Should international students get private loans to study in the US?

There are now several private loans for international students to fund their studies in the US, thanks to companies stepping in to fulfil an unmet demand.

One such student is Neel Chatterjee, a PhD student from India studying mechanical engineering at the University of Minnesota. Neel took a US$20,000 loan from Prodigy Finance, a London-based company that lends money to international students at the postgraduate level and in select professional fields. In January this year, he started paying off the loan, which amounted to US$22,091 once the processing fee and interest rates, ranging from 9.3 to 10.8 percent, were added up.

“I think it’s a very good thing what [Prodigy Finance is] trying to do, [financing] students who are trying to study,” he told the Minnesota Daily.

“But [international students] don’t really have any other choice…I did not have any other choice at that point and then was sort of happy that I could take my own loan and not worry about it.”

Most international students are not able to access federal student loans by the US government. Meanwhile, scholarships and financial aid by higher education institutions are mostly reserved for domestic residents. International students also don’t qualify for loans with any US bank without proof of residency, US credit history and a cosigner who is a US citizen or permanent resident.

It’s within this environment that companies like Prodigy Finance provide an alternative source of funding for international students. Washington-based MPOWER is another lender in this sphere. It differs from Prodigy Finance by offering loans for international students to study in any field at both undergraduate and graduate level with more than 350 colleges or universities in the US and Canada.

MPOWER’s loans for international students start at a minimum of US$2,001 and go up to US$50,000 over two academic terms. For Prodigy, the minimum loan for international students is US$15,000 per academic year, while its maximum loan amount depends on the university and programme they pursue. This could go up to 100 percent of the total Cost of Attendance (Tuition plus living expenses) provided by the university.

Source: Artem Bali/Unsplash

Sam Weber, Chief Sales and Marketing Officer at Prodigy Finance told Inside Higher Ed: “What companies like us are doing is trying to develop a market by offering products that don’t traditionally exist for these customers.

“What’s different about our model are a couple of things,” he adds. “US-regulated banks that have a student lending arm are typically unable to lend to non-US students unless they have a couple of particular characteristics, one of which would be a [US] cosigner. The other is for that same student who might otherwise borrow from a bank in their home country, we don’t require collateral. The whole premise of the offering is the talent is proven for us by admission to some of the best programmes in the world. We’re willing to lend based on that potential and the jobs students will get after that.”

Another upside is convenience. Loan confirmation letters from these companies can also support international students’ visa applications and be used as a financial guarantee for the school . The entire process is done online, and the loan confirmation letter is also electronic.

But a big drawback lies in the higher than usual interest rates; Shannon Doyle, Programme Manager of Partnerships and Financial Education at Lutheran Social Services of Minnesota, warned that interest rates for these loans can be up to double that of federal loans.

The fixed interest rate for Direct Unsubsidized Loans and Direct PLUS Loans borrowed by domestic graduate or professional students and disbursed between July 1, 2019 and July 1, 2020, was 6.08 percent and 7.08 percent, respectively.

According to Inside Higher Ed, Prodigy’s interest rates are subject to change and for a 10-year repayment term, range between 7.74 to 11.54 percent. MPOWER’s annual percentage rate for international graduate and undergraduate student loans are 12.94 percent and 14.98 percent respectively after fees are taken into account. Doyle told the Minnesota Daily these rates are “not surprising.”

Nonetheless, these rates are lower than a loan from a bank in their home country, which would require a collateral such as a house, or a personal loan which will come with a higher rate.

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