Interest-free student loans: do they exist?

Interest-free and lower-interest student loans: What to know

Paying for college can be overwhelming; many families use a combination of scholarshipsgrants, and loans. Borrowing is a common part of finding money for school. According to How America Pays for College, 41% of families borrowed in 2020 – 2021 to pay for college. 

While the majority of student loans involve interest, you may be wondering if there are such things as interest-free student loans out there.


What is student loan interest?

When you get any sort of loan, interest will generally be charged. It’s the cost of borrowing money from a lender. The interest you pay for a federal or private student loan will accrue (grow) from the day it goes to your school until you’ve paid off your loan. That’s why you’ll end up paying more for a loan than the amount you originally borrowed.

Are there student loans with low, or even no, interest?

Here’s the answer: unlike unicorns, but almost as rare, there are low-interest and no-interest student loans available. Usually offered by non-profit organizations, they’re sometimes lumped in with college scholarships and college grants, and they can be highly regionalized by state or locality. Talk with family members about organizations they may belong to, like religious groups or their college fraternity or sorority. Then research them online for more information about your specific profile and need. Some of these might be of interest:

Types of interest-free student loans

Before you begin, know this: there can be drawbacks to interest-free loans. You might be trading no interest for a very specific type of repayment schedule timeline or terms. Some loans require you to start repaying the loan while you’re still a student, negating the no-interest-student-loans-until-graduation dream. If a company seems to be offering you a loan basically for free, be very careful about what you’re agreeing to. If you find a no-interest loan that perfectly suits your needs, read the fine print carefully, and have an extra set of eyes, like your parents, look at it too. The sweetness of the “free” loan might actually be difficult to manage.

Slightly easier: a lower-interest federal student loan

On the other hand, lower-interest student loans are more readily available, depending on your eligibility. You can qualify for federal loans by submitting the FAFSA® (Free Application for Federal Student Aid). Currently, interest rates for federal student loans first disbursed on or after July 1, 2022 and before July 1, 2023, are 5.50% for subsidized and unsubsidized undergraduate loans, and 7.05% for unsubsidized graduate loans.

Depending on your or your family’s finances, you may qualify for a subsidized student loan. The federal government subsidizes, or takes care of, interest while you’re in school. Yes, interest will accrue (grow) for the loan, but you won’t have to pay back that interest until after graduation.

Private student loans and interest

Not eligible for a federal student loan? Private student loans, made by banks and other financial institutions, are also available. The interest rate will be determined, in large part, by your credit. (If you don’t have a strong credit history, you can apply with a creditworthy cosigner.) Federal student loans generally offer lower interest rates and more flexibility on repayment options, but private loans can help you make up any gap in the money you need for school vs what you have.

If you’re a graduate student…

Interest-free loans for graduate students are very hard to come by. Start online, talk to your professors, and visit your university’s financial aid department. Graduate scholarships and grants, teaching assistantships, and other in-program financial help are available…you’ll need to seek them out.

Should you get an interest-free loan?

Education is important, and so is your post-college life, which can be impacted by choices you make now. Don’t take your financial responsibility lightly. Research all of the student loans available to you. Review interest rates and repayment options, and decide which ones work best financially for you and your family.

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