A decent college education is becoming increasingly out of financial reach for many young adults. Private college tuition can be upwards of $50,000 a year, with public universities only nominally cheaper.
An interesting paradox is developing: people require higher levels of education to qualify for even the most basic jobs, but at the same time they cannot afford to achieve that education. After 2017, student loan debt seems to be in peak crisis mode for the United States, numbering in the trillion dollar range.
Student loans are a big business, and many financial institutions are literally banking on the education of students. Many students don't even realize there is a growing number of organizations providing interest-free student loans. Zero interest students loans are not a rumor, or a myth made up to soothe financially stressed students, they truly exist. However, they are often difficult to find, and even harder to qualify for.
What is an Interest-Free Student Loan?
Unlike a traditional student loan, which is loaned out under fixed and variable interest rates, an interest-free student loan is provided with zero percent interest. Normal student loans require repayment of the principal plus interest, but the interest-free loan only requires repayment of the original loan amount.
For example, a student loan of $40,000 with a relatively low-interest rate of 4.5 percent, and a repayment term of ten years would eventually cost $58,000. That’s $18,000 in interest alone. For anyone lucky enough to secure an interest-free loan, they would only be responsible for repaying the $40,000. A considerable saving, especially for new graduates.
Of course, an interest-free loan is not a common thing to behold. The typical student loan borrower in the United States will have to deal with interest. However, if it’s at all possible, picking up an interest-free loan is certainly ideal.
Applying for Interest-Free Student Loans
There are not nearly enough interest-free loans to go around, considering the financial need of students in America. Competition is fierce, and the application process often requires a bit of perseverance. While each organization will structure their loans around a different set of requirements, there are usually a few common prerequisites:
- U.S. citizenship or permanent residency
- Completion of the Free Application for Federal Student Aid (FAFSA)
- Residency in a specified zone (i.e. resident of Montana)
- Proven financial need
- Acceptance into a qualified college of university program
- Cosigner to the loan in some cases
- Qualifying essay
- Preliminary interview
- Solid academic record
As expected, this process is a bit more rigorous than the standard student loan application. Many interest-free loans require applicants to jump through a few special hoops, like providing records of academic achievements, a preliminary interview, and in some cases an essay.
Where to Find No-Interest Student Loans
Interest-free student loans are typically offered through community associations, religious organizations, charities, foundations, and the like. A little digging is often required to find interest-free loans in your area. Some of the more popular options are listed here, but its highly recommended to research local organizations in your state.
- The Military Officers Association of America: open to the children of military personnel.
- Jewish Free Loan Association: requires two cosigners, and restricted to people living in southern California.
- Hebrew Free Loan Association of San Francisco: open to Jewish students in Northern California.
- Evalee C. Schwarz Charitable Trust for Education: Open across the United States, but requires the student to be attending college in their home state.
Bill Raskob Foundation: open to all U.S. citizens who have finished their first year of college.
What to Consider Before Applying
Sourcing a no-interest student loan is a great way to reduce the financial burden after graduation, but there are a few small considerations to make before taking the plunge. First, interest-free loans do not come with any federal safety nets.
This means if you find yourself falling behind on payments over the course of the repayment term, you won’t be able change your payment plan like you can through the federal government. You will have no way to use programs like income-driven repayment plans, to defer the payments, or to enter into forbearance.
Also, unlike most federal student aid, interest-free loans often require repayments to begin before graduation. For those who want to focus on their studies without burdening themselves with a part-time job, in-school repayment might be difficult or even impossible. It's essential to evaluate your circumstances before entering into any financial agreement.