Applying for no-interest student loans can significantly reduce the cost of earning a degree, making higher education more accessible without the long-term burden of accumulating interest. These unique funding options — typically offered by nonprofit organizations, state programs, and select institutions — allow eligible students to borrow responsibly while keeping repayment affordable and predictable.
While these loans are relatively rare, and amounts tend to lower than other types of student loans, no-interest student loans do exist and may be worth looking into for the potential savings. Read on to learn how interest-free student loans work and where to find them.
Key Points
• No-interest student loans do not charge interest and require repayment of only the principal amount borrowed.
• These loans are typically offered by nonprofit organizations, state governments, and universities.
• Although rare and usually for smaller amounts, no-interest loans can significantly reduce overall student debt.
• Applicants for these loans often undergo a process similar to scholarship applications, including essays and interviews.
• It’s advisable to complete the Free Application for Federal Student Aid (FAFSA) as some no-interest loans use it to determine financial need.
What Is a No-Interest Student Loan?
Interest-free student loans are loans that do not accrue interest. Unlike grants and scholarships, the loan amount must be repaid, but because there are no interest charges, the amount repaid by the borrower remains the same as the original amount borrowed. Traditional student loans, whether federal or private, all come with interest rates that are either fixed or variable.
The interest rates on federal student loans are fixed and are set annually by Congress. For the 2025-2026 school year, the interest rate on Direct Subsidized or Unsubsidized Loans for undergraduates is 6.39%, the rate on Direct Unsubsidized Loans for graduate and professional students is 7.94%, and the rate on Direct PLUS Loans for graduate students, professional students, and parents is 8.94%.
While federal student loan rates are the same for every borrower, private student loan rates range based on the lender, the type of interest rate (fixed or variable), and the borrower’s credit score. Interest on private student loans can run anywhere from 3.19% to 17.95%, according to Education Data Initiative.
Whatever the interest rate on a student loan, you will end up paying more than you borrow. No-interest student loans can be an attractive alternative. Here are some places to look for interest-free loans:
• Schools: Some colleges and universities offer no-interest loans for current students to cover emergency expenses.
• States: You may be able to find an interest-free student loan through your state’s education agency. For example, Massachusetts offers students who demonstrate financial need and attend a qualifying school in Massachusetts a no-interest loan for up to $4,000 each academic year.
• Nonprofit organizations: Some foundations and nonprofits offer no-interest student loans. These loans can be set up in different ways. In some cases, you can get a small loan amount; in others, the organization will pay your remaining cost of attendance. Some are awarded based on merit, while others are awarded based on financial need.
Applying for Interest-Free Student Loans
The application process for most interest-free loans resembles the application process for grants or scholarships more closely than a traditional loan application.
It’s a good idea to fill out the Free Application for Federal Student Aid (FAFSA®), even if you want to focus on loans without interest. The FAFSA determines your eligibility for federal aid, including grants, scholarships, and federal student loans. Some interest-free loans use the FAFSA to determine financial need.
And while federal loans do accrue interest, they typically have lower rates than private student loans. Federal student loans also come with benefits, such as income-based repayment and forgiveness programs, that private student loans and no-interest loans may not offer.
Interest-free student loans are often local and state-based, rather than national. They may require proof of residency in a certain state. Some may also have an essay requirement, academic requirements, and might even require an interview.
The process is usually more intense than regular student loans because funds are limited. Some state agencies and philanthropic organizations use the term “scholarship loan” to refer to interest-free loans. Scholarship loans may also be repaid through public service.
Keep in mind though that those organizations are still separate from the government, and do not offer the same repayment plans as the loans offered through the U.S. Department of Education.
Recommended: Student Loan Interest Deduction
Subsidized Loans: No Interest Until After Graduation
Interest-free loans are relatively rare, so it’s possible that students will still need to rely on federal student aid. There are two types of federal Direct Loans available to undergraduate students: subsidized and unsubsidized.
Subsidized loans are available to undergraduates who demonstrate financial need. The U.S. Department of Education pays the interest accruing on the loans while you’re in school, during your six-month grace period, and when your loans are in deferment.
On the other hand, unsubsidized loans are available to undergraduate and graduate students, and they don’t require that students demonstrate need in order to qualify. Interest accrues while you’re in school and during grace periods, deferment, or forbearance — and you’re responsible for paying the interest.
Federal student loans also offer a few different payment plans, including income-driven repayment plans, so that borrowers can find the option that works best for them. There are also borrower protections like deferment or forbearance that can act as a safety net for those who find themselves facing financial difficulties down the road.
The Takeaway
No-interest student loans, sometimes called scholarship loans or interest-free loans, are loans that do not accrue interest at all. While not common, there are some nonprofits, state agencies, schools, corporations, and religious organizations that offer interest-free loans to students.
In case you’re not able to find or qualify for a no-interest loan, it’s a good idea to fill out the FAFSA to access other forms of financial aid, including grants, scholarships, and federal student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
FAQ
What is a zero-interest student loan?
A zero-interest student loan is a loan where you borrow money for your education but aren’t charged any interest — so you only repay the principal amount you borrowed.
Who can qualify for zero-interest student loans?
Typically, these loans go to low-income students, residents of certain states, or borrowers who meet specific financial-need criteria or eligibility requirements set by nonprofit or state programs.
Where can students find zero-interest loan programs?
Many are offered through state-funded programs — for example, state-administered no-interest loan initiatives — or through nonprofit organizations dedicated to making higher education more affordable.
About the author
Julia Califano
Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.
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