If the new federal borrowing caps left a hole in your college funding plan, your state may be trying to fill it. In early August, CNBC reported that several states, including Connecticut, Massachusetts, Minnesota, Pennsylvania, and Rhode Island, are expanding their state-run student loan programs in response to the new federal limits that took effect July 1, 2026. For families staring at a gap between what college costs and what federal aid covers, these programs are worth a close look. Some of them beat private lenders on rates, fees, and borrower protections. Others do not. This guide explains what state loan programs are, how they stack up against Parent PLUS and private loans, and how to decide if one belongs in your plan.
Why States Are Stepping In Right Now
The One Big Beautiful Bill Act (OBBBA) changed federal student lending in a big way starting July 1, 2026. Parent PLUS loans are now capped at $20,000 per year and $65,000 total per student for new borrowers. Grad PLUS loans are gone for new borrowers. New graduate students face a $20,500 annual cap on federal loans, and students in professional programs like law and medicine are capped at $50,000 per year.
Before these caps, a parent could borrow up to the full cost of attendance through Parent PLUS. Now, a family facing a $35,000 annual bill after aid can only cover $20,000 of it with Parent PLUS. The rest has to come from somewhere: savings, payment plans, scholarships, or nonfederal loans.
That last category is where states see an opening. State higher education lending authorities have existed for decades, but many operated quietly in the background. With federal caps now squeezing families, states are raising loan limits, lowering rates, and marketing their programs more aggressively. The Massachusetts Educational Financing Authority (MEFA) said directly in a June announcement that it expanded its offerings in response to the federal restrictions.
What Is a State Student Loan Program?
A state student loan program is a nonfederal loan offered by a state agency or a state-chartered nonprofit. These organizations were created by state governments to help residents pay for college. They are not the same as federal loans, and they are not quite the same as private loans from banks or online lenders either. They sit somewhere in between.
Some of the larger programs include:
- MEFA (Massachusetts): Offers undergraduate loans with fixed rates from 4.95% to 8.90% for 2026-27, with no annual loan limits.
- RISLA (Rhode Island): Offers fixed-rate loans from $1,500 to $50,000 with terms of 5 to 15 years, plus an income-based repayment option that is rare among nonfederal lenders.
- SELF Loan (Minnesota): A long-running state program known for low fixed rates, though it requires a creditworthy cosigner.
- PA Forward (Pennsylvania): Loans for students and parents run through PHEAA, the state's higher education assistance agency.
- CHESLA (Connecticut): The state's higher education supplemental loan authority, which lends to Connecticut residents and students attending Connecticut schools.
One detail many families miss: you often do not have to live in the state to qualify. Many programs lend to two groups, residents of the state attending college anywhere, and students from anywhere attending college in that state. Check both your home state's program and the program in the state where your student will enroll.
How State Loans Compare to Parent PLUS
Rankings
Compare private student loan options
Compare College Ave, Earnest, and Sallie Mae — with Sallie's rate matched to this program where available.
- Rank #1Editor's Pick
College Ave
Best for: Students who want flexible repayment options and no origination fees
- 0.25% rate reduction with auto-pay
- Four in-school repayment options
- No application, origination, or prepayment fees
- Borrow from $1,000 up to 100% of cost of attendance
Apply NowRates
Lowest Rate 2.09%
2.09% - 17.99% fixed APR, 3.89% - 17.99% variable APR
Disclosures+
College Ave's student loan products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or BTG Pactual Bank, N.A., member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1) All rates include the auto-pay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation. (2) As certified by your school and less any other financial aid you might receive. Minimum $1,000. (3) This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (APR): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 8/3/2026. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of the Flat Repayment Option with the shortest available loan term.
