Financial Matters: The Overlooked Student Loan Option

When it comes to paying for college, most families think of two options: federal financial aid and big-name private lenders. However, there is a third option that is often overlooked: state-based nonprofit student loan lenders. For parents navigating the complex world of college financing, understanding this option could save your family thousands of dollars.

State-based nonprofit lenders are organizations often created or sanctioned by state governments, whose mission is to make higher education more affordable for students and families in their state. Unlike for-profit lenders, they are not driven by shareholder profits. Instead, they reinvest their earnings into lower interest rates, better repayment terms, and additional services such as college planning resources and scholarships.

The difference in rates can be significant. Recent data from the American Action Forum found that in the 2024–25 academic year, nonprofit and state-based lenders issued 88% of their loans at interest rates between 5% and 8.99%. By comparison, 69% of loans from Sallie Mae, one of the most recognized for-profit private lenders, were made at rates of 9% or higher. Sallie Mae and similar for-profit lenders are widely advertised and easy to find, but that familiarity does not always mean the best deal. Over the life of a loan, even a one or two percentage point difference can translate into thousands of dollars in savings.

It is important to understand the order in which families should explore financing options. Always start with scholarships, grants, and federal student loans, as these offer the most favorable terms and protections. State-based nonprofit loans are best used to fill any remaining gap after those sources have been exhausted.

Several well-established nonprofit lenders operate across the country. RISLA, the Rhode Island Student Loan Authority, is available to students nationwide and offers additional discounts for Rhode Island residents. MEFA, the Massachusetts Educational Financing Authority, provides low-cost fixed-rate loans to students across the country. Other examples include Brazos Higher Education in Texas, ISL Education Lending in Iowa, and the Oklahoma Student Loan Authority. Importantly, lenders like RISLA and MEFA accept applications from borrowers in any state, making them viable options even for families living in states without a local nonprofit lender. 

Not every state has its own nonprofit lender. California, for example, does not operate one, but it does have one of the strongest state grant programs in the country, including Cal Grants and the Middle Class Scholarship, which can significantly reduce how much families need to borrow in the first place. New York similarly focuses on grants and scholarships through its Higher Education Services Corporation (HESC). Families in these states can still access out-of-state nonprofit lenders like RISLA and MEFA, though they may not qualify for the same in-state discounts available to local residents.

Some states also offer loan forgiveness programs if your child works in a high-need profession, such as healthcare, within that state for a set number of years after graduation; a portion of the loan may be forgiven.

Whether or not your state has its own program, exploring all available options, including those in neighboring states, could make a meaningful difference for your family's financial future.