What Is a No-Interest Student Loan?October 20, 2021
They might seem too good to be true, but student loans with no interest do exist. And we’re not talking about student loans with no interest until graduation. Rather, you don’t have to worry about paying interest while you’re in school or after you’ve left to build your career.
But loans with no interest for college students aren’t as common as low-interest student loans. Here’s what you need to know about how no-interest student loans work and some alternatives to consider.
Where Can I Find a No-Interest Student Loan?
Student loans with no interest are typically offered by non-profit organizations, private companies, religious organizations, state governments and other such institutions. In some cases, these loans may be lumped together with scholarships and grants, but that’s not always the case.
While you’ll still have to pay back the money you receive in the form of a no-interest student loan, all of your payments go directly to the principal balance because there’s no interest that accrues.
Note that this is different from Subsidized Direct Loans, which are offered by the federal government. These loans are technically no-interest student loans until after graduation because the government pays the interest that accrues while you’re in school and during future deferment periods.
But if you want loans with no interest for college students both before and after graduation, no-interest student loans are your best bet.
How to Get Student Loans With No Interest
While no-interest student loans are available, they’re not nearly as common as other student loan options. Start by searching for loans with no interest for college students in your area. While most of your options are localized, there are also organizations that provide no-interest loans on a national level.
If you find multiple interest-free loan programs in your area, consider applying for as many as possible to increase your chances of getting at least one loan.
Once you’ve found some potential options, review the eligibility criteria to determine your chances of qualifying. Keep in mind that funds will be limited, so unless you meet all the criteria and have a strong application, you may not get approved.
You’ll also want to note the deadline for loan applications. In some cases, you might also need to fill out the Free Application for Federal Student Aid (FAFSA), though that’s a wise thing to do anyway because it opens up other financial aid opportunities.
Alternatives to Loans With No Interest for College Students
While getting a no-interest student loan can be nice, they aren’t always easy to get, especially if there’s a lot of competition from other college students. In order to avoid putting all of your eggs in one basket, it’s important to research alternatives in addition to applying for no-interest loans, especially if those alternatives are more readily available. Options include:
- Grants: Make sure to fill out the FAFSA to find out if you’re eligible for Pell Grants. You may also apply for some of the other grants offered by the federal government and other government agencies, as well as non-profit organizations.
- Scholarships: You may be able to get a scholarship directly from your college or program or even through a private organization. Check with your financial aid office for scholarships and their criteria, and also use scholarship search engines like Scholarships.com and Fastweb to look for private scholarships. There are millions of opportunities available.
- Work-study programs: The federal work-study program offers financial aid that you don’t have to repay in exchange for working on-campus. In many cases, you can even find a job in your field of study, which can help you gain experience before you take on an internship or graduate. Note, however, that work-study programs don’t guarantee a job. Also, look at other employment opportunities to determine if you can obtain more income elsewhere.
- Low-interest federal student loans: If you’re an undergraduate student, you likely qualify for federal student loans with a low interest rate. You may even be eligible for student loans with no interest until graduation. While graduate and professional students and parents can also get federal loans, the interest rates are generally a bit higher, as are the upfront loan fees.
- Low-interest private student loans: If you’re a college student with a limited credit history, you may have a tough time getting private student loans. But if you have a cosigner, such as a parent, with a good credit history, you could potentially secure an inexpensive student loan. Just keep in mind that private loans don’t come with some of the same benefits as federal loans, including access to loan forgiveness programs and income-driven repayment plans.
The Bottom Line
No-interest student loans are available, but most programs are localized and fairly competitive. While it’s a good idea to research and apply for multiple no-interest student loan programs, it’s also important to consider alternatives in the event that you don’t get approved or don’t get enough cash to cover all of your costs for the upcoming term.
The important thing is that you are proactive about finding the best options for you to help you get through school as inexpensively as possible.