the debt," said state Rep. Gene Pelowski, DFL-Winona, who chaired the Minnesota House Higher Education Committee when the SELF Refi initiative was first approved in 2014. "Freezing tuition or lowering tuition helps the out years. We have to look at a way to help those folks that have had no assistance over the time of the great recession."
The refinance program is patterned after SELF, a fund that's loaned more than $2 billion to students since 1984 through the sale of bonds.
Higher education officials say they're cautious not to offer the refinance program to current students because there is no additional investment.
"We just don't want to do anything that damages our long-standing regular student program," Pogemiller said.