The good news is the state of Minnesota has launched a new program designed to help state residents struggling with student loan debt known as the SELF Refi program. The bad news is it’s nearly as tough to qualify for as a home mortgage is.
The program will allow qualified Minnesota residents who are currently carrying either federally guaranteed student loan debt or certain private loans taken out for educational purposes to refinance their loans at lower rates.
To qualify for the program, dubbed the SELF Refi program, the borrower must meet the following criteria:
- Be a current Minnesota resident
- Have earned a certificate, diploma, associate, bachelor or graduate degree.
- Have a minimum FICO score of 720 to qualify (or 650 if you have a co-signer).
- Have a debt-to-income ratio of not higher than 45 percent
- Have no delinquencies, nor unpaid charge-offs, liens or judgments worth $300 or more.
That 720 credit score minimum is a doozy. According to statistics compiled by Credit Karma, the average credit score for 18-to-21 year olds is 638. For 25 to 34 year olds it’s 652. For 34 to 44 year olds it’s 659. For 45 to 54 year-olds it’s 685. In fact, it’s not until people qualify to join the AARP, at age 55+, does their average credit score reach 720 – end even then just barely: Those aged 55 and older have credit scores averaging 724.
Co-signers must be U.S. Citizens or permanent residents and have no current delinquencies on their credit report as well.
According to the Fair Isaac Corporation, about 54.7 percent of Americans of all ages have credit scores of 700 or greater. However, younger Americans – those more likely to have significant student loan debt – also have shorter credit histories, which depress FICO scores. The average U.S. consumer, however, does not qualify for the Minnesota program without a cosigner: Their average credit score is 695 – well below the 720 threshold the program requires.
This is the kind of disconnect you get when a program is designed by state employees with steady jobs. As recent data suggest, those in most dire need of a break when it comes to student loan debts are lower-wage workers who are struggling financially.
For those who do qualify, it can be a sweet deal: Borrowers can chose terms between 5 and 15 years, and can choose a fixed or variable interest rate. They can refinance up to $70,000 for a bachelor or graduate degree, and up to $25,000 for a certificate, diploma or associate degree. As of press time, interest rates are as follows:
|Fixed Interest Rate||4.50%||5.75%||6.95%|
|Variable Interest Rate *||3.00%||3.65%||4.35%|
These rates are subject to change quarterly.
Should you refinance? That’s a different question. Lower rates can help you lower your payment, or allow you to pay off more principal with each payment. Refinancing may also allow you to discharge the debt in bankruptcy, if the need arises. It’s almost impossible to do this with a federal loan, absent total and permanent disability.
There are also other benefits you give up if you refinance a federal loan using the SELF Refi plan:
- Federal loan balances may be forgiven after 20 or 25 years of qualifying payments.
- Forbearance or hardship options may me more restrictive.
- If you go back to school, federal loans may allow forbearance, deferments or interest subsidies. These are not available if you refinance with private or SELF Refi money.
- If you are in the military, you may give up benefits such as zero interest during deployments while you qualify for hostile fire pay.
- You would give up eligibility for forgiveness programs for working for AmeriCorps or the Peace Corps or for working as a schoolteacher in designated high-need areas.