Interest-Free Loans for Students: Why They Help and How to Find Them

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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

Occidental College

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.

Need a student loan?

Here are our top student loan lenders of 2021!
LenderVariable APREligibility 
1.04% – 11.98%1Undergraduate, Graduate, and Parents

Visit College Ave

1.13% – 11.23%*,2Undergraduate, Graduate, and Parents

Visit SallieMae

1.24% – 11.99%3Undergraduate and Graduate

Visit Discover

1.78% – 11.89%4Undergraduate and Graduate

Visit SoFi

1.05% – 11.44%5Undergraduate and Graduate

Visit Earnest

2.76% – 7.14%6Undergraduate and Graduate

VISIT CITIZENS

2.46% – 12.98%7Undergraduate and Graduate

Visit Ascent

* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
 
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a first year graduate student borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.10% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $141.66 while in the repayment period, for a total amount of payments of $16,699.21. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 4/22/2021. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.


2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

3 Important Disclosures for Discover.

Discover Disclosures

  1. Aggregate loan limits apply.
  2. Get a cash reward on each new Discover undergraduate and graduate student loan when you earn at least a 3.0 GPA (or equivalent) in any academic period covered by the loan. Limitations Apply. Visit DiscoverStudentLoans.com/Reward for terms and conditions.
  3. Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including undergraduate, graduate, health professions, law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of April 1, 2021. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Your APR will be determined after you apply. Learn more about Discover Student Loans interest rates at DiscoverStudentLoans.com/Rates.
  4. Lowest APRs shown for Discover Private Consolidation Loans are available for the most creditworthy applicants who are approved and choose a shorter repayment term, and include a 0.25% interest rate reduction while enrolled in automatic payments. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of April 1, 2021. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Your APR will be determined after you apply. Visit Discover.com/student-loans/consolidation.html for more information, including up-to-date interest rates and APRs.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

4 Important Disclosures for SoFi.

sofiDisclosures

UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.88% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.78% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.95% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.88% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 11/04/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).


5 Important Disclosures for Earnest.

Earnest Disclosures

  1. Rates include 0.25% Auto Pay Discount
     
  2. Explanation of Rates “With Autopay” (APD)
    Rates shown include 0.25% APR discount when client agrees to make monthly principal and interest payments by automatic electronic payment. Use of autopay is not required to receive an Earnest loan.

    Available Terms
    For Cosigned loans – 5, 7, 10, 12, 15 years. 
    Primary Only – 10, 12, 15 years

    In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA).


6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

Undergraduate Rate Disclosure: Variable interest rates range from 2.76% – 7.14% (2.76% – 7.14% APR). Fixed interest rates range from 3.01% – 7.50% (3.01% – 7.50% APR).

Graduate Rate Disclosure: Variable interest rates range from 2.19% – 6.73% (2.19% – 6.73% APR). Fixed interest rates range from 2.89% – 7.09% (2.89%-7.09% APR).

Business/Law Rate Disclosure: Variable interest rates range from 1.36% – 9.54% (1.36% – 8.82% APR). Fixed interest rates range from 4.13% – 9.84% (4.13% – 9.12% APR).

Medical/Dental Rate Disclosure: Variable interest rates range from 1.36% – 8.34% (1.36% – 8.04% APR). Fixed interest rates range from 4.03% – 8.64% (4.03% – 8.34% APR).

Parent Loan Rate Disclosure: Variable interest rates range from 2.10% – 7.41% (2.10%-7.41% APR). Fixed interest rates range from 4.69% – 7.83% (4.69% – 7.83% APR).

Bar Study Rate Disclosure: Variable interest rates range from 4.45% – 9.60% (4.45% – 9.53% APR). Fixed interest rates range from 7.39% – 12.94% (7.38% – 12.81% APR).

Medical Residency Rate Disclosure: Variable interest rates range from 3.55% – 7.05% (3.55% – 6.77% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.07% APR).

Variable Rate Disclosure: Variable Rates are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of March 1, 2021, the one-month LIBOR rate is 0.11%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%. 

Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.

Lowest Rate Disclosure: Lowest rates require a 5-year repayment term, immediate repayment, a graduate degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.

Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer.  Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.

Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.

Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.

Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.


7 Important Disclosures for Ascent.

Ascent Disclosures

Ascent Student Loans are funded by Richland State Bank (RSB), Member FDIC. Loan products December not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions December apply.  For Ascent Terms and Conditions please visit: www.AscentStudentLoans.com/Ts&Cs

Rates are effective as of 12/01/2020 and reflect an automatic payment discount of 0.25% on the lowest offered rate and a 2.00% discount on the highest offered rate.  Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month.  For Ascent rates and repayment examples please visit: www.AscentStudentLoans.com/Rates

1% Cash Back Graduation Reward subject to terms and conditions. Click here for details.