International Student Loan Basics
Every year, many international students that come to the United States to study abroad face the challenge of finding student loan options to fund their study. According to the Institute of International Education (IIE), as of 2016/2017, roughly 1.08 million international students were studying in the United States and many of these students will end up taking out a student loan for their studies. The countries that had the most students come to the United States to study are China, India and South Korea. The top three states with the most international students are California, New York, and Texas. These international students from all across the globe come to the United States to receive degrees of all different kinds, from undergraduate degrees to MBAs.
For many international students coming to the United States for an education, there is a major hurdle to overcome: how to fund their education. Higher education in the United States can be incredibly expensive. Despite the potentially high expense, there are ways for international students to still obtain the education and degree they desire. Some of these ways include scholarships and financial aid, but perhaps the most common way to receive an education is through international student loans (also known as an education loan in some countries, such as India). The realm of student loans, especially for international students, can prove difficult to fully understand. This article will help provide the basics of student loans for international students coming to the United States.
Tuition for a degree alone can prove to be extremely expensive for international students studying abroad in the United States. Unfortunately, tuition is not the only expense that an international student will encounter while studying in the United States. The total cost of attendance also includes expenses such as:
- Living Expenses,
- School Supplies (such as textbooks),
- Health/Student Medical Insurance,
- Other Miscellaneous Fees.
This is by no means an exhaustive list of the expenses that make up the total cost of attendance for an international student, but rather a few of the more common ones. Each international student will have a different total cost of attendance. Some of these categories are also rather broad. For example, by living expenses, we mean the basic expenses that one has in order to survive such as: rent, meals, clothing, and things of that nature. School supplies also encompasses a large spectrum of expenses, everything from textbooks to the cost to go on a field trip.
While it may seem difficult, or even impossible, to accurately calculate or estimate what the total cost of attendance may be for an international student, thankfully most universities usually have a breakdown of expenses or even an average total cost of attendance to help you out. In order to find information related to this, we suggest you visit your desired school and/or program’s website.
Understanding this concept is important because figuring out what your total cost of attendance may be is typically the jumping off point in figuring out the total expense an international student loan may cover. Besides the total cost of attendance, other factors that you need to keep in mind are any scholarships and need-based financial aid that you may receive. To accurately determine how much funding you can receive from a student lender, universities subtract financial aid or scholarships to you from the total cost of attendance. The remaining amount is then the amount to which you can receive a student loan for. Before a lender gives the student loan for an international student, the school you will be attending may have to verify with the lender that the amount of the loan is accurate.
All in all, there are many factors that can potentially determine the amount of your international student loan. In addition to the eligible cost of attendance, each lender has their own conditions for how much they are willing to loan out. Ultimately, you will have to go through both the school application and lending application process to know for sure.
Perhaps the best way to think about getting accepted for a student loan is to compare it to getting in to your desired program. You have to go through an application process. However, as you may know, almost all school applications are different from each other. Some may require a minimum GRE score, while others do not but instead require three letters of recommendation. In other words, the conditions to acceptance vary by school. Likewise, the conditions for an international student loan will differ by lender loan program. For example, some loan programs may have a condition that you need a cosigner, and have further conditions for where the cosigner is from. Other lenders have their loans limited to a particular list of schools. It all depends. By no means is that an exhaustive list of conditions that may have to be met in order to get an international student loan; rather, they are examples to help illustrate what you may encounter.
Another condition that may need to be met for certain lenders is admission into a university. In other words, for the approval process to begin, you lender may have to be shown proof that you’ve been admitted into a school or program. In addition, some lenders can potentially consider other factors as well to see if you can get a “proof of funds” approval. For the school admission condition once you have been admitted to a school, the loan process can proceed leading to the possibility of disbursement contingent upon final lender approval.
A key part to understanding international student loans and repaying those loans is interest rates. This is another factor that varies by lender. Interest rates typically are either fixed or variable. Variable interest rates are tied to an index, LIBOR for example, and are subject to fluctuation throughout the life of the loan. Oftentimes, there is a certain range that the rate cannot exceed or fall below, but again that differs based on the lender and loan program. A fixed interest rate will remain as is for the duration of loan repayment period. Basically, a variable interest rate can change over the repayment period while a fixed interest rate will not.
Interest is an amount, in addition to the amount borrowed (or principal), that the student must pay back to the lender. You will have to repay the borrowed amount plus whatever interest has accumulated on top of that. For example, let’s look at a loan of $100 at a fixed interest rate of 10% to be repaid after 1 year. That means that the borrower would have to pay back $110 (the initial $100 plus the 10% fixed interest rate) at the end of the year.
As you may be able to guess at this point, the interest rate on your international student loan will depend on a number of factors. The interest rate and corresponding monthly payment can be determined by the lender throughout the application process. Signing for a loan is not a blind decision. You will know the interest rate and the amount of the monthly repayment once you have been approved for a loan. You will be able to see everything clearly before you sign.
If you do get approved for an international student loan, over time, you have to start paying that loan back to the lender. The process of repayment and repayment terms differ from lender to lender, and there may be different options available regarding repayment. The amount of time it takes to repay a loan depends on the amount of your payments. Generally, a typical amount of time it takes to repay an education loan for international students takes place over the course of 10 to 15 years.
