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.