Douglas Olsen
International students in the USA have several options for loans to cover education-related expenses such as tuition, books, fees, insurance, and room and board. These include federal student loans, private student loans, and international student loans. Federal student loans are unavailable to most non-US citizens, so international students often turn to private lenders. However, most private lenders require a co-signer who is a US citizen or permanent resident with a good credit score. There are a few lenders, such as Prodigy Finance, MPOWER Financing, and Ascent, that offer loans to international students without a cosigner. It is important to carefully consider the loan rates and repayment options, as these will affect borrowers for many years.
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What You'll Learn
International student loan options
International students in the USA have fewer student loan options than US citizens. Unless you are an eligible non-citizen who can qualify for federal student loans, you may need to borrow from a private lender.
MPOWER Financing
MPOWER Financing provides loans to international students in the USA and Canada. It was named the 2024 "Best Student Loan for International Students" by NerdWallet. MPOWER Financing offers fixed-rate loans from US$2,001 to US$100,000 at competitive interest rates. It does not require a co-signer or collateral.
SoFi Undergraduate Student Loan
SoFi is a student loan refinance lender that also makes loans to undergraduates, graduate students, law and business students, and parents. Its undergraduate student loan product has no late fees and offers an interest rate discount of 0.125% if your co-signer already uses another SoFi product. SoFi is considered the best option for international students with residency cards.
Juno
Juno acts as a broker, matching borrowers with partner lenders, including those that work with international student borrowers. Juno's average APRs are the lowest among the lenders considered by Investopedia. It does not charge origination fees, late fees, or any other fees. While international students do not need to apply with a co-signer, Juno advises that borrowers with co-signers will get the best rates and terms.
Ascent
Ascent offers international students a range of payment reduction and postponement options, which are rare among private lenders. Borrowers can choose a graduated repayment plan, which provides a lower monthly payment to start that increases over time. Borrowers can also pause payments if they are experiencing temporary financial hardship for up to a maximum of 24 months. Ascent offers a graduation reward of 1% cashback on the loan's original principal balance. International students will need a co-signer who is a US citizen or permanent resident and meets credit score and income requirements.
Citizens Bank
Citizens Bank gives borrowers the option of multi-year loans, which can help with budgeting and planning. Undergraduates and graduate students can borrow up to $225,000 lifetime, while some medical school students can borrow up to $400,000. International students are welcome to apply but will need a co-signer.
Other Options
Before borrowing money, there are other financial aid options to explore. You can research funding opportunities from your country's embassy or government educational office to see if there are applicable scholarships. You can also use the US Department of Labor's scholarship search engine to identify scholarships, fellowships, grants, and financial aid awards. Additionally, you can check with the college you will be attending to see if they offer financial aid for international students.
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Interest rates and repayment plans
Interest Rates:
Interest rates for international student loans in the USA are generally determined using a benchmark rate plus a margin. The benchmark rate is often the Prime Rate or the SOFR (Secured Overnight Financing Rate). The margin is based on the creditworthiness of the borrower or their co-signer. A good credit score can help secure a lower interest rate.
The actual interest rate offered may vary depending on factors such as the lender, loan type, and the borrower's credit score. For example, fixed-rate term loans currently average around 7.4%, but can go as low as 3.33% or lower. On the other hand, variable-rate loans may have lower initial rates, but these rates can fluctuate with the market, making budgeting more challenging.
It's important to note that some lenders may offer competitive APRs (Annual Percentage Rates) and low minimum credit score requirements, making it easier for international students to obtain financing.
Repayment Plans:
Repayment plans for international student loans in the USA can vary. Two common options are Interest-Only and Immediate Repayment. With Interest-Only, students pay the interest while in school and can defer the principal until a set period after graduation. Immediate Repayment, on the other hand, requires payments on both interest and principal immediately after the loan is disbursed.
The repayment period for international student loans typically ranges from 10 to 25 years, with larger loans often having longer repayment periods. It's important for borrowers to carefully consider the monthly payments, the start of repayments, and the possibility of deferment.
Additionally, most international students need a US co-signer to apply for loans. A co-signer is legally responsible for repaying the loan if the borrower defaults. This requirement is due to most international students not being able to receive credit on their own.
When considering a loan, it's advisable to compare multiple offers and consult with financial experts to ensure a thorough understanding of the interest rates and repayment plans involved.
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Eligibility and requirements
International students can apply for international student loans from private lenders, such as banks, credit unions, or online lenders. These loans are only available from private lenders and not from the US federal government.
