Handling Cases Against State Student Loan Providers

Most people think that there are two types of loans students can take out to attend college: federal student loans and private student loans. However, a third option exists: loans from state agencies or quasi-governmental nonprofits. Over half of states have some sort of state agency, legislature-created nonprofit, or other state entities that lend student loans directly to students. 

State student loans are marketed as coming from government and thus signaling a more “trusted” source, which is a better option than private loans. Their superiority to traditional private student loans, however, is questionable at best. Many state loans more closely resemble private student loans, with high and variable interest rates, limited repayment options, co-signer requirements, and harsh default provisions, than federal loans. 

In fact, state student loans combine the worst of both private loans and federal loans. They have unfavorable terms and the state creditor has heightened collection powers and protections. In light of President Trump’s efforts to downsize the federal government, including the expressed goal of closing the Department of Education and “sending education back to the states,” as well as the strict new federal lending limits passed in 2025 and taking effect in 2026 as part of the One Big Beautiful Bill Act, it is likely that there will be a rise in state student lending. 

What You Will Learn
•    What are the different types of state student loans
•    How state student loan terms compare to federal and private loans
•    What are the unique risks state student loans pose to borrowers