Student loans are a form of financial aid that is used to help students access higher education. When used responsibly as part of an overall education funding plan, student loans can help you put a US education within reach, regardless of your financial circumstances.
Before you take-up student loan, you should carefully evaluate how much money you will need to study in the US. Then should research and apply for scholarships, financial aid from your school, and find money from any other source, including family funds. If after exhausting these avenues and you still have a funding gap, student loan may be your best option.
Student loans can come from the US federal government, from private sources such as a bank or financial institution, or from other organizations. Loans made by the federal government, called federal student loans, usually have more benefits than loans from banks or other private sources. However, federal student loans are meant for only US citizens. International students are eligible for international student loans, which are specialized private education loans available to international students studying in the US.
Types of federal student loans
- Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school.
- Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need.
- Direct PLUS Loans are loans made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid. Eligibility is not based on financial need, but a credit check is required. Borrowers who have an adverse credit history must meet additional requirements to qualify.
- Direct Consolidation Loans allow you to combine all of your eligible federal student loans into a single loan with a single loan servicer.
What to consider when taking International Student Loan
Most international students applying for loans must have a US cosigner in order to apply. This can also be referred to as a guarantor. 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 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 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.
Top Private Student Loans of 2020
- Citizens Bank: Best Lender for Multi Year Approval
- College Ave: Best Lender for Exclusively Offering Student Loans
- Discover: Best Lender for No Application, Origination Or Late Fees
- Earnest: Best Lender for Borrowers With a FICO Credit Score As Low As 650
- Education Loan Finance: Best Lender With a Referral Bonus Available
- MPower Financing: Best Lender With No Credit History Required
- SoFi: Online Student Loans
How to ensure you get the best out of student loan
- Keep track of how much you’re borrowing. Think about how the amount of your loans will affect your future finances, and how much you can afford to repay. Your student loan payments should be only a small percentage of your salary after you graduate, so it’s important not to borrow more than you need for your school-related expenses.
- Research starting salaries in your field. Ask your school for starting salaries of recent graduates in your field of study to get an idea of how much you are likely to earn after you graduate. You can also use the U.S. Department of Labor’s Occupational Outlook Handbook or career search tool to research careers and salaries.
- Understand the terms of your loan and keep copies of your loan documents. When you sign your promissory note, you are agreeing to repay the loan according to the terms of the note even if you don’t complete your education, can’t get a job after you complete the program, or you didn’t like the education you received.
- Make payments on time. You are required to make payments on time even if you don’t receive a bill, repayment notice, or a reminder. You must pay the full amount required by your repayment plan, as partial payments do not fulfill your obligation to repay your student loan on time.
- Keep in touch with your loan servicer. Notify your loan servicer when you graduate; withdraw from school; drop below half-time status; transfer to another school; or change your name, address, or Social Security number. You also should contact your servicer if you’re having trouble making your scheduled loan payments. Your servicer has several options available to help you keep your loan in good standing.