Understanding Student Loan Terms
College loans are taken out by a solid majority of students looking to obtain a great education. International students will find that affording the costs of universities are no different. In many cases, international students also need loans to be able to afford the price of tuition, travel, as well as room and board at these colleges and universities.
Types of Loans
It is important to know exactly what the terms of a student loan are. The first test is to understand the type of loan you have. The two biggest issuers of loans are made by the government and private banks.
Federal loans are given by the US government. Interest rates on federal loans are usually pretty low and good, but students must first qualify for these loans. Non-US citizens and non-US permanent residents are typically ineligible for these federal loans. Those students who are US citizens or permanent residents will then need to submit paperwork that will show the financial situation of their family or themselves to determine the amount of financial aid given out by the government in the form of grants and loans.
These federal loans can be in the form of three different types of loans: those that do not build interest while enrolled, those that do build interest, and those that are actually in the parents name instead of the students. Non-building interest loans do not require a student to pay for the loan as long as they are enrolled in school. Once the student is no longer enrolled, following a short grace period, students must begin repaying the loan which will build interest. Interest-building loans will begin to immediately draw interest per year. These type of federal loans are now the only federal loans given to graduate and professional school students. Lastly are PLUS loans, which are taken out by the parent instead of a student and are repaid based on the exact loans terms of the loan.
Private Student Loans
Private loans are a bit different. Both international students and US students have the ability to get a privately funded loan from a bank. This is a great advantage because there are several different student loans offered and the students have the ability to shop for the best loan. Be sure to check whether your lender will work with your school as this will be a requirement in order for the loan amount to be certified. Almost all non-US citizens and non-permanent residents will be required to have a US cosigner on the loan. Although there are small no co-signer loan programs at a few select schools, almost all international students will require a co-signer. To see which loans you are eligible for, check out our comparison tool.
International students who are considering taking financial aid in the form of international student loans need to be aware and educated about interest rates. An interest rate is the percentage of the total amount of money an international student is borrowing that is paid to the entity that is giving the money. Interest rates fluctuate depending on the market, the lender, and the purpose of an international student loan. Ideally, the lower the interest rate the better the scenario is for a student borrower. Interest on the loan is also paid at variably times, usually being added to the principle of the international student loan annually. Interest can build at different times depending on the loan. Some loans build interest as soon as they are taken out, while others don't begin to build until a student graduates college. It is important for international students to get a full understanding of interest rates before they decide to take out a loan. In addition, international students should be aware of everything about their loan including interest rates, when interest will begin to build and how much of a loan they need to take out. Interest rates are important to borrowers because it is basically the cost that a student will have to pay for borrowing the money. So what is an interest rate? The interest rate is a percentage of the borrowed money that needs to be paid to the lender. So the bigger the student loan size, the more money that will need to be paid in interest.
It is imperative for international students to comprehend the many types of interest rates. These types include both
variable and fixed. Variable interest rates change throughout time, whereas fixed interest rates will always remain
constant over the life of the international student loan. Another benefit of fixed rates is that they are easier to
create a repayment plan for because repayment will always be the same, allowing international students to create a
efficient budgets and create effective timetables for repayment. Not all people will get the same interest rates.
Current interest rates can range from 2% to 10%. These interest rates depend on a
person's credit score. Students should shop for interest rates
for their loan at different lenders and banks.
Now that you know more about loans, it is important to note that all students will eventually need to repay them. For many loans payments do not start immediately after you step foot out of college. Fortunately, students are given a grace period, usually in the range of 6 months.
Payment of loans can also vary depending on the specific loan type, the rate, and term of the loan. Students will set up a repayment plan based on a certain number of years. The average length of repayment is 10 years, and is a good default number to use in some examples. When a student sets up a repayment plan, they will make monthly payments that include principal and interest monies. Depending on how long you want to continue to pay the loan, the monthly payment will depend on that. The minimum monthly payment on federal loans is 50 dollars.
Some international students decide to pay the length of their term at a longer period, say 30 years. This allows for smaller monthly payments, but will eventually lead to a larger total amount repaid because of the continually building interest.
Other loan repayments are available for students who do not want to pay the same monthly payment, but instead increase payments as time goes by. This will allow for small payments at the beginning of repayment (arguably the hardest times for students to repay loans because of hardships and unemployment) and gradually pay more each month putting the heavier payments on the back side of a loan. Other types of loan repayment plans will vary based on a student's salary. As a student's salary changes after college monthly payments will change. Did your income go up? So will your monthly payment. This will make sure that a student has the means to repay the loan are not left with little money to survive on.
One great feature of federal loans is their ability to be repaid by prepayment. Instead of having to pay the same
amount each month, a student can decide to pay more than the allotted amount directly on the principal, without
penalty. This is a great option for students who may get a bonus, or have some extra money around that can be used
to pay the loan. This will allow students to take a great chunk out of there loan without having to succumb to added
interests if they paid monthly. It is important to note that student must note that they want the extra money to be
paid towards principal and not interest, that way the benefits can be had.
While loans can be saviors for many international students looking to study abroad, they can be challenging to understand. Most loans require students to pass entrance exams which educate them in understanding the loan terms before they can access and sign the loan agreement. In addition internationals students must take an exit interview online in most cases in regards to their education of repayment.
So, before an international student thinks about getting a student loan they need to sit down and education themselves. Do some research about loan types that are best for you, what are the current interests rate, where is the best place to get a loan, and how do you want to repay it. This information will surely help you pay back your student loan.