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What is an Interest Rate?

International students who choose to study abroad need to know the costs involved with studying in a foreign country. Most international students need to take out some form of aid to meet their financial need, usually in the form of an international student loan. Students who take out loans need to understand interest rates and costs associated with loans.

Student Loans

Studying abroad can be an expensive and many students do not have scholarships, grant money, or out of pocket cash to pay for a study abroad trip. Instead, many students turn to student loans to make up for partial, half or even the full amount of their program. It is important for students to be responsible borrowers when they decide to take out a loan.

What is an Interest Rate?

International students who are considering taking out a student loans need to be aware and educated about interest rates. An interest rate is the percentage of money an international student can borrow that is paid to the organization lending 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 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 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 on top of the money lent. So the bigger the international loan size, the more money that will need to be paid in interest.

It is also important for international students to understand the different types of interest rates. Interest rates come in both variable and fixed.

Variable Interest Rates
Variable interest rates can change over time

Fixed Interest Rates
Fixed interest rates will always remain the same throughout the life of the international student loan

Fixed rates also make it easier to create a repayment plan because repayment will always be the same, allowing international students to create a monthly budget and establish realistic timetables for repayment. Interest rates can vary in their number. Average interest rates can range from 2% to 10%. Responsible students should shop for the best interest rate in order to minimize the interest that needs to be paid. Payment of loans can also vary depending on the specific loan product. Some loans require payment during school and other student loans defer payment until after graduation.

Why Should International Students Care?

International students need to realize that taking out a loan is a serious matter that will affect their financial future. Without a proper plan students could end up defaulting on their loan which would destroy their credit and effect future credit checks and financing. Many students who do not plan for their future end up making payments on student loans long into their adulthood. In addition, students need to understand their interest rate and how many payments it will take before they are free from the burden of their loan. At the same time, international students need to determine if taking out a loan is the right choice. Will studying abroad be worth the interest and repayment at a future time?

Having a Plan

International students not only need to understand interest rates, they also need to have a borrowing plan in order to make sure they are being responsible with their loan. Students should determine before taking out a loan exactly how much money they need to borrow. Problems that often occur for international students are not borrowing enough money, and over borrowing requiring them to pay back additional interest. Students should take out the right amount of money that they will need and determine what type of expenses they will occur. Common expenses include tuition and fees, housing costs, food, travel costs, insurance, and books. In addition, students should try to set up a plan on how and when they will pay the loan back. It is paramount to take financial responsibility and setup a detailed payment plan to make sure that a loan is the right option for the student.


It is important for students to understand that they will likely need a cosigner on their loan. A cosigner is an adult who is willing to stake their own finances by backing the student. The purpose of a cosigner is to give validity to the borrower’s ability to pay back the loan. This way, if the student does not follow through on their commitment to repay the loan the cosigner will become responsible for the debt and any missed payments or defaulting will be reflected on their credit. A cosigner can be a parent or guardian or a friend. For international students studying in the United States, a cosigner is required most of the time and needs to be a United States citizen or permanent resident with a strong credit history who has lived in the US for the past two years. In select instances international students are able to obtain a no cosigner loan.

International students will find that with proper education and understanding financing a international program will be easy and successful. The center of the education starts with knowing what an interest rate is, how it works, and prepare in advance a smart financial plan for the repayment of the loan and interest. With this international student loan, students will find they have the financing available to truly enjoy their time studying abroad. It will be less time worrying about pinching every penny, and more time to devote to a great new adventure studying abroad. Many students will find that the costs of study abroad trips often parallel that of a semester at their home academic institution. Some individuals take out student loans and consider interest rates while studying in their native country, a task that is no different from trying to obtain loan money for study abroad trip. Education and knowledge will take international students far and allow them to truly enjoy studying abroad.

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