If you take out an international student loan to study abroad in the United States, one of the most crucial aspects in understanding that loan is how to repay it. By taking on an international student loan, you are essentially taking on debt, and in turn will need to repay that debt (loan). This is a serious obligation and there can be heavy consequences if you do not pay it back. However, repayment does not have to be as scary as it may seem. Hopefully this blog will help you understand the basic premise of repaying your international student loan.
What Makes Up the Repayment?
This may seem like a silly question to ask, but some people may think that they only have to repay the amount that they borrowed. During the approval process of your international student loan, you and the lender, before you formally accept the terms of the loan, will agree upon the repayment terms – the interest rate(s), the amount of the monthly installments, and how long the repayment period will last.
As stated above, the amount you repay is not simply the amount that you borrowed. International student loans are subject to interest rates, so your repayment will consist of the amount you borrowed plus the interest that that amount has accrued. So, the amount you repay will be made up of the principal (amount you borrowed) plus the interest. An easy example to help understand interest rates goes like this: 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.
The length of the repayment period can vary. The length of this period can have an affect on the amount of the monthly repayment installment. If the repayment term is shorter, then your monthly repayment installment will be higher than paying the loan over a longer term with the same interest rate and loan amount. On the other hand, if the repayment term is longer, then the monthly repayment installment will be lower than paying the loan over a shorter term with the same interest rate and loan amount.
To illustrate this, look at this example: you take out a loan for $100 at 10% interest to be paid over 12 months. This monthly repayment installment for this loan would be $8.79 per month. This would equate to $105.50 total paid over the course of 12 months, with $5.50 of interest paid plus the $100 principle.
In the instance that the repayment term is shorter, at 6 months for the same loan amount of $100 at 10% interest, the monthly repayment installment would be $17.16. This would equate to $102.94 total paid over the course of 6 months, with $2.94 of interest paid plus the $100 principle.
So, for the shorter term, the total interest paid is lower, but the monthly repayment installment is higher.
One advantage to paying back an international student loan during a short repayment period can potentially be that you pay a lower overall amount on interest. However, your monthly payment can then be potentially higher than if you were on a longer repayment term.
What About Grace Periods?
A grace period is essentially a period of time, agreed upon with the lender, where you will be able to withhold payments. A typical grace period is six months after graduation. In other words, you would not have to start repaying your international student loan until six months after you graduate from your program. However, a grace period is not guaranteed, or even a given. It depends on a number of factors, the lender and lending program that is used. It is extremely important that you understand your repayment obligations and if a grace period is incorporated within that.
An alternative to a grace period could be to pay a reduced monthly amount while you are attending school. That way, when you graduate, a portion of your loan could be paid off already. Some loan options even let you make payments of only interest while you are at school. It all depends on the lender and the loan program that you may be approved for. Make sure that you fully understand these options before signing your loan agreement.
Overall, we strongly suggest that you have absolute full awareness of your international student loan and its repayment terms before you sign. Do not be afraid to ask your lender if you have any questions or uncertainties!
What Role Does a Cosigner Play?
If you are unable to repay the debt of your international student loan, that responsibility will fall onto your cosigner, if you have one. Your cosigner should know of this risk because when you sign for the loan initially, they will have to sign too. Make sure you are conscious of the terms of your loan regarding late payments and/or missed payments and how they may affect your cosigner, if you have one.
Are There Any Options to Make Payments Easier?
We understand that the thought of repaying a student loan as an international student is daunting. Thankfully, there are options available to potentially help make payments easier. One way an international student can do this is by researching and exploring refinancing options. Dependent on a variety of factors, a lender may let you refinance your international student loan by lowering the interest rate or extending the repayment term. Both of those options could help you pay off your international student loan.
Refinancing is not the only option available though. Another possible option is called consolidation. If you have multiple loans that need to be paid back, you can possibly combine (i.e. consolidate) them into one loan balance which would then have to be repaid at a completely new monthly rate.
Refinancing and consolidation are by no means the only available options out there. They are simply suggestions to help you out if you are having trouble repaying your international student loan. Besides refinancing and consolidation though, there are some additional strategies that an international student could try out that include:
- Making more than one monthly payment each month, if the lender allows it. This can help you knock out multiple months at a time, effectively allowing you to pay back the loan sooner.
- If you somehow find your way into extra cash (a gift, winning a prize, insurance claim, etc.), as tempting as it may be to spend that money instantly, put all or a large portion of it toward repayment.
- Sometimes if you enroll in auto-payments there can be a deduction in the interest rate you owe. Please check with your lender to see if this option is available.
- Make your repayment every two weeks contrary to every month. This effectively would split your amount owed each month in half, but would essentially result in having one extra monthly payment per year.
These are by no means an exhaustive list of strategies, and they may not even work for you. These are merely suggestions if you are having trouble paying off your international student loan. We suggest conducting your own research and consulting with your lender for more options and strategies.
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 firstname.lastname@example.org if you have any questions.
*This example uses $8.79 for the first 11 months and $8.81 for the last month