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Interest-Free Student Loans: Pay Back Only What You Borrowed

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Federal student loans have become easier and cheaper to take out, but some students have found an even sweeter deal—student loans that charge no interest at all.

A small number of charities and colleges offer student loans which only require borrowers to repay the money they borrowed. Some organizations make loans to students from across the United States while others only lend money to students in their immediate area.

Stafford Loans Now Have Lower Interest Rates

Although college students wishing to take out federal Stafford loans are still required to fill out the Free Application for Federal Student Aid (FAFSA) in order to borrow money for school, they no longer need to find a bank willing to make a federally-secured loan—they must only ask their college.

Congress has lowered the interest rates for Stafford loans awarded to students who qualify as needy and for the 2010 academic year, which began on July 1, qualified students must pay an up-front fee of 0.5% of the value of the loan.

They will not be charged interest during school and their interest rate will be just 4.5% after they leave. This is a significant change from the 2009 academic year, during which the government charged 5.6% in after-graduation interest rates for subsidized Stafford loans.

Interest-Free Loans Lead to Big Savings for Students

Even so, it pays to “shop around” and see if you are eligible for any interest-free student loans.

Interest-free loans are exactly what they sound like—students are only required to pay back exactly what they borrowed, which can lead to substantial savings in the long run. For example, students that borrow $27,000 in unsubsidized Stafford loans over the course of their four years of school typically wind up repaying about $10,000 more than they borrowed due to interest. Private student loans not backed by the federal government often charge higher interest rates, meaning that even more must be repaid.

Most organizations offering interest-free student loans require students to begin making small monthly payments while they are in school, but many use the monthly payment money to fund loans for other students. Some charities also require an adult with good credit to act as a co-signer for the interest free loan, unlike federal loans which do not require co-signers.

If you’d like to learn more about interest-free student loans, you can find 7 possibilities below.

  • Abe and Annie Seibel Foundation offers interest-free loans of up to $6,000 to approximately 800 Texas residents that are United States citizens who have graduated from Texas high schools. Applicants must enroll as a full-time student at a Texas college or university accredited by the Southern Association of Colleges and Schools with the intention of completing requirements toward a first bachelor’s degree. For more information regarding additional requirements please visit this Abe and Annie Seibel Foundation information page.
  • Bill Raskob Foundation is a small family foundation which provides deserving students with interest-free loans averaging $2,000. Loans are given to about 60 sophomores, juniors or seniors that are United States citizens and enrolled at an accredited institution of higher education for the upcoming school year. For more information please visit the Bill Raskob Foundation.
  • Central Scholarship Bureau of Maryland offers interest-free loans of up to $10,000 per year to about 150 Maryland residents. Co-signers are required. For more information please visit the Central Scholarship Bureau of Maryland.
  • Evalee C. Schwarz Charitable Trust for Education provides interest-free loans to undergraduate and graduate students demonstrating exceptional academic performance and significant financial need. High school seniors may also apply. Applicants must be a U.S. citizen at the time of application that qualifies for financial need in the form of government grants. For more information please visit the Evalee C. Schwarz Charitable Trust for Education.
  • Jewish Free Loan Association offers interest-free loans of up to $3,500 to about 650 Los Angeles area residents of any faith. Some specialized programs, such as nursing, have higher limits. Personal interviews and co-signers are required. For more information please visit the Jewish Free Loan Association.
  • Leo S. Rowe Pan American Fund awards interest-free loans of up to $15,000 to citizens of Latin America and the Caribbean that are studying or performing research at accredited universities in the United States. Loans are granted on the understanding that recipients agree to repay the loan in full and return to their home countries to apply their knowledge and training as well as continue to promote cultural exchange and development in the region. For more information please visit this Leo S. Rowe Pan American Fund information page.
  • Massachusetts No Interest Loan offers interest-free loans to eligible, needy Massachusetts residents attending post-secondary educational institutions in Massachusetts. Students must be United States citizens or eligible non-citizens that were permanent legal residents of Massachussetts for at least one year prior to the start of the academic year for which the loan is to be awarded. For more information please visit the Massachusetts No Interest Loan.

Be sure to inquire with your high school guidance office or your college financial aid office for other no-interest loan possibilities!


Melissa Rhone+

Melissa Rhone earned her Bachelor of Music in Education from the University of Tampa. She resides in the Tampa Bay area and enjoys writing about college, pop culture, and epilepsy awareness.

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