Student Loan Basics

By Nathan Treadwell

Two common questions you may ask yourself are where am I going to attend university in America and how am I going to pay for it? Some students are lucky enough to have their education costs completely covered by their parents, but many students have to supplement from a variety of sources whether it be scholarships, jobs or a private loan.

A student loan, also known as an education loan in certain countries, is from a private lender. But what does it entail? Read on to learn more.

What expenses will a student loan cover?

Determining the total cost of attendance is the first step in learning what expenses a student loan may cover. Next, you may need to take into account need-based financial aid and scholarships. Finally, if you are approved by a lender, several factors will determine the loan amount.

To better understand the total cost of attendance, let’s first break down the expenses you may incur as an international student while in school:

• Tuition
• Living Expenses
• Meal Expenses
• Student Health Insurance (also known as Student Medical Insurance)
• Books
• Materials
• Transportation Costs
• Other University Fees

The exact break down will vary depending upon the school. You should visit your prospective school’s website to find relevant total cost of attendance information.

Often, you may search for need-based financial aid and scholarship options before trying to find a student loan. As such, schools may deduct any scholarships or financial aid provided by them to you from the total cost of attendance to determine the amount of funding that you can receive from a student lender. This is important because the school may need to verify that the loan amount is correct with the lender before the student loan is disbursed. Once you know your total cost of attendance you may have to deduct any school-based scholarships or need-based financial aid that you have received to determine the maximum amount that a school may allow the loan to cover.  

Secondly, the lender will determine the amount of the student loan. There are many factors that may determine the loan amount. Ultimately, you will need to go through the application process with a lender to see the amount of expenses that can be covered, if approved by the lender.

Are there any conditions for a student loan program?

Each lender will have different conditions that will need to be satisfied by you to participate in the lender’s student loan program. Some student loan programs require a cosigner, whether that is a U.S. cosigner or international cosigner. For some lenders, their loan programs are limited to a select list of schools.

In addition, certain lenders may need you to have been admitted into a school before they can start the approval process. However, some lenders may start the approval process before admittance. They may look at other factors to see if you can receive a “proof of funds” approval. Once admission to a school is received, the loan process may move forward and disbursement can occur, if approved by the lender.

How do interest rates work?

Depending on the lender, interest rates can either be fixed or variable. A fixed interest rate will stay the same throughout the loan repayment period whereas a variable rate can change. A variable rate is usually tied to an index, such as LIBOR, which may change throughout the loan period. There typically is a range that the rate cannot go above or below, but it can vary by lender and loan program.

Interest is an amount of money that a borrower must repay in addition to the amount that was borrowed (the principal). You will need to repay the principal plus the interest on the principal on your student loan.

The interest rate you may receive will depend on many factors. Through the application process, the interest rate and monthly payment may be determined by the lender. If you are approved for a loan, the rate and payment will be known before you, the borrower, agrees to the terms of the loan, allowing you to make an informed decision.

How does the loan repayment work?

Depending upon the loan program, there could be different types of repayment options, if you are approved. Repayment can take place over various term lengths but typically the repayment length will be spread over 10 to 15 years. Some lenders may allow you, the borrower, to defer payment until after you have graduated. This is called a “grace period” and can be up to six months after graduation. However, other lenders may require you to make some sort of monthly payment while in school – such as an interest-only payment. This may vary upon the lender and what makes the most sense financially for you. It is best for you to understand exactly what is expected of you financially before taking a student loan from any lender.

What is a cosigner?

A cosigner is someone who legally agrees to pay back the loan if you cannot pay it back. It is a serious obligation and you and your cosigner should be aware of the risk that is potentially involved. With that said, if you pay back the loan, the cosigner is under no obligation.

Does an international student need a cosigner?

Having a cosigner may help you be approved for a student loan. However, having a cosigner does not guarantee that a student loan will be approved.

How does loan disbursement work?

If you have been approved for the student loan and have made the decision to take it, the lender will send the money to your school (known as disbursement). Before doing so, the lender will verify that you are attending that school and that the loan amount is correct. The lender will then disburse the funds to the school prior to the semester starting. The school will then make those funds available to you. Different schools have different verification and disbursement procedures so you should check with your school’s financial aid office if you have any questions.

Can an international student take out a federal loan?

There are four federal student loan programs (Direct Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan, and Federal Perkins Loan) in the United States. The rates and terms of these loans are set by the United States government. Unfortunately, only U.S. citizens and permanent residents are eligible for federal loan programs. However, there are private lender options that are available to international students.

Where to look up lender reviews?

Many lenders will have a review page on their website where customers can leave a review and prospective customers can look through them to get an idea on the level of service and customer experience that a lender may provide. Additionally, while this may seem simple, searching for the lender on Google or another search engine can bring up reviews and information about a prospective lender.

Any additional information an international student should know?

You will need to submit the Form I-20 to the school that you are accepted to. The I-20 is a form that proves that you have the funds to cover the cost of attendance. Depending on your circumstances, it may be required to provide proof of a loan. The lender can work with you to provide proper documentation to the school. Additionally, the Form I-20 will need to be completed before applying for a student visa.

Nomad Credit Can Help

Nomad Credit has helped numerous international students from several countries find student loan options. Nomad Credit can help international students search for the lenders that may lend to them. For example, Nomad Credit recently helped an international student pursuing an MS in Engineering - Business Analytics at California State University - Hayward find a student loan option from an international lender.  

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