Another question many international students have about loans is, when do you have to start paying the loan back? Again, it depends on the lender. Some may make you start repaying right away, while others may allow you to put off repayments until after you graduate from your program. When a lender allows this to happen, it is called a “grace period.” A grace period typically can last for up to six months after you graduate.
If a lender requires you to start making your repayment installments while you are in school, sometimes those payments are less than they would be post-graduation since they may be interest-only payments. Again, this varies from lender to lender and what is most plausible for you. We strongly suggest that you understand the obligations and expectations of your repayment plan with your lender fully and clearly before you agree to a loan.
When you are looking for international student loan options, a term you might come across is “cosigner.” Some lenders require a cosigner while others do not. It also may depend on the loan program you are applying for. Basically, a cosigner is a person who agrees to be legally bound to repaying the loan if you do not or can not pay it back. Asking someone to be your cosigner is not a light request. You are potentially asking someone to put thousands of dollars on the line if you cannot or do not repay your loan.
Often, international students ask their parents or close relatives to be a cosigner if that person is in a financial position to do so. However, a cosigner does not have to be a family member. It can be a friend or acquaintance.
All in all, loan cosigners are potentially open to financial risk as the loan repayment obligation will fall on them if you cannot or do not pay it back. However, if you are able to repay the loan, the cosigner then has no financial obligation.
Does an International Student Need a Cosigner?
Many international students may be worried that they cannot study in the United States without a cosigner. Again, whether you need a cosigner depends on the lender and the loan program option that you choose. Having a cosigner on hand may allow you to have access to options that you would not otherwise have. That being said, even if you have a cosigner, that does not guarantee that you will be approved for an international student loan.
How Do You Find a Cosigner?
As stated above, many international students that need a cosigner will ask their family members. However, if you cannot find a cosigner in your family, you may look to friends or acquaintances that would be willing to help. Another possible option to finding a cosigner is by contacting the alumni association of the program you are planning to attend. By doing that, you may be able to see if you can find someone willing to cosign for you. This is just one suggestion for finding a cosigner outside of your family and friends.
Not just anyone can cosign a loan for you. Here are some broad guidelines for finding a cosigner:
- They should have a stable income. This can often mean that the cosigner has a solid credit history. It can also show to the lender that the cosigner has a steady job and a consistent income. Some lenders can even go so far as looking at the cosigner’s place of employment.
- A cosigner’s payment history helps show a lender a solid credit score. A solid credit score shows that the cosigner has a reputable history of paying people/businesses back for products, services, and/or loans.
- Perhaps most importantly, and obviously, the cosigner you choose has to be able to pay the loan expense if need be. Oftentimes, in order for lender’s to evaluate this, the lender may look at factors such as the cosigner’s total income and/or total debts.
Please keep in mind that this is by no means an exhaustive list of qualities to look for in a cosigner. More so, it is intended to be a general guide for you to help you find a cosigner. Further, a cosigner having these qualities will not guarantee approval for a loan, it is dependent upon many factors. For more information on how to find a cosigner, please visit our blog: How to Find a United States Cosigner as an International Student.
Another question many international students may have is, if I have been approved for a student loan, and if I have decided to take it, what happens with the money? Typically, once you have been approved and accepted the loan, the lender will then forward the money to your school or program. This is called a disbursement. However, before the disbursement can occur, the lender may verify that you are enrolled and attending that school and that the amount of money you are receiving is accurate. After the disbursement, it is then the school’s responsibility to make those funds available to you. This process differs lender-by-lender and school-by-school. For information of the school’s verification process and their correlating disbursement procedures we strongly suggest contacting the financial aid office at your school to find answers to questions you may have.
Can International Students Take Out U.S. Federal Loans?
The United States has four federal student loan programs. They are:
- Federal Perkins Loan,
- Direct PLUS Loan,
- Direct Unsubsidized Loan,
- Direct Subsidized Loan.
Sounds great right? Well, it is for United States citizens. Unfortunately, only permanent residents and citizens can be eligible for any of these United States federal loan programs. If you are on a student visa, including an F1 visa or J1 visa, you unfortunately cannot apply for one of these federal education loans. Even though international students cannot get a federal loan, there are still private international student lender options available.
An I-20 form is extremely important to an international student looking to study abroad in the United States. This is because the form is necessary for applying and receiving a student visa. Typically, students can apply for a visa within 120 days from the start date of the I-20, and can travel within 30 days of the start date of the I-20.
For the I-20 form, there are only certain types of financial proof that universities will accept to prove that you have the funds necessary to meet the cost of your first year. Often, acceptable sources of proof include:
- Education loans (or international student loans),
- Personal loans,
- Any type of proof of personal or family income/sponsorship.
This is not an exhaustive list, but guidelines on some of what may be the most acceptable way to prove funding to a school. For more information on the Form I-20 please read: What Financial Sources Will U.S. Colleges Accept for the Form I-20.
Nomad Credit Can Help You Search For International Student Loan Options
Understanding student loans (also known as education loans) can be tough, but getting an international student loan can be even tougher. Nomad Credit is happy to help you navigate the difficult process and help you search for student loan options.
Please visit us at www.nomadcredit.com to search for student loan (also known as education loan) options. Please don’t hesitate to email us at email@example.com if you have any questions.