Minnesota program helps graduates with high-cost student loans

This year, for the first time, Minnesota is offering an alternative to residents stuck with high-interest student loans.

In January, the Office of Higher Education launched what it calls the SELF Refi program to help graduates lower their monthly payments by refinancing their college debt.

So far, only about 725 people have taken advantage of the new option, says Marilyn Kosir, manager of the State Education Loan Fund (SELF) program, which also provides loans to current students. But she sees it as a healthy start for a program that's less than a year old.

The Minnesota Legislature created the new program to reduce the burden on borrowers who locked into student loans when interests rates were higher than they are now.

Some of the new customers, Kosir says, were paying more than 13 percent interest a year when they opted to refinance. Now, through the state program, they can get fixed rates ranging from 4.5 percent to 6.95 percent, or variable rates as low as 3.2 percent, depending on the length of the loan.

At this point, it's hard to know how much money the customers are saving, Kosir admits. But by slashing their interest rates, "you know there's an immediate benefit."

Initially, she assumed the program might have a relatively narrow appeal. "We originally thought it would be more for higher-rate private loans," she said. "But we have seen people interested in refinancing the older federal loans that were at 6.8 percent."

Kosir cautions, though, that the program isn't for everyone. It's open only to Minnesota residents with college debt who have completed a degree or certificate program, are currently employed, and meet the requirements on credit and debt (the rules can be found at www.selfrefi.state.mn.us). There's also a $70,000 maximum for graduates of four-year colleges or universities; and $25,000 for graduates of two-year colleges.

She notes, too, that some people may have other — and even better — options to cut costs if they have federal student loans. They may qualify, for example, for reduced payment plans based on income or other factors.

"That's probably our largest caution," said Kosir. "We want to make sure that they understand what their options are in the federal program before they look to refinance. Because once they refinance, then all of those federal benefits are gone."