Minnesota's Family Loan Program: small interest-free loans can help low-income families stay on the job or in school. (includes related articles)(A View from the States)

The Summer 1995 issue of PUBLIC WELFARE highlighted policy issues relevant to welfare reform: work requirements, training programs, low-wage jobs, foster care and family support, and service integration. The articles in that issue identified a common challenge: finding cost-effective ways to help low-income families stay in school or on the job. One strategy - the Family Loan Program in Minneapolis-St. Paul, Minnesota - has proven that small loans can be a useful, effective, and efficient approach.(1)

The McKnight Foundation, based in Minneapolis, pioneered the Family Loan Program in 1984 to assist low-income parents who could not qualify for conventional loans. The program responded to concerns about limited opportunities available to low-income women who headed households with children. Mothers themselves described for the foundation their desperate need for funds when unexpected expenses arose. Their experiences helped shape the program to provide loans for expenses that might hinder a parent's ability to keep a job or stay in school.

The program was extended to two-parent families in 1991; in 1994, the program expanded to the rest of Minnesota. Today, Family Service America, the world's largest network of family counseling and support organizations, is working with The McKnight Foundation to establish this program throughout the country.

In the Twin Cities, five community agencies administer the program's loan funds: the Community Action Council, the Community Emergency Assistance Program, Episcopal Community Services, Pillsbury Neighborhood Services, and the Ramsey Action Program. These agencies serve low-income people and are based in inner-city neighborhoods and suburban communities.

Loan coordinators screen applicants, and anonymous loan committees make decisions about anonymous applications. Over 80 percent of loans go to purchase or repair cars, although applicants also request loans for such needs as child daycare, health, or housing. Applicants may borrow up to $2,200 to purchase a car, somewhat less for other purposes. Borrowers have two years to repay these no-interest loans.

Low-income borrowers in other areas might have any number of needs that stand in the way of achieving financial stability, but the Twin Cities' demographics help explain why so many loans there go toward transportation. Poverty is severe in ethnic and racial minority communities - especially among female-headed, single-parent households, 36 percent of whom live in poverty. In 1990, per capita income for the region's people of color ranged from $8,190 to $9,141, compared with $17,902 for whites. Nearly 65 percent of the region's minority population lives in Minneapolis or St. Paul - most in inner-city neighborhoods. At 43.7 percent, Minneapolis-St. Paul ranks first among the United States' 25 largest cities in the proportion of nonwhites living in poverty in the central cities.(2)

At the same time, better-paying jobs increasingly are located in the suburbs. Of 253,000 jobs created between 1980 and 1990, only 5,400 were in the central cities.(3) Workers who live in the inner city need reliable transportation to get and retain jobs in suburban communities. The Twin Cities' public transportation system is not convenient for city-to-suburb or suburb-to-suburb commuting; the difficulty is compounded when a working parent needs to drop off or pick up a child at daycare. Moreover, waiting for a bus in subzero winter weather is difficult or even hazardous with a young child. Most workers, therefore, find cars essential to employment.