Higher Education, Office of

State Supplemental Loan Program

Statewide Outcome(s):

State Supplemental Loans supports the following statewide outcome(s).

A thriving economy that encourages business growth and employment opportunities.

Minnesotans have the education and skills needed to achieve their goals.

Context:

The Minnesota Student Educational Loan Fund (SELF) is the state’s long-term, low-interest educational loan, which supports the ability of students to finance and choose the postsecondary education that best meets their needs. Many students need assistance paying for their education beyond federal grant and loan aid and state grants and scholarships. SELF Loans, federal parent PLUS Loans and other private student loans are alternative sources of funds. The Agency’s intent is to make students aware of the advantages of the SELF Loan and to utilize the SELF Loan instead of higher cost loan alternatives.

The primary customers are Minnesota residents attending participating SELF schools either in Minnesota or outside the state and non-residents attending participating Minnesota schools.

The SELF program is funded through an enterprise fund and receives no appropriation from the general fund. Funding is provided by tax-exempt and taxable bonds, payment of loan interest and investment earnings.

Strategies:

The SELF program strives to provide a low-cost funding source to students enabling them to attend postsecondary institutions, while ensuring long-term sustainability of the state’s program. Strategies include:

·         Maintain a strong financial condition

§  Continue financial growth of program resources

§  Ensure funding is available for a minimum of two years in the future

§  Utilize default collection efforts to minimize program losses

·         Maintain a competitive low interest rate

§  Require borrowers to have a creditworthy cosigner

§  Provide a uniform interest rate for all students regardless of institution attended or credit score

§  Utilize automated processes to increase efficiency and minimize staffing needs

§  Minimize program expenses and bond costs

·         Increase awareness of the SELF program

§  Implement marketing efforts to inform Minnesota students about the SELF Loan

§  Lead group of 15 states in efforts to exempt state loan programs that meet specified criteria from private loan preferred lender regulations

The SELF Loan works with many partners to carry out these strategies. Partners include campus financial aid administrators, bond financing entities, outside loan servicers, Minnesota Department of Revenue, collection agencies, other state loan programs and other divisions within the agency.

Results:

The success of the SELF Loan is measured by the ability of students to utilize the SELF Loan instead of other more costly alternatives to attend the school of their choice and successfully complete their educational program. Loan volume is an indicator of how many students benefit from the SELF Loan. The volume of SELF Loans has decreased since 2009 when the federal government implemented regulations that restricted schools from providing information to students on private loan programs, including the SELF Loan. Refer to http://www.ohe.state.mn.us/mPg.cfm?pageID=843 for volume data. Within a five-year period, the number of SELF Loans was reduced by 50%--primarily the result of the federal regulations. Rather than decreasing overall debt, the lower cost SELF Loan may have been replaced by the higher interest rate PLUS Loan. From 2009 to 2011, a $42 million decrease in SELF volume coincided with a $42 million increase in PLUS volume. Unlike restrictions on the SELF Loan, schools are able to advise students of the PLUS Loans without any constraints.

The ability to maintain a competitive interest rate is a key measure of the program’s effectiveness. The SELF variable interest rate is lower than other private loans. The fixed rate is above the subsidized and unsubsidized federal Direct Loans but less than the PLUS Loan. While the SELF rate is comparable to private lenders’ lowest rates given to a select few with excellent credit, the SELF rate is available to all borrowers, regardless of credit rating, as long as they have a creditworthy cosigner. In addition, most private lenders and the PLUS Loan charge fees, which the SELF program does not.

Finally, the programs’ efficiency is also a measure of effectiveness. The Agency developed an online application which reduced staffing needs for the program and made the application process more efficient. In the next year, efforts will focus on further simplification of the application process. The Agency continues to meet the two-year funding goal despite problems in the student loan market which started in 2008 and ended some other states’ loan programs.

While the net default rate shows a condition that is worsening, feedback from bond partners indicate the rate is low in comparison to other loan programs and in spite of problems in the economy. Over 97 percent of the loans disbursed are collected.

Performance Measures Notes:

1.     Previous Data: 2007-08 / Current Data: 2011-12

2.     Previous Data: July 2007 / Current Data: July 2012

·         In July 2007, the SELF variable rate loan had an interest rate of seven percent, while the PLUS Loan had fixed interest rates of 7.9 percent and 8.5 percent

·         In July 2012, SELF had a variable rate 3.5 percent and the fixed rate is 7.25 percent, while PLUS Loan had a rate of 7.9 percent. Other private loan rates range from 3.25 percent to 13.74 percent depending upon the selection of fixed or variable rate and the credit score.

·         Since October 2010, Agency also offers fixed rate loans.

3.     Previous Data: 2007, prior to e-signature / Current Data: 2012

4.     Previous Data: March 2007 / Current Data: February 2012