- Rank #2
Sallie Mae
Best for: Undergraduate and graduate students, and parents, comparing competitive fixed- and variable-rate private student loans
- Competitive variable and fixed rates
- Multiple repayment options
- Cosigner release available
- No origination fees
Apply NowRates
Lowest Rate 2.09%
2.09% - 17.49% fixed APR, 3.62% - 16.83% variable APR
Disclosures+
Undergraduate School Loan/Smart Option Student Loan: Examples of typical transactions for a $10,000 Smart Option Student Loan with the most common fixed rate, Fixed Repayment Option, two disbursements, a 4-year in-school period, and a 6-month grace: For a borrower with the shortest loan term, it works out to 16.16% fixed APR, 51 payments of $25.00, 119 payments of $296.32 and one payment of $41.82, for a total loan cost of $36,578.90. For a borrower with the longest loan term, it works out to 16.38% fixed APR, 51 payments of $25.00, 177 payments of $265.54 and one payment of $173.00, for a total loan cost of $48,448.58. Loans that are subject to a $50 minimum principal and interest payment amount may receive a loan term that is less than 10 years. A variable APR may increase over the life of the loan. A fixed APR will not. Information advertised valid as of 08/04/2026. Rates: Advertised APRs for undergraduate students assume a $10,000 loan with a 4-year in-school period, a 6-month grace, and the longest loan term offered. Interest rates for variable rate loans may increase or decrease over the life of the loan based on changes to the 30-day Average Secured Overnight Financing Rate (SOFR) rounded up to the nearest one-eighth of one percent. Advertised variable rates are the starting range of rates and may vary outside of that range over the life of the loan. Interest is charged starting when funds are sent to the school. With the Fixed and Deferred Repayment Options, the interest rate is higher than with the Interest Repayment Option and Unpaid Interest is added to the loan's Current Principal at the end of the grace/separation period. To receive a 0.25 percentage point interest rate discount, the borrower or cosigner must enroll in auto debit through Sallie Mae. The discount applies only during active repayment for as long as the Current Amount Due or Designated Amount is successfully withdrawn from the authorized bank account each month. It may be suspended during forbearance or deferment. Cosigner Release: Only the borrower may apply for cosigner release. To do so, they must first meet the age of majority in their state and provide proof of graduation (or completion of certification program), income, and U.S. citizenship or permanent residency (if their status has changed since they applied). In the last 12 months, the borrower can't have been past due on any loans serviced by Sallie Mae for 30 or more days or enrolled in any hardship forbearances or modified repayment programs. In addition, the borrower must have paid ahead or made 12 on-time principal and interest payments on each loan requested for release. The loan can't be past due when the cosigner release application is processed. The borrower must also demonstrate the ability to assume full responsibility of the loan(s) individually and pass a credit review when the cosigner release application is processed that demonstrates a satisfactory credit history including but not limited to no: bankruptcy, foreclosure, student loan(s) in default or 90-day delinquencies in the last 24 months. Requirements are subject to change.
- Rank #3
Earnest
Best for: Borrowers who want a zero-fee¹ lender with flexible repayment options² across undergrad, grad, and professional school programs
- 0.25% Auto Pay³ discount plus 0.25% Loyalty⁴ discount for eligible returning borrowers
- No origination fees, late fees, or prepayment penalties¹
- Borrow $1,000⁵ to $400,000 with 5, 7, 10, 12, or 15-year terms⁶
- Four repayment options², a 9-month grace period⁷, and cosigner release for eligible borrowers⁸
Check EligibilityRates
Lowest Rate 2.29%
2.29% - 16.24% fixed APR, 4.74% - 16.60% variable APR
Disclosures+
Earnest Private Student Loans are subject to credit approval. ¹Earnest does not charge fees for origination, late payments, returned check, or prepayments. Florida Stamp Tax: For Florida residents, Florida documentary stamp tax is required by law, calculated as $0.35 for each $100 (or portion thereof) of the principal loan amount, the amount of which is provided in the Final Disclosure. Lender will add the stamp tax to the principal loan amount. The full amount will be paid directly to the Florida Department of Revenue. Certificate of Registration No. 78-8016373916-1. ²Repayment terms and repayment options available vary based on loan type. ³You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. It is important to note that the 0.25% Auto Pay discount is not available when loan payments are deferred during the interim period as a result of selecting the deferred repayment option. ⁴To be eligible for the Loyalty Discount, applicants must have previously obtained an Earnest Private Student Loan and apply using the same email address associated with that loan. Only one Loyalty Discount may be applied per eligible Earnest Private Student Loan. Not all applicants may qualify. This offer cannot be combined with Earnest’s Rate Match program. Earnest may modify or discontinue this offer at any time and without notice, however, once a Loyalty Discount is earned, it will not be taken away. ⁵Residents of Hawaii must request a loan of at least $1,501. ⁶Available interest rates are subject to change. Interest rates as of 03/19/2026. Earnest’s Loan Cost Examples: 1.) These examples provide estimates based on principal and interest payments beginning immediately upon loan disbursement. Variable annual percentage rate ("APR"): A $10,000 loan with a 15-year term (180 monthly payments of $152.84) and a 16.85% interest rate without Auto Pay (16.85% APR) would result in a total estimated payment amount of $27,511.20. