What Are SELF Loans? 

It doesn’t take much digging to figure out that there are many different kinds of student loans. There are federal and private student loans and various types of each of these categories. There is a wide spectrum of lenders to deal with, and choices like whether to get a fixed-rate or adjustable-rate loan. One additional option for some borrowers is called a SELF loan. These loans are administrated by the Minnesota Office of Higher Education or MOHE. They offer an alternative to federal loans if the student can’t meet his or her funding needs with loans that are provided by the federal government.

What Are Minnesota’s SELF Loans?

SELF loans are not strictly federal loans. Some loans are backed by bonds and administrated through Minnesota’s state office.

 That means that a SELF loan requires a cosigner, and it also provides a specific range of interest rates. While you may end up saving money with a SELF loan, you also have to be aware of how these types of loans typically work.

Here are some of the pitfalls that we’ve heard about from students applying for SELF loans.

Problems with Cosigners

Problem 1: The Cosigner Eligibility

One of the major issues with this type of loan is that they require a cosigner. But who can cosign? MHOE has specific rules on who a cosigner can be, and how that process works. According to MOHE guidelines, cosigners must: 

• be a U.S. citizen or permanent resident who is 24 years or older (the office stipulates a brother or sister can be as young as 18 years old.)
• have an address in the United States
• be free from certain kinds of bankruptcies or liens

Sometimes the lender will deny a student based on the lack of a cosigner or a cosigner that the lender doesn’t feel is eligible. If the rules are unclear, that can create confusion. 

Problem 2: Clerical Errors or Negligence

Here’s another kind of problem that we’ve seen crop up – if the lender or loan servicer isn’t reporting the loan correctly, if they’re claiming that the loan is in default or that certain amounts haven’t been paid, the cosigner can be affected in negative ways that are really, at the end of the day, based on clerical errors or negligence.

You don’t expect this when you sign up for a SELF loan, but we’ve seen it happen.

The other side of the coin is problems with cosigner eligibility. Sometimes the lender will deny a student based on the lack of a cosigner or a cosigner that the lender doesn’t feel is eligible.

What the MOHE Say You Owe

Loan servicer negligence

Another thing they don’t tell you at the MOHE office is that some of these loans are not handled correctly by the loan servicer.

We’ve seen these types of loans end up in suppose it default, because of errors in calculating what’s due. That’s obviously frustrating and really negligent on the part of the lender. And the borrower often doesn’t have a lot of recourse except to hire counsel and go after the problem that way.

Self-loans are not Federal Loans

The MOHE website points out that these aren’t federal loans and that they are basically another type of private loan. The use of the state office sort of clouds things a little bit, but don’t get fooled into thinking that you won’t be on the hook for the kinds of money that you associate with other nonfederal loans.

 The MOHE web site states, condescendingly:

 “Keep in mind that the SELF Loan is not free money. While the program does offer some benefits over other loans, be sure to borrow only what you need.”

Types of  SELF Loan Statuses

 It’s also important to know that SELF loans have four fundamentally different types of loan statuses:

• Student – this is the time that a student is active in school 
• Transition – this is a period of time, usually after active student status, that the loan is in transition
• Extension – sometimes a student loan borrower will get an extension of loan terms 
• Repayment – this is when the loan is active for repayment

Each of these loan status periods applies differently to the life of the SELF loans. But what happens when the borrower says they’re in a transition period, and the lender says they’re in a repayment period?

We’ll tell you what we’ve most often seen – that the lender just puts these unpaid amounts into the bill and compounds it until they’re offering the borrower a choice between extremely high short-term payments and default.

The borrower responds with outrage, because they know that they should have had a certain loan status apply that will lower their payments. But what can they do?

As we said, many borrowers resort to hiring counsel. Then the lenders and loan servicers have to deal with lawyers and not just their customers.

Keep an eye out for more on SELF loan issues and lender abuses. Our site offers extensive resources for student loan borrowers.