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Refinance your international student loan and release your co-signer

Boaz Valkin - February 22, 2018

Refinance your international student loan and release your cosigner

As an international student in the United States, you definitely learned something about credit - even if you didn’t pursue a business degree.

Although a lucky few have made it through an American master’s degree through scholarships and personal or family savings, the numbers are small. Most international students require educational loans to afford their Master’s degree. And many will now be looking for refinance options.

Many international master’s students quickly learn a few critical realities about credit as soon as they’ve accepted a placement at their dream university. 

4 things you didn’t know about your international student loan for the US:

  1. Without proof of ability to pay for the degree, it’s impossible to secure an American F-1 study visa - and, you can’t even apply for the visa until you prove to the university that you can pay their bill.

  2. Local banks have a really difficult time lending to students (no matter how talented and creditworthy they may be) that are about to leave the country for two years. The norms in other countries sometimes require collateral worth several times the amount of the loan. And then there are the higher-than-usual interest rates because those lenders have no way to track you once you leave the country.

  3. To secure an educational loan from a US lender, you need a US co-signer because they can’t figure out who you are and your historical financial information doesn’t translate across borders.

  4. Your drive to pursue your education means you’ll explore every opportunity you can find, and you will find yourself reaching out to people that you never thought you would – have you met your father’s cousin? 

What your student loan means to your co-signers

All’s well that ends well, right? You managed to secure your loan, didn’t you?

Maybe, but there might be a few unwelcome surprises once the dust has settled.

Perhaps your university acted as your co-signer (a privilege more or less found only at a handful of top business schools) or your father’s cousin actually came through for you.

Either way, you probably received a higher interest rate on your loan than an American student would have.

Why? Here’s why international students often end up paying more than their US classmates:

  • Your credit history doesn’t follow you from country to country; even your Canadian peers didn’t have an American financial history enabling them to secure more competitive private educational loans in the US.
  • As the primary applicant on your loan, American banks had to consider that they couldn’t assess your risk as the credit reporting metrics vary from country to country. They weren’t able to assume that you’re financially responsible; they had to place you in the opposite category because they don’t work with foreign information.
  • Money is a bank’s business, and they sell their wares according to risk. If they have any doubt about whether they’ll see their money again, they sell it at a higher rate, so it’s easier to cut their losses for the few (not you, of course) that do default. The higher the risk or perceived risk, the higher the interest rate.

And that’s why you need an American co-signer to secure an educational loan from an American bank. But, if you refinance your loan, it’s possible that you’ll no longer need a cosigner – and that’s terrific news for everyone.

The scary part for your American co-signer is that you’ll default on your loan, making them fully responsible for repaying it.

And, although you were the primary applicant and sole recipient of the money (well, until you paid your tuition, fees, books, accommodation, board, excursion fees, and a new laptop because your last one was barely holding on), the amount you borrowed counts against the max credit your co-signer can take according to their creditworthiness.

What does that look like?

Let’s assume your co-signer has a max credit limit of $150,000 based on their income and historical credit performance. If they’ve co-signed on an $80,000 loan for you to use, they have some $70,000 that they might be able to borrow should they need it for a house, a car, hospital bills, or their own education.

It’s a broad example, perhaps, but your US credit as a foreign resident without a green card isn’t just your own; your actions (positive or negative) reflect on your co-signer’s profile as well.  

Releasing your co-signer from your international student loan

Whoever co-signed on your international student loan did so because they wanted you to have the benefits of a master’s degree from a great programme.

Soon, you can release your co-signer from your student loan if you’re working in the US on an H1-B visa. 

The secret? Refinancing your loan.

Here’s what refinancing with the right provider can do for you:

  1. Get rid of that high interest rate. It was provided because the loan provider didn’t recognise your credit history and you were accepting money to be out of a job (or at least a high-income generating job) for two years. Now that you’ve graduated with a Master’s degree and you’ve accepted employment in the US or UK, your risk has decreased - and your interest rate (provided you’ve been financially responsible) should drop too.

  2. Refinancing your international student loan may just make it possible for you to pay off your loan faster or reduce your monthly payments.

Finally - you can finally enjoy a meal with your father’s cousin when he (or she) is in town without that loan hanging over the table. 

Want to know more about refinancing?

Get more information and join the Prodigy Finance waitlist for refinancing.

Prodigy Finance Ltd is authorised and regulated by the Financial Conduct Authority.

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