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 15-year term (180 monthly payments of $150.30) and a 16.49% interest rate without Auto Pay (16.49% APR) would result in a total estimated payment amount of $27,054.10. 2.) These examples provide estimates based on interest-only payments while in school. Variable interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $152.84) and a 16.85% interest rate without Auto Pay (16.85% APR) would result in a total estimated payment amount of $35,515.14. For a variable loan, after your starting rate is set, your rate will then vary with the market. Your actual repayment terms may vary. Other repayment options are available. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $140.42 for 57 months. Fixed interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $150.30) and a 16.49% interest rate without Auto Pay (16.49% APR) would result in a total estimated payment amount of $34,886.94. Your actual repayment terms may vary. Other repayment options are available. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $137.42 for 57 months. 3.) These examples provide estimates based on fixed $25 payments while in school. Variable interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $253.39) and a 16.85% interest rate without Auto Pay (14.92% APR) would result in a total estimated payment amount of $47,035.20. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $246.61) and a 16.49% interest rate without Auto Pay (14.65% APR) would result in a total estimated payment amount of $45,814.80. Your actual repayment terms may vary. Other repayment options are available. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $25.00. 4.) These examples provide estimates based on deferred payments. Variable interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $275.17) and a 16.85% interest rate without Auto Pay (14.67% APR) would result in a total estimated payment amount of $49,530.60. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed interest rate: A $10,000 loan with a 15-year term (180 monthly payments of $268.03) and a 16.49% interest rate without Auto Pay (14.39% APR) would result in a total estimated payment amount of $48,245.40. Your actual repayment terms may vary. Other repayment options are available. It is important to note that the 0.25% Auto Pay discount is not available when the deferred repayment option has been selected and the loan is in the interim period. The calculation assumes that the “in-school” period is 4 years (48 months) and includes our 9 month grace period, during which the monthly payment will be $0. ⁷Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school. ⁸To qualify for automatic cosigner release, the outstanding principal balance of your loan must be paid down to 50% or less of the original principal balance. The primary borrower must have made 36 months of required payments after the end of the Interim Period. The primary borrower must meet our eligibility and minimum credit requirements. Additional terms and conditions may apply. To request cosigner release, the primary borrower must have made 12 consecutive, monthly on-time principal and interest payments (or an amount equal thereto) immediately preceding the cosigner release application. The primary borrower must satisfy certain eligibility and credit criteria at the time of application. Additional terms and conditions may apply. ⁹Includes 0.50% combined Auto Pay and Loyalty discounts. Actual rate and available repayment terms will vary based on your financial profile. Fixed annual percentage rates (APR) range from 2.79% to 16.74% (2.29% - 16.24% with Auto Pay and Loyalty discounts). Variable annual percentage rates (APR) range from 5.24% to 17.1% (4.74% - 16.6% with Auto Pay and Loyalty discounts). Earnest variable interest rate student loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent plus a margin and will change on the 1st of each month. The rate will not increase more than once a month, but there is no limit on the amount that the rate could increase at one time. Our lowest rates are only available for our most credit qualified existing cosigned loan borrowers who receive the 0.25% Loyalty discount and requires selection of our shortest term offered, full principal and interest payment while in school, and enrollment in our 0.25% Auto Pay discount. Enrolling in Auto Pay is not required as a condition for approval. Interest rates are subject to change. Earnest Private Student Loans are made by FinWise Bank, Member FDIC. FinWise Bank, 756 East Winchester, Suite 100, Murray, UT 84107. Earnest student loans are serviced by Earnest Operations LLC, 300 Frank H. Ogawa Plaza, Suite 340, Oakland, CA 94612. NMLS #1204917, with support from Higher Education Loan Authority of the State of Missouri (MOHELA) (NMLS# 1442770). FinWise Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America. © 2026 Earnest LLC. All rights reserved.
For 2026-27, the federal Parent PLUS loan carries a 9.07% interest rate plus an origination fee of about 4.2%. That is a high price, and it is exactly why state programs are suddenly competitive.
Compare that to MEFA's undergraduate loan, where a parent or student with strong credit could qualify for a fixed rate near 4.95% with no origination fee. On a $20,000 loan repaid over 10 years, the difference between 9.07% and 4.95% is roughly $5,000 in interest. That is real money.
But rate is not the whole picture. Parent PLUS loans still carry federal protections that no state or private loan fully matches:
- Access to the Income-Contingent Repayment plan after consolidation (for loans that qualify)
- Deferment and forbearance rights written into federal law
- Discharge if the borrower or the student dies or becomes permanently disabled
- No credit score requirement, only a check for adverse credit history
State loans are credit-based. The best advertised rates go to applicants with strong credit, and many students will need a cosigner. If your credit is thin or damaged, the rate you are actually offered may be much closer to the Parent PLUS rate, and you would be giving up federal protections to save very little.
