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Minnesota Student Loan Refinance Program Explained

This article is more than 8 years old.

This month, the state of Minnesota launched a student loan refinance program. The SELF Refi Program, which is only available to qualified residents of Minnesota, offers interest rates as low as 3%, variable. With more than $1.3 trillion of student loan debt in America, products are increasingly being created by the private sector and now state capitals to help borrowers dig out of debt faster.

In this post, I will review:

  • Who can qualify for the Minnesota program
  • Key risks to consider
  • Are better deals available elsewhere?
  • Does this really solve the student loan problem?

Who Can Qualify

The State of Minnesota has detailed explicit qualification criteria. As you will see from the requirements below, this is a program to help the best borrowers obtain the lowest rates. People with less than perfect credit history or a low FICO score will not be able to qualify. In order to qualify, you must:

  • Be a resident of Minnesota
  • Have earned a certificate, diploma, associate, bachelor or graduate degree
  • Have a minimum FICO of 720 to qualify without a co-signer. With a co-signer, you can have a FICO as low as 650. However, there are minimum credit requirements for the co-signer.
  • Have a debt-to-income ratio of 45% or lower. This ratio is calculated by taking your monthly payment obligations and dividing them by your monthly income. If you have unused credit cards, the minimum payment (based upon your available credit) will be used in the calculation.
  • Have no delinquencies on your credit report.
  • Have no unpaid charge offs, liens, or judgments of $300 or more.
  • Have a co-signer if the borrower is not a US citizen or permanent resident.

You cannot refinance Parent PLUS loans with this program.

Key Risks to Consider

If you refinance your federal student loans using the State of Minnesota's program, you will be giving up potentially valuable income-based payment protection options offered by the federal government. These risks are outlined in this disclosure. Income-based repayment plans are like insurance policies. If you lose your job or have a reduction in income, your monthly payment can be reduced on your federal loans. For borrowers who have a high level of confidence in their employment and income, this might be a risk worth taking.

Are Better Deals Elsewhere?

The SELF Refi program offers very competitive interest rates, which are set by the loan term. Your credit score does not impact your rate. For example, a five year loan has a fixed interest rate of 3.50% and a variable interest rate of 3.00%. 15 year loans have a 6.95% (fixed) and 4.35% (variable) rate. MagnifyMoney (my website) reviews the private student loan refinancing market interest rates daily. Variable interest rates start at 2.13% and fixed interest rates from 3.50% for five year loans. But the interest rates can go up to 7.74% (fixed) and 5.93% (variable) at some leading lenders.

Like the State of Minnesota, if you apply to refinance with a private lender you will give up federal income-based protection. Before making a decision, you should apply to as many lenders as possible to find your best rate. And you do not need to worry about the impact on your credit score. According to FICO, "your score considers all inquiries within a 45 period for a mortgage, an auto loan or a student loan as a single inquiry."

You might be approved at a private lender, even if you have been rejected by the State of Minnesota. And, in certain circumstances, you might find that you are given a lower interest rate by a private lender. It is worth the time to do a thorough price comparison before deciding. For example, SoFi, a leading marketplace lender, recently abandoned the use of FICO completely. If you are a recent graduate with an excellent income and employment, you could be approved regardless of your credit score. The State of Minnesota has clear and strict FICO cutoffs.

Does This Solve The Student Loan Problem? 

Unfortunately, most lenders are trying to help people with the best credit scores and the highest likelihood of repayment. Two cohorts with some of the highest default rates are attendees of for-profit colleges and people who never finished their college degree. The refinancing options outlined in this post will be of limited help to this problem.

The core problem remains the high cost of college education, and the easy credit that has helped fuel those price increases. Solutions designed to deal with the debt are welcome, and needed. But we need to find ways of making college education cheaper.