How student loans work: Tips for first-time international applicants

Essential tips for first-time international student loan applicants

What’s an international student loan?

An international student loan is a type of installment loan designed to help students pay for their education abroad. When you have a student loan, the lender typically sends the money directly to your school. The funds are applied to tuition, fees, room and board, and other eligible expenses specified during the application process. If there’s any money left over, it may be returned to you for books, supplies and living expenses (make sure to check with your school for their policies).

Student loans are not free money – you must repay them with interest, which accrues at either a fixed or variable rate. Additionally, some lenders charge a disbursement or origination fee. Understanding the differences between variable and fixed-rate student loans can help you choose the best option for your needs.

What are the different types of student loans available?

International student loans generally fall into two categories: loans from banks and those from private lenders. 

    • Bank loans: These loans, offered by banks in your home country, often come with lower interest rates but may require a cosigner. In addition, they might not cover the full cost of your education, so it’s important to calculate how much additional funding you’ll need.
    • Private lenders: Specialized financial institutions like MPOWER Financing offer loans specifically for international students. These lenders may not require a cosigner and often base eligibility on factors such as future earning potential rather than credit history or collateral provided.

How are student loans different for international students?

American students applying for a student loan in the USA have fewer documents to submit than international students. As part of the loan application process, international students must provide a visa, which permits them to study in the USA.

International students should:

    • Understand student visa regulations.
    • Learn how to obtain a visa.

This includes knowing which type of visa you need, applying for it, and preparing for the visa interview with the USA Department of State.

How does international student loan interest work?

As an international student, you’re not eligible for loans through the U.S. government, but you can explore private student loan providers. Most private loans start accruing interest from the day the funds are disbursed to your school.

For example, if you borrow US$30,000 at a 13.99% interest rate over a 10-year repayment period, your monthly payment would be US$466, and you’d pay a total of US$25,874 in interest charges over the life of your loan. If your lender allows for interest-only payments while in school, like MPOWER Financing, your payments will be lower during your studies and you will pay less over the life of your loan versus delaying payment because interest continues to accrue.

When you start repaying your student loans, part of your payment goes toward interest and part toward the principal balance. If you can make extra payments, you’ll pay off the loan faster and reduce the overall amount of interest paid. Consider choosing a lender that doesn’t charge prepayment fees if you plan to pay off your loan early.

What’s the eligibility and application process for a student loan?

To qualify for an international student loan, you must enroll at an eligible school and meet the lender’s specific criteria. The application process involves submitting personal and financial information, and in some cases, details about a cosigner if required. Once approved, funds are typically sent directly to your school to cover tuition and fees, with any remaining funds disbursed to you by the school for other educational expenses.

MPOWER Financing, for example, offers loans to international students to attend MPOWER-eligible schools and doesn’t require a cosigner or collateral. They focus on the student’s future earning potential and academic success, making their loans accessible to a wide range of students who may not have access to a cosigner or collateral to commit to a lender.

MPOWER Financing Student Loan

A loan based on your future earnings

How do you pay back a student loan?

As installment loans, student loans require monthly repayments. You’ll receive a student loan bill every month for the duration of your repayment period, typically 10 years, but this can vary depending on your lender and terms.

Repayment during school varies by lender. Some delay repayment, meaning you don’t have to start repayment until after graduation. But remember interest continues to accrue while in school, so you ultimately end up paying more over the life of the loan.  Others, like MPOWER, offer interest-only repayment during school, with full payments starting six months after graduation, reducing the overall interest paid over the life of the loan. Setting up automatic payments can help you avoid missed payments, and many lenders offer an interest rate discount for doing so – MPOWER provides a 0.25% discount for auto pay.

What are the repayment options for a student loan?

Repaying an international student loan can start immediately or can start after you’ve completed your studies. Lenders may offer various repayment plans, such as:

    • Standard repayment: Fixed monthly payments over a set period
    • Graduated repayment: Lower initial payments that increase over time, matching your expected rise in income
    • Income-driven repayment: Payments that increase as income increases

Challenges of securing student loans for international students

  1. Loan options: Indian students generally rely on loans from public sector banks and nonbanking financial companies (NBFCs). These loans frequently have stringent eligibility requirements, such as collateral and significant documentation.
  2. Collateral and cosigner requirements: Many Indian lenders need collateral or a cosigner, particularly for large loans. This can be a substantial hurdle for students who need more resources. However, specific international lenders, such as MPOWER Financing, provide loans without a cosigner, making them an attractive choice.
  3. Credit history challenges: Establishing a credit history is crucial but challenging for students. Indian and overseas lenders may require a good credit score or assess alternative criteria such as academic performance for those without established credit.
  4. Documentation requirements: Lenders typically require detailed documentation, including proof of admission, cost of attendance, cosigner’s income proof, and sometimes collateral documents. This can make the application process lengthy and complex.
  5. Repayment considerations: Loan repayment terms often include variable interest rates and start after program completion. Students should be mindful of currency exchange fluctuations and consider flexible repayment options.

5 important considerations before taking a student loan

Here are five essential tips to consider before taking out a student loan:

  1. Interest rates: Know how interest will accumulate over time and whether it’s fixed or variable.
  2. Evaluate fees: Consider additional costs, such as application, insurance, origination or disbursement fees, that could increase your overall expenses.
  3. Maximize scholarships and grants: Apply for scholarships or grants to minimize the loan amount needed.
  4. Consider future earnings: Estimate your future income to ensure you can comfortably manage repayments.
  5. Plan for the long term: Assess how loan payments fit into your long-term financial goals and stability.

How do you get an international student loan?

As an international student, you may be eligible for a private student loan from a bank, credit union or online lender. Many lenders require a USA-based cosigner with good credit. However, not all international students have access to such a cosigner.

MPOWER Financing offers a unique solution: student loans specifically designed for international students that don’t require a cosigner or collateral. With MPOWER, you can borrow up to US$100,000 at a fixed interest rate over a 10-year repayment period. During school and for six months after graduation, you make interest-only payments, with full payments beginning thereafter which reduces the overall interest paid over the life of the loan.

The application process with MPOWER Financing is fully digital, allowing for an instant conditional offer after the application is complete and funding within weeks, depending on your situation.

MPOWER Financing Student Loan

A loan based on your future earnings

FAQs


What’s the advantage of a fixed interest rate over a variable rate?

A fixed rate provides stable, predictable payments, while a variable rate might start lower but can increase over time. MPOWER Financing offers fixed interest rates from US$2,001 to US$100,000 at competitive rates, with up to a 0.25% auto pay discount for the life of the loan.

Do I need a cosigner for an MPOWER loan?

MPOWER loans don’t require a cosigner, making securing funding easier for international students.

When does repayment start for MPOWER loans?

Interest-only payments are required while you’re in school with principal and interest payments starting six months after graduation. Check repayment terms.

How do I apply for an MPOWER student loan?

You can apply online and the entire process is digital. You can receive a conditional offer instantly after an application is completed and funded within two weeks, depending on your situation.

DISCLAIMER – Subject to credit approval, loans are made by Bank of Lake Mills or MPOWER Financing, PBC. Bank of Lake Mills does not have an ownership interest in MPOWER Financing. Neither MPOWER Financing nor Bank of Lake Mills is affiliated with the school you attended or are attending. Bank of Lake Mills is Member FDIC. None of the information contained in this website constitutes a recommendation, solicitation or offer by MPOWER Financing or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.

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