Since 2010, colleges have been required to vet private lenders thoroughly before recommending them to students. Many schools say that’s too cumbersome, so they don’t recommend any lenders at all.
That means students don’t hear about Minnesota’s SELF Loan program, a private loan administered by the state.
Instead, many end up turning to more expensive bank loans — essentially, because they’re more familiar with them.
“We think institutions should be in a position to advise students on loans like the SELF Loan program that have borrower-friendly terms,” said Tricia Grimes, a financial-aid analyst at the Minnesota Office of Higher Education.
Minnesota is one of 16 states with borrower-friendly loan programs such as the SELF.
Although its terms aren’t as generous as the well-known federal Stafford Loan, Grimes says it’s probably the cheapest option for those who have maxed out their Staffords.
The average student taking out a 15-year, $20,000 loan could save about $2,000 over a private bank loan, she said. Some students — especially those with lower credit scores — could save even more.
State loan programs such as SELF were hit by restrictions in the 2008 Higher Education Opportunity Act. Those were designed to curb questionable practices among banks that lent to students, and took effect in 2010.
Colleges that wanted to recommend private loan programs had to gather data on multiple institutions and review them thoroughly.
“A school would have to include a lot of information about those lenders if they were going to put them on a preferred lender list,” said Chris Halling, financial-aid director for the Minnesota State Colleges and Universities (MnSCU) system.
Federal officials, Halling said, “lumped state programs like the SELF in with the private ones.”
Many colleges soon found they don’t have the time or personnel to vet the institutions. So they don’t recommend any loan programs other than those offered by the federal government.
Minnesota State College Student Association President Kelly Charpentier-Berg said that unless they’re advised, many gravitate toward bank loans — because that’s what they’re familiar with.
She said banks advertise more, students and parents have heard about their loans, and bankj loan programs are more prominent on web searches.
“There isn’t a lot of financial literacy out there,” she said. Students usually “go with the quickest, fastest, easiest option. And what usually pops up first [on Google] is [private lender] Sallie Mae. … Unless you got to the [SELF Loan] website, you’re likely not to find it.”
Minnesota State University – Mankato graduate Moriah Miles says she was “upset” when she learned of Minnesota’s SELF Loan program only after she took out private bank loans that cost her thousands of dollars more in interest.
She said the restriction makes no sense:
“I didn’t understand why my school wasn’t allowed to talk about it — and the fact that no one said to me, ‘I know you bank with this person or this organization, but do you realize you have other opportunities out there?'”
Leaders of the association representing students attending Minnesota’s state colleges and universities say they’ll lobby federal officials this year to amend the restriction.