How State Loans Compare to Private Loans
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Against banks and online lenders, state programs often hold their own. Here is what tends to set them apart:
- Nonprofit pricing. State authorities are usually nonprofits. They do not need to hit profit targets for shareholders, which often translates into lower fixed rates and fewer fees.
- Fixed rates as the default. Many private lenders push variable rates that look cheap today but can climb. Most state programs lead with fixed rates, so your payment never changes.
- Borrower protections. Some programs offer real safety nets. RISLA's income-based repayment option, for example, can lower payments if your income drops after graduation. That kind of feature is very hard to find at a private lender.
- Slower, more traditional process. The trade-off is convenience. Big online lenders approve loans in minutes. State agencies can take longer and may have less polished technology.
Private lenders sometimes win on headline rates for the very best credit profiles, and they offer larger loan amounts in some cases. The only way to know is to get rate quotes from both. Most lenders, state programs included, offer prechecks that use a soft credit pull, so comparing offers does not hurt your credit score.
If you are starting the comparison process, our guide on 8 questions to ask before comparing private student lenders applies to state loan programs too. The same questions about rates, fees, cosigner release, and hardship options will serve you well.
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The Right Order to Borrow In
State loans are a tool for filling a gap, not a replacement for federal aid. Keep the order straight:
- File the FAFSA first. The FAFSA is the doorway to grants, work-study, and federal loans. You cannot skip this step.
- Take grants and scholarships. Free money always comes first.
- Use federal student loans in the student's name. Dependent undergraduates can borrow $5,500 as freshmen, $6,500 as sophomores, and $7,500 in later years. The 2026-27 undergraduate rate is 6.52%, and these loans carry the strongest repayment protections available.
- Then compare everything else. Parent PLUS (up to the new $20,000 annual cap), state loan programs, private lenders, and school payment plans all compete for the remaining gap. Compare real rate offers, not advertised ranges.
For graduate students who lost access to Grad PLUS, the same logic applies. Max out the $20,500 federal unsubsidized loan first, then compare state programs against private lenders for the rest. Our guide to borrowing for graduate school walks through the details.
What to Check Before You Sign a State Loan
Every state program is different, so read the details before you commit:
- The actual rate you qualify for. Advertised ranges mean little until you apply. A 4.95% floor does not help if you are offered 8.5%.
- Fees. Some state programs charge origination fees and some charge none. A 4% fee on a $20,000 loan is $800 off the top.
- Cosigner requirements and release. Most student borrowers need a cosigner. Find out if and when the cosigner can be released, because that affects the cosigner's credit and borrowing power for years. Our guide on what parents must know before co-signing covers the risks.
- Repayment options and hardship policies. Ask what happens if the borrower loses a job. Is there forbearance? An income-based option? A death and disability discharge?
- Residency and enrollment rules. Confirm the program covers your state, your student's school, and your student's enrollment level. Some programs require at least half-time enrollment.
- Whether a no-cosigner option exists. If a cosigner is not possible for your family, see our list of student loans that do not require a cosigner.
A Quick Example
Say your family faces a $12,000 gap for the coming year after aid and federal student loans. Here are three ways to cover it, using 2026-27 numbers:
- Parent PLUS: 9.07% rate plus a 4.2% origination fee. Ten-year cost: about $18,300 in total payments.
- State loan at 6%: No origination fee, fixed rate. Ten-year cost: about $16,000 in total payments.
- State loan at 6% plus a payment plan. Put $4,000 on the school's interest-free monthly payment plan and borrow only $8,000. Ten-year cost: about $14,700 total, and one third of the gap never accrued interest at all.
The cheapest path is almost always borrowing less, then borrowing smart. Payment plans, tuition installments, and small scholarships shrink the loan before you ever compare rates.
The Bottom Line
State student loan programs are having a moment because federal caps created a gap that someone has to fill. For families with solid credit, they can beat both Parent PLUS and private lenders on cost, and a few offer protections that private lenders rarely match. But they are still credit-based loans without full federal safety nets, so they belong at the end of your borrowing order, not the beginning.
Before you borrow anything, know your actual gap. Create your free CollegeLens plan to see your true net cost by school, map out your funding sources, and figure out exactly how much, if anything, you need to borrow. Ten minutes of planning can save you thousands in interest.
Paying for college is stressful, and the rules keep changing. You do not have to figure it out alone.
-- Sravani at CollegeLens
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