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Graduates from the class of 2019 who borrowed student loans left campus with an average balance of $29,900. Paying that back is intimidating enough before accounting for interest charges.
When you add interest, borrowers are on the hook for thousands — or tens of thousands — of dollars more in education debt. Fortunately, interest-free loans for students do exist.
Interest-free student loans are exactly what they sound like: They don’t accrue interest over time, so the amount you borrow is the amount you repay. Of course, these unique loans are not easy to find (or simple to get), but they are absolutely worth a look.
Here are three key topics to look at:
It’s also worth reviewing:
Benefits of interest-free loans for students
Interest-free loans for students have to be repaid just like traditional federal or private student loans. However, the APRs in our private loan marketplace as of March 24, 2021, go as high as 12.98%. Such a high rate could cause your loan balance to balloon, so interest-free student loans could help you save thousands.
For example, assume you had $29,900 in student loans on a 10-year repayment term at an APR of 12.98%. Your monthly payment would be $446. By the time you repaid the loan in full, you’d repay a total of $53,530. Thanks to your interest rate, you’d pay $23,630 in interest alone, according to our student loan payment calculator.
By contrast, if you had $29,900 in no-interest student loans and repaid them over 10 years, your monthly payment would be just $249. Even better, you’d pay only what you borrowed.
How to find interest-free loans
Like scholarships and grants, no-interest student loans are typically offered by nonprofit organizations, government agencies and private companies. The best way to discover interest-free loans for students is to check with the following sources:
- High school guidance counselors
- College financial aid offices
- Local chambers of commerce
- Rotary clubs
- Local nonprofits
- State education departments
- Fraternities or sororities
- Religious organizations
Be aware that many interest-free loans for students are limited to residents of certain geographic regions, which is why it helps to start your search close to home. Others, though, are open to pretty much anyone (provided you are a U.S. citizen).
Here are some places to start your search.
Foundations offering interest-free loans for students
Bill Raskob Foundation
You can get a no-interest student loan from the Bill Raskob Foundation if you are a U.S. citizen enrolled at an accredited school for the upcoming year. Undergraduates in their freshman year are not eligible.
Abe and Annie Seibel Foundation
Interest-free student loans are available from the Abe and Annie Seibel Foundation to students who are U.S. citizens and meet the following requirements:
- Texas resident who graduated from a high school in the state
- Enrolled full time at an accredited Texas college while working toward your first bachelor’s degree
- Graduated in the top 10% of their class or with an SAT score of at least 1,100 or an ACT score of at least 23
- Must have a college GPA of at least 3.0
The Scholarship Foundation of St. Louis
The Scholarship Foundation of St. Louis provides interest-free loans for students who are:
- From the St. Louis metropolitan region
- Attending an accredited, nonprofit postsecondary institution
- Majoring in anything except ministry
Your financial aid office
Many foundations exist to assist students at a local level. Stop by your school’s financial aid office to see what opportunities may be available to you.
For example, at Sinclair Community College in Dayton, Ohio, you can access interest-free student loans through the Charles E. Schell Foundation Student Loan Program. Other programs can be found at both community and four-year colleges across the country.
Associations offering interest-free loans for students
Military Officers Association of America
To qualify for a no-interest loan from the Military Officers Association of America (MOAA), you must be the child of an active duty, former or retired military officer eligible for MOAA membership or a child of active duty, Reserve, National Guard or retired enlisted military personnel.
Other requirements include:
- You are younger than 24. The maximum age is higher — up to five years — if you served in the military before completing college
- You have a high school GPA of at least 3.0
- You are not attending a U.S. military academy or academy prep school
- Your parent is a current, dues-paying MOAA member or enrolled and up to date with dues for MOAA’s Voices program if they were enlisted
- You are registered or promise to register for the Selective Service System if you are male
International Association of Jewish Free Loans
The International Association of Jewish Free Loans (IAJFL) collaborates with a variety of interest-free lending associations. These associations issue interest-free loans for a variety of purposes, including higher education. Each serves its local geographical area and has its own underwriting requirements.
Organizations offering interest-free loans for students
Leo S. Rowe Pan American Fund
The Leo S. Rowe Pan American Fund, offered through the Organization of American States, serves a demographic that isn’t usually eligible for interest-free student loans in the U.S.: Citizens of Latin America and the Caribbean. Besides this requirement, students must also meet the following criteria:
- Possess a student visa
- Study at an accredited postsecondary institution in the U.S.
