collageWhat is an International Student Loan
Federal student loans are popular with US students studying in the US, but they are not available to international students. Instead, international students are eligible for international student loans, specialized private education loans available to international students studying in the US.
International Student Loans are now a very realistic way to finance your education in the US. Loans are very flexible, and can offer loan amounts high enough to pay for your entire education, but with extended repayment terms and reasonable interest rates, so you can afford the repayment after you graduate.
Cosigners
Most international students applying for loans must have a US cosigner in order to apply. A cosigner is legally obligated to repay the loan if the borrower fails to pay. The cosigner must be a permanent US resident with good credit who has lived in the US for the past two years. The cosigner is often a close friend or relative who can assist in getting credit, since most international students cannot receive credit on their own. If you’re not able to find a cosigner see if there are no cosigner loans available to you.
Interest
Interest is the amount charged by the lender in addition to the amount of money that you borrowed. The interest rate is calculated based on an index plus a margin that will add an additional percentage interest rate depending on your co-signer’s creditworthiness. The two most common indexes used for international students are the Prime Rate and LIBOR Rate.
- Prime Interest Rate – This index is determined by the federal funds rate which is set by the US Federal Reserve.
- LIBOR – The LIBOR (London Interbank Offered Rate) is based on the British Bankers’ Association and is used on the London interbank market. The rate is an average of the world’s most creditworthy bank’s interbank deposit rates for overnight and one year terms.
When evaluating the loan, the lender will clarify which index the plan uses. Then, there will be an additional margin that will be added based on the borrower’s individual criteria, including the co-signer’s credit history. Based on their creditworthiness, an additional interest rate will be added to the index. This will be the total interest you owe. When your application is approved, your specific margin will be disclosed to you, at which point you can accept or refuse the loan.
Repayment
Repayment will vary depending on the loan option you choose. Since most international students are not able to work while they study in the US, repayment must be considered as an extremely important feature in your loan. You will need to consider how much the monthly payments will be, when payments will begin, and how long you will be able to defer paying back the loan. The repayment period generally ranges from 10-25 years, but the larger the loan, the longer the repayment period. The standard repayment plan options are:
- Full Deferral – Students are able to defer payment until 6 months after graduation as long as full-time status is maintained. Students can defer payments for a maximum of four years, which is the typical length of a degree.
- Interest Only – International students only pay the interest while in school, up to four consecutive years, and can defer the principal until 45 days after graduation, or when the student drops their course load to part-time.
- Immediate Repayment – Payments on both interest and principal are due immediately once the loan has been dispersed.
Borrowing money through a private, legal lender is the best way to afford school without involving the mafia. Numerous companies lend to U.S. citizens, but those that lend to international students are fewer and further between.
Most lenders require international students to get a loan with a cosigner who is a U.S. citizen or permanent resident. This gives the lender security in case the borrower can’t afford to pay back the loan or leaves the USA. Unfortunately, it also limits who is able to get a loan, as some potential borrowers may not have family or friends in the USA who are willing or financially able to act as a cosigner.
Loan terms
Even when you do find a lender willing to provide student loans for international students, it’s important to consider the loan rates, since they’ll affect you for the next many years. Private student loans are usually credit based, as opposed to federal student loans using FAFSA, and provide either variable interest-rate loans or fixed interest-rate loans. Variable-interest loans, which are also known as floating-rate loans, provide loan terms that change depending two factors: The benchmark is usually based on the London Interbank Offered Rate (LIBOR) or another federal rate, while the fixed spread evaluates a borrower’s likeliness of repaying the loan. Variable-interest loans are risky, since, unlike diamonds, the rate isn’t forever; even if a low LIBOR at the start gives you a low-interest rate, if LIBOR increases, so does your interest rate. By contrast, fixed-interest rate loans remain the same throughout the course of the loan, but of course this can also be risky, because if a borrower starts with a high rate then that rate will remain high throughout the tenure of the loan.
As you start doing the math, you should also take into account other terms of the loan that might affect when you pay and how much you pay. Is there a grace period before you have to start repaying the loan? Are there penalties for prepayment or paying back the loan early? Are there late fees? What’s the actual process for paying every month? Can the terms of the loans be changed? And when will you be able to afford doing fun things again?
Refinancing your loan
What happens if your interest-rate is so high that you’re having trouble paying back the loan? You can refinance.
Refinancing gets you a new loan with a lower interest rate and/or lower monthly payments, or lets you switch the type of loan you have. To be clear, borrowers who are able to get their loan refinanced will end up repaying their loan for a longer period of time than the terms of their original loan, but will end up paying less money overall so it’s still a good plan.
Where to get a loan
Below is a list of some of our favorite private lenders. Whether you apply to one of these or to another company you find yourself, don’t forget to look closely at the terms of a loan before you sign anything. If you’re going to be paying someone back for years, you might as well be comfortable with how you do it.
Want to take guesswork out of the equation? Try our International Student Loan Finder.
Ascent is an award-winning private student loan company that to gives students more opportunities to pay for college with or without a cosigner. Ascent offers affordable rates, no fees, flexible repayment plans, and exclusive benefits (such as 1% cash back, scholarships, a Refer A Friend Program, a Rewards Program, and more). Check your pre-qualified rates in 4 easy steps without impacting your credit score.
Discover Student Loans is run by Discover Bank, and it provides student loans to international students who attend an eligible school in the USA. Loan terms and conditions require a cosigner but do not charge any fees or require payments while students are still in school. Plus, loan amounts from Discover can cover up to 100 percent of education costs, so some lucky borrowers will be able to cover their total cost and won’t have to research additional sources of financial aid.
MPOWER Financing provides loans to international students studying in the USA or Canada based on their future income potential and without requiring a cosigner or checking for a good credit history. It offers fixed-rate interest rates to students in any field of study as long students are accepted or enrolled in one of the 350 schools supported by the company and are in their last two years of study. Other benefits include a six-month grace period after graduation to start repayment of loans, and a 1.50% discount on the interest rate if borrowers meet certain requirements. It also provides career support services.
Prodigy Finance offers variable-rate loans to students in business, engineering, law, public policy, and medical programs who attend school in a country that is not their home country. Instead of requiring a cosigner, Prodigy provides loan and repayment terms based on its predictive credit model, which assesses more than 150 variables that determine how much each applicant can afford after graduating.
Students getting an international education in the USA are eligible to get a loan from Sallie Mae as long as they have a cosigner. Though Sallie Mae doesn’t provide personalized interest rates until an application is completed, they do advertise discounts when borrowers choose in-school repayment and paying by auto debit. There are no origination or pre-payment fees, and borrowers may be able to pay only interest for the first year after graduation.
International student loans abound at Wells Fargo, which provides loan products for both undergraduate and graduate students at an eligible school. Borrowers aren’t required to start payments until six months after graduation but are able to do so without penalties while still enrolled. Wells Fargo also doesn’t charge application or origination fees, but it does require a cosigner for international students who apply for a loan. Graduate students must also have an established credit history in the USA to be eligible.
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