January 12, 2007
MASSACHUSETTS NO INTEREST STUDENT LOAN PROGRAM
By: Rute A. Pinhel, Research Analyst
You asked for information on the Massachusetts No Interest Loan program. You asked (1) how the program works, (2) how the loan amounts are determined, and (3) what entities could administer a similar program in Connecticut.
The Massachusetts No Interest Loan (NIL) program offers interest-free loans to qualifying students attending post-secondary educational institutions in the state. The Massachusetts Office of Student Financial Assistance administers the program.
Participating students and institutions must meet a number of eligibility requirements. The annual loan limits range from $1,000 to $4,000 per academic year. The loan award amounts are determined according to financial need. The borrower must repay at least $50 dollars per month on the loan. The repayment period cannot exceed 10 years.
The Connecticut Higher Education Supplemental Loan Authority or the Department of Higher Education could administer a NIL program in Connecticut. The NIL program could be funded through general obligation bonds or through an appropriation.
MASSACHUSETTS NO INTEREST LOAN PROGRAM
The Massachusetts legislature created the No Interest Loan (NIL) program in 1992. The NIL program offers interest-free loans to qualifying students attending post-secondary educational institutions in Massachusetts. The Massachusetts Office of Student Financial Assistance (OSFA) administers the program.
We spoke with Robert Brun, the Director of Scholarship and Grant Programs at the OSFA. According to Brun, until four or five years ago, the NIL program was funded by an annual $10 million appropriation from the legislature and issued about $9 million dollars in loans a year. The program now operates entirely on its loan repayments and issues between $5 and $6 million in loans a year. Brun noted that had the appropriations continued, the program would be sustaining itself with repayment revenues by now.
In order to be eligible for an interest-free loan, the student must:
1. be a permanent legal resident of Massachusetts for one year prior to the start of the academic year for which the loan is awarded,
2. be a U.S. citizen or an eligible non-citizen,
3. be enrolled full time (at least 12 credits or its equivalent),
4. be enrolled in a certificate, associate, or bachelor's degree program,
5. not have already received a bachelor's degree or its equivalent,
6. be in compliance with Selective Service Registration requirements,
7. not be in default of any federal or state loans or owe a refund for any previous financial aid received, and
8. maintain satisfactory academic progress in accordance with institutional and federal standards.
The OSFA also determines a student's eligibility based on his or her ability to pay. The student must complete a Free Application for Federal Student Aid (FAFSA) in order to derive the expected family contribution (EFC). In order to be eligible for a loan, the student must have a documented EFC between $0 and $6,500.
The annual loan limits range from a minimum award of $1,000 to a maximum award of $4,000 per academic year. The loan award amounts are determined according to financial need. The student's financial need is a function of his or her ability to pay and the cost of attending the college. An eligible student has a lifetime borrowing limit of $20,000.
In order to participate in the program, educational institutions must:
1. be located in Massachusetts,
2. be either private or public (for profit or nonprofit),
3. issue associate or bachelor's degrees or certificates,
4. be eligible to participate in Federal Title IV programs,
5. be fully accredited,
6. have signed a participation agreement with the OSFA, and
7. meet the program's loan default requirements.
Upon graduating or withdrawing from school, the student has a six-month grace period before the repayment period begins. The student repays the loan at a rate of at least $50 dollars per month. The repayment period cannot exceed 10 years.
ADMINISTERING A NIL PROGRAM IN CONNECTICUT
A NIL program in Connecticut could be administered by either the Connecticut Higher Education Supplemental Loan Authority (CHESLA) or the Department of Higher Education (DHE). The NIL program could be funded through general obligation bonds or through an appropriation. However, the lack of revenue from interest payments would reduce the amount of money left for loans.
CHESLA administers the existing state college loan program, the Family Education Loan Program (FELP). FELP loans are funded through state general obligation bonds. Loan rates are set at a level that allows repayment of the principal and interest on the state bonds and pays CHESLA's administrative costs.
The DHE could also administer the NIL program. The DHE does not currently administer a state college loan program, but it does administer a loan forgiveness program. Unlike CHESLA, the DHE would incur the additional administrative costs to set up the lending and repayment system.
OLR Report 98-R-1401 addressed interest-free college loans and the implementation issues associated with such a program in the state. We have enclosed a copy of this report.