Challenges of Securing Student Loans for International Students in the US
[This post is directed to international students looking to secure financing for a degree in the US, none of this should be considered financial or immigration advice, just our honest opinion].
Hello, we're Nicolas and Diego from Juno. Both of us came to the US as international students to pursue our MBA degrees. After our studies, we joined Juno, an organization specializing in negotiating improved terms on student loans. Our unique perspective stems from both personal and professional experiences in dealing with student loans for international students.
Our aim is to provide insights into school financing for international students and why it differs from US Student Loans. Nothing below should be taken as career or financial advice, we just want to provide some clarity on an often obscure market.
Student loan market for US students
In the US, there is a robust student loan market for those seeking higher education. Students typically finance their education using one or both of these options:
Federal Loans:
These loans are directly provided by the federal government, and the terms generally hinge on the student's pursued degree (undergraduate or graduate) and whether the loan is taken by the student or their parent. Each program has specific limits and rates governing the amount students can borrow. Congress establishes the interest rate for Federal Loans every May through a predetermined formula.
Private Loans:
Private companies, independent of the government, provide these loans, and the terms are contingent on the individual creditworthiness of the borrower or, if applicable, the cosigner. These are unsecured loans, meaning they lack collateral (unlike a mortgage), making the perceived credit quality of the borrower or cosigner the determining factor for eligibility and rates.
There are numerous Private Loan providers, many with access to cheap funding sources like banks, credit unions, or capital markets through investors. Both lenders and investors find it straightforward to assess the risk of student loans due to decades of available data on loan performance. Private lenders use various metrics, including Credit Score, Credit History, and Income, to categorize borrower risk.
- Credit Score: FICO calculates this score for people with SSN (provided by the U.S. government), ranging from 300 to 850. A higher score indicates better-perceived credit quality for lenders.
- Credit History: Lenders typically expect a minimum length of credit history and a recent absence of adverse actions, such as bankruptcies.
- Income: Some lenders may require a minimum income but typically grad students can apply for a student loan without any.
US Student loan market for international students
International students face a very different situation from their US counterparts. First and foremost, international students are not eligible for US Federal Student Loans. Moreover, most Private Student Loan providers require international students to have a creditworthy US cosigner.
Why are international students not eligible for most Private Lenders?
Firstly, many international students lack a Credit Score, Credit History, or Income in the US. Secondly, the absence of extensive public data on lending to international students makes it challenging for lenders and investors to assess the risk effectively. Thirdly, factors like the risk of the borrower returning to their home country and ceasing payments (flight risk) contribute to the complexity of underwriting.
What is the current status and what can you do?
There are some lenders that specialize in international students but unfortunately, the terms they offer are less favorable than what they’d offer to a US Student for the reasons mentioned previously. Higher interest rates, less flexibility on repayment plans and admin fees are common.
Before you decide on a lender, try to tap into free sources like scholarships and grants first. When you realize you need a student loan, chatting with your school's Financial Aid Office is a good idea. But, keep in mind they might not know everything about all the lenders out there or their limitations. It's smart to do your own research and know all your options before picking one.
What can Juno do for you?
At Juno, we’ve made it our mission to provide all international students the best possible guidance when it comes to selecting a student loan. We’re in constant communication with the biggest lenders in the market and we’ve helped thousands of international students select the best option available to them.
It is crucial to ensure transparency in the loan selection process. Students should be provided with a clear understanding of ALL available options, including the specific terms offered by each lender. That’s why we’ve built the best tool for international students on the market.
At Juno, you’ll have a clear understanding of the options available to you and the pros and cons of each. On top of that, you will have exclusive Juno benefits for some of the loan options available to you (if you choose to work with them).
Our main goal is to provide as much transparency as possible to you during this process and will be there for you in case you have any questions.
