Kat Tretina contributed to this article.
In 2017, college graduates left school with an average of $39,400 in student loan debt. Paying that back is intimidating enough before adding in the interest that accumulates over 10 years’ time.
Depending on the interest rate, borrowers are looking at up to $10,000 or more tacked onto their student loan debt. Fortunately, interest free student loans do exist. They’re not easy to find — or simple to get — but it is absolutely worth looking into.
Benefits of no interest student loans
No interest student loans have to repaid, just like traditional federal or private student loans. However, other student loans can have interest rates as high as 12.00%. Such a high rate could cause your loan balance to balloon, so an interest free loan can help you save thousands.
For example, pretend you had $39,400 in student loans and had a 10-year repayment term at 12.00% interest. Your monthly payment would be $565 and by the time you repaid the loan in full, you would’ve repaid a total of $67,833. Thanks to your interest rate, you ‘d pay over $28,000 in interest fees, alone.
By contrast, if you had $39,400 in the form of a no interest loan and repaid it over the course of 10 years, your monthly payment would be just $328.33. Even better, you’d pay only what you originally borrowed.
How to find interest free student loans
Like scholarships and grants, no interest loans are typically offered by nonprofit organizations, government agencies, and private companies. The best way to discover no interest student loans is to check with the following:
- High school guidance counselor
- College financial aid office
- Local chamber of commerce
- Rotary clubs
- Local nonprofits
- State education department
- Fraternity or sorority
- Religious organizations
What to expect
Many interest free student loans 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 US citizen). Here are some places to start your search.
- The Bill Raskob Foundation, open to any US citizen provided they are enrolled at an accredited school for the upcoming academic year.
- Abe and Annie Seibel Foundation, open to US citizens who graduated from a Texas high school and enroll at a Texas college.
- The Scholarship Foundation of St. Louis, open to students from the St. Louis metropolitan region.
- Military Officers Association of American, open to military personnel or children of military parents.
- Jewish Free Loan Association (Southern California), open to students of all faiths in the Greater Los Angeles area.
- Hebrew Free Loan Association, open to Jewish students in Northern California.
- Evalee C. Schwarz Charitable Trust for Education, open to any US citizen provided they are attending school in their home state.
- Occidental College, open to US citizens who are graduates of California high schools.
- Claremont McKenna College, open to US citizens who are graduates of California high schools.
State education departments
- Massachusetts No Interest Loan Program, open to US citizens who are residents of Massachusetts.
How to qualify
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
- US 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 (e.g., GPA, class rank, test scores)
- Essay submission
- Personal interview
- Cosigner on the loan
Note that funds are very limited for no interest student loans, so the sooner you apply the better.
The FAFSA imperative
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. FAFSA is an essential part of that process.
The Free Application for Federal Student Aid not only assesses your need for student loans, 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 of the aid you’re eligible to receive.
Drawbacks of interest free student loans
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 allows you to take a break from payments while you get your finances in order. You’ll miss out on all of that with a no interest student loan.
Despite these minor 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 of your no interest student loan, scholarship, and grant opportunities to reduce how much you need to borrow.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* 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.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.06% – 13.06%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.25% – 11.10%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|5.62% – 10.01%7||Undergraduate and Graduate|
|3.93% – 9.81%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|