State-run student loan programs, also called state loans, are an alternative type of student loan which are typically offered to borrowers through state agencies or state-chartered non-profit organizations. They are technically considered to be private loans, since they are not offered by the federal government (and are therefore not federal loans).
Below, we take a closer look at state-run student loan programs and answer common questions about them.
State Loans vs. Federal Student Loans
Federal student loans are those loans which are made available to borrowers directly from the federal government through the Federal Guaranteed Student Loan program. Eligibility, interest rates, borrowing limits, and repayment options are all established by Congress. Federal student loans tend to offer some of the lowest interest rates available to borrowers.
State loans, on the other hand, are made available through individual state governments. Eligibility, interest rates, borrowing limits, and repayment options are all established by those individual state legislatures. While the terms for state loans vary from state to state, state loans tend to offer loans with slightly higher interest rates compared to federal loans.
State Loans vs. Private Student Loans
Private student loans are loans made available through private lenders such as banks, credit unions, and other financial institutions. Each lender can determine its own eligibility requirements, interest rates, borrowing limits, and repayment options. This means that private student loan lenders can be much more selective in who they lend to, and charge much higher interest rates, compared to federal or state loans.
State loans, on the other hand, are constrained by the laws which established them. Their eligibility requirements tend to be less stringent than those for private loans, and their interest rates tend to be lower.
State Loans vs. State Grants
State loans are student loans made available through the state, which means that they must be repaid according to the terms of the loan agreement. State grants, on the other hand, are free money provided to students from the state. In most cases, state grants do not need to be repaid.
State Loan Eligibility
Each state loan program can determine its own eligibility requirements. For that reason, it is difficult to speak generally about them. That being said, most state loan programs require borrowers be either:
- Residents of the state, attending any college or university
- Out-of-state residents who are attending a college or university within the state
Some states will judge your eligibility based upon your credit score, while others may approve borrowers with a low credit score or no credit history. Additionally, some state loans may only be made eligible to students who are studying particular, high-need fields of study, such as nursing or teaching.
State Loan Interest Rates
Interest rates for state loan programs are determined by each individual state government which offers these loans. Therefore, they can vary substantially. That being said, state loan interest rates tend to fall in between the interest rates charged by federal student loans (lower) and private student loans (higher).
State loans often offer both fixed or variable interest rates.
How to Apply for a State Loan
To apply for a state loan, you will need to submit an application through that program’s website. The FAFSA application does not automatically submit an application for state loans as it does for federal loans. You can submit a FAFSA application here.
List of State-Run Student Loan Programs
Not every state has a loan program. Below is a list of state programs (with links to their website):
- Alaska: Alaska Commission on Postsecondary Education (ACPE)
- Connecticut: Connecticut Higher Education Supplemental Loan Authority (CHESLA)
- Hawaii: Hawaii State Higher Education Loan (SHEL)
- Indiana: INvestEd
- Iowa: Iowa Student Loan (ISL)
- Kentucky: Kentucky Higher Education Student Loan Corporation (KHESLC)
- Maine: Maine Loan
- Massachusetts: Massachusetts Educational Financing Authority (MEFA)
- Minnesota: SELF Loan
- New Jersey: New Jersey College Loans to Assist State Students (NJCLASS)
- North Carolina: College Foundation of North Carolina (CFNC)
- Rhode Island: Rhode Island Student Loan Authority (RISLA)
- South Carolina: South Carolina Student Loan Corporation (SCSLC)
- Texas: Texas Higher Education Coordinating Board (THECB)
- Vermont: The Vermont Advantage Loan
- Washington: Aerospace Training Student Loan Program
- West Virginia: College Foundation of West Virginia Medical Student Loan Program
- Wisconsin: State of Wisconsin Higher Education Aids Board
Alternatives to State Loans
If you are looking for funds for college, the first step you should take is to complete the Free Application for Federal Student Aid (FAFSA). This will make you aware of any federal and state aid which you may qualify for, including federal student loans. Generally speaking, federal loans come with powerful borrower protections, which make them a great first choice to fund your education.
Institutional student loans made available directly through your college or university can also be an excellent alternative to private student loans.
If you don’t qualify for any of those options, or those loans won’t cover the full cost of your education, then private student loans can help you fill the gap. Just know that private loans tend to be more expensive and typically less flexible than both federal and state loans.
Of course, all sources of free funding, such as grants, scholarships, and work study should be accepted first before any student loans are borrowed.