International students seeking a loan from a private lender in the US will generally need to meet the following requirements:
- Enrolled at least half-time in a degree-granting program at an eligible institution
- Documentation showing proof of enrollment, an active visa, and recent high school or undergraduate degree transcripts
- A creditworthy co-signer who is a US citizen or permanent resident
- No prior student loan defaults
Additionally, international students may be eligible for federal student loans if they qualify as eligible non-citizens. To be eligible, non-citizens must fall into one of the following categories:
Holding an Arrival-Departure Record (I-94) showing "Refugee", "Asylum Granted", "Cuban-Haitian Entrant", "Conditional Entrant" (if issued before April 1, 1980), or "Parolee" (with a minimum of one year of parole and proof of a non-temporary purpose for being in the US)
It is important to note that each private lender has its own eligibility requirements, interest rates, fees, and repayment terms. Therefore, it is recommended to compare multiple lenders before selecting one.
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Cosigners and their role
While it is possible to obtain a business loan as an international student in the USA, the majority of lenders require a cosigner who is a US citizen or permanent resident. This is because most international students are unable to work while studying in the US, so a cosigner provides the lender with security in case the borrower cannot afford to pay back the loan or leaves the country.
A cosigner is someone who signs a loan application with you and agrees to take on the responsibility of paying back the loan if you are unable to. They must have a good income history, a good credit rating, and have lived in the US for at least the past two years.
If you do not have a cosigner, there are still a few options available to you. A small number of lenders, such as MPOWER Financing, provide loans to international students without requiring a cosigner. These loans are typically based on the student's future income potential and may offer fixed interest rates to students in their last two years of study. Additionally, some universities offer their own loans to students, and there may be scholarships or other financial aid options available.
It is important to carefully consider the loan rates and repayment options before taking out a loan, as these will affect you for many years. You will need to think about how much the monthly payments will be, when payments will begin, and how long you will be able to defer paying back the loan.
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Alternative funding options
As an international student in the USA, you may face challenges in securing a business loan due to visa limitations and eligibility criteria set by lenders. However, there are alternative funding options available to support your entrepreneurial journey. Here are some strategies to explore:
Personal Savings and Bootstrapping:
Consider using your personal savings or adopting a bootstrapping approach. This involves getting creative and resourceful by utilizing your existing resources, offering pre-sales, or generating initial capital through scrappy means.
Scholarships, Grants, and Competitions:
Explore scholarships, grants, and competitions specifically designed for international student founders. Research opportunities offered by your country's embassy, governmental educational offices, or your university. The U.S. Department of Labor's scholarship search engine is a valuable resource to identify scholarships, fellowships, and financial aid awards.
Angel Investors and Venture Capital (VC) Funding:
Angel investors are wealthy individuals who invest in early-stage ventures. They may be attracted to the unique perspective and ideas you bring as an international student. Additionally, VC funding can be an option, and it can also count as a qualifying award for entrepreneurs.
Crowdfunding:
Platforms like Kickstarter or GoFundMe allow you to tap into a broad online audience and raise capital for your business idea.
Visa-Specific Options:
If you're on an F-1 visa, you can use Curricular Practical Training (CPT) or Optional Practical Training (OPT) to start your business while still in school. OPT can also be extended for an additional two years for STEM students. To stay and work in the US after graduation, explore visa options such as O-1A, H-1B, E-2, TN, EB-1A, or EB-2 NIW, each with its own eligibility requirements.
Business Entity Setup and Investors:
You can also set up your business entity as an LLC, secure investors and clients, and acquire a workspace. This approach allows you to establish your business presence and demonstrate its potential, which can attract investors and funding opportunities.
Remember, while funding your business idea as an international student can be challenging, combining these alternative funding options with careful planning, a solid business plan, and legal compliance will increase your chances of success.
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Frequently asked questions
International students in the US do not have access to federal student loans and scholarship opportunities are scarce. However, there are private lenders that specialize in student loans for international students.
The requirements vary depending on the lender. Some lenders require a co-signer who is a US citizen or permanent resident, while others, like Prodigy Finance, base loan decisions on the applicant's future earning potential. International students must also complete the College Board's Certification of Finances form.
You should research and compare different lenders to find the best option for your circumstances. Consider factors such as interest rates, loan amounts, repayment terms, and eligibility requirements.
Some lenders that offer student loans to international students include Earnest, Ascent, Citizens Bank, and Prodigy Finance.