- Plan on finishing their program of study within two years
Charitable trusts offering interest-free loans for students
Evalee C. Schwarz Charitable Trust for Education
To obtain an interest-free student loan from the Evalee C. Schwarz Charitable Trust for Education, you must meet the following requirements:
- Be a U.S. citizen
- Attend a school in your home state
- Have test scores among the top 15% in the nation
- Qualify for grants via the Free Application for Federal Student Aid (FAFSA)
Colleges offering interest-free loans for students
If you are attending Occidental College, you may be offered an interest-free student loan from the school as part of your financial aid package.
Claremont McKenna College
Claremont McKenna College also issues interest-free student loans to students who qualify via its Office of Financial Aid.
State-specific programs offering interest-free loans for students
Massachusetts No-Interest Loan Program
U.S. citizens or non-eligible citizens under Title IV who are residents of Massachusetts may qualify for the Massachusetts No-Interest Loan Program if they meet the following requirements, among other things:
- Have filed their FAFSA
- Are seeking a certificate, associate degree or their first bachelor’s degree
- Register with the selective service if you’re a male student
- Demonstrate financial need
Central Scholarship (Maryland)
Central Scholarship is a Maryland-based nonprofit offering scholarships and interest-free student loans to students who meet the following requirements:
- Are a Maryland resident
- Plan to attend an accredited U.S. college, community college or career school during the upcoming school year
- Have a GPA above 2.8
How to qualify for interest-free student loans
Every no-interest student loan comes with its own unique set of qualifications, but, generally, you could be expected to meet the following requirements:
- Financial need
- Completion of FAFSA
- U.S. citizenship
- Resident of a specific state
- High school graduate of a specific state
- Full-time enrollment at an accredited in-state school
- Specific field of study
- Solid academic record (such as GPA, class rank, test scores)
- Essay submission
- Personal interview
- Cosigner on the loan
Note that funds are very limited for interest-free student loans, so the sooner you apply the better.
The FAFSA paves the way for interest-free loans
With funds so limited, the organizations that offer no-interest student loans want to see that you have already done everything possible to pay for school in other ways. The FAFSA is an essential part of that process.
The FAFSA not only assesses your need for student loans — it also identifies financing options for you, including scholarships, Pell Grants and work-study programs.
FAFSA deadlines vary by state, so make sure you submit it on time to get all the aid you’re eligible to receive.
Keep in mind that your local government may also ask you to file a state-specific financial aid application. If you’re an Oregon resident, for example, you should also complete the Oregon Student Aid Application, or ORSAA.
Drawbacks of interest-free loans for students
As amazing as it sounds to pay no interest on a student loan, the benefit of saving money should be weighed against what you could be giving up.
Payments may be required before you graduate
When you have a federal student loan, you don’t have to start making payments until after you graduate. On the other hand, some no-interest student loans require that you start making payments while you’re still in school.
No federal protections
No-interest student loans don’t have the same protections you’ll get with a federal student loan. Ideally, you want to stay on the 10-year repayment plan, but if there comes a time when you just can’t make the monthly payment, the federal government gives you options.
Those options include income-driven repayment plans, as well as forbearance and deferment, that allow you to take a break from payments while you get your finances in order. You may miss out on all of that with an interest-free student loan.
Despite these drawbacks, interest-free student loans can help you save thousands over the length of your debt repayment. It’s a good idea to exhaust all your interest-free student loans, scholarship and grant opportunities to reduce how much you need to borrow in traditionally more expensive student loans.
No, a subsidized student loan isn’t an interest-free student loan
Federal Direct Subsidized Loans, which are awarded to lower-income students who complete the FAFSA, are technically interest-free, but throughout your repayment. The government covers — or subsidizes — the interest on these loans only while you’re enrolled at least half-time, enjoying your grace period or in certain periods of deferment. Otherwise, interest accrues on subsidized loans as it does with other federal and private loans.
Interest-free student loans, by comparison, are the only type of education debt that is truly interest-free. That’s because your balance won’t grow from the time you borrow until you’ve finished repayment.
Andrew Pentis, Meredith Simonds and Kat Tretina contributed to this article.
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