After graduating from an American undergraduate or graduate program as an overseas student, you may be thinking about how to begin repaying your student loans. You might wonder if you refinance for international student loans is available and if it is possible to get to a lower interest rate if you discover that your payments are excessively high.
Refinance for international student loans is available and and is an option for international students in specific situations with many more benefits then just a lower interest rate.
What is Refinancing international student loans?
To refinance a student loan is to replace an existing loan with a new one. The new loan includes improved terms, including a reduced interest rate and lower monthly payments, compared to the original loan.
Many people choose to refinance their loans to lower monthly payments, save money on interest, or pay off debt faster.
What are the benefits of refinancing for international students?
It’s possible to qualify for better loan terms once you’ve finished your degree in the United States. Suppose you want to adjust the terms of your foreign student loan and take advantage of more favorable terms. In that case, refinancing could be a good option.
The sum of money you have to pay each month is excessive
Refinancing your student loans may help if you have trouble making the minimum monthly payment. In this case, let’s say you have a monthly cost of $600 that you’d prefer to be reduced to $400.
In this scenario, refinancing could be helpful for one of two reasons: either the interest rate could be lowered, resulting in a lower monthly payment, or the loan’s term could be extended, resulting in a lower monthly payment over a more extended period of time (or it may do both)
Your level of curiosity is excessive.
Refinancing allows you to take advantage of new, cheaper interest rates. Foreign students may pay 8% or more interest rates on their loans. Loan companies like Prodigy Finance and Quorum Federal Credit Union focus specifically on serving the needs of overseas students. Standard interest rates for loans from each of them range from 8% to 9%. You could get a rate as low as 4% if you refinance.
Consider that you took out a loan of $78,000 at 8.25% for 20 years. With a balance of $60,000, if you can refinance at 6.55%, you’ll save almost $18,000.
You’d like to reduce your interest costs and repay the loan sooner.
The typical repayment period for an overseas student loan is 20 years. Refinancing at a lower interest rate and shorter period allows you to repay the loan balance sooner. You may have to pay more monthly, but you can repay your debt faster.
You’d like to have a cosigner released.
A cosigner release program may be worth looking into if you apply for a student loan with a cosigner and your lender does not provide one. Refinancing allows you to change the loan’s naming convention, removing the original cosigner and replacing them with a new one. You may qualify for a better interest rate and more favorable repayment terms with a cosigner on your loan.
Difficulties in Refinancing Student Loans for US Visa Holders
Although refinancing is a possibility, international students may have challenges obtaining approval. Lenders in the United States may view you as a high-risk client if you are not a citizen or temporarily on a visa.
To refinance student loans, a person needs a good credit score, which can be challenging for those with weak credit.
If you want to refinance your overseas student loans, your chances of being approved improve with a credit score of 690 or higher. Building a credit history while attending school is difficult, but not impossible. Here are a few options:
- The Process of Creating a Bank Account
- Obtaining and prudently employing a secured credit card
- Punctual bill payment
You’ll need to demonstrate responsible financial habits and a credit history stretching back at least two years. In the absence of credit history, lenders may be hesitant to accept your loan for refinancing.
Many international students may not have a US-based relative or friend who can serve as a cosigner on
A US citizen or permanent resident cosigner with a 690 credit score could improve your refinancing chances. If you cannot repay the loan, your cosigner will step in and do so, providing the lender with an extra degree of protection.
You’ll need to demonstrate your reliability without a cosigner by raising your credit score. This may be difficult to accomplish but is doable for overseas students and visa holders in the United States.
International students studying in the United States may obtain a visa that will only allow them to stay temporarily.
Lenders take on a higher risk when dealing with non-citizens who are not permanent residents. Renewing your visa is the only way for non-permanent residents and Green Card holders to remain in the country. The chance exists that your work visa will not be renewed or extended, even if you currently possess one. The future of people in the United States on temporary visas is unclear. This is another justification most banks give for requiring a cosigner who is either a US citizen or a lawful permanent resident.
Financial institutions view international students as a “high risk” group since they could potentially abandon their US residence after completing their studies.
Lenders may have trouble collecting loans from borrowers who default on loans and leave the country. The impact on your US credit report will last for seven years, but that might not stop you. As a result, no reputable financial institution will likely refinance your loan with you.
What do most people look for when refinancing their student loans?
The eligibility standards for receiving a student loan disbursement in the first place are typically less stringent than those for obtaining a refinancing. Depending on the lender, refinancing a student loan can be done by various means. Lenders will check for the following factors:
Gainful Employment with a Reliable Organization
Suppose you already have a job or a solid offer from an employer. In that case, you may be able to negotiate a cheaper interest rate.
Your current employer should be well-established and reliable. Work for a startup or a company with shaky financial footing. Lenders could be hesitant to refinance your loans. Lenders may also consider whether or not you can easily find another job in your field in the event of termination.
Maximum 43% debt-to-income ratio
Your debt-to-income ratio is one metric among many others. You get your debt-to-income ratio if you divide your total monthly debt payments by your total monthly income. The chance of getting approved for a refinance increases if your debt-to-income ratio is lower than 43%. So, what exactly is a debt ratio? Your debt ratio would be 24 percent if your monthly income was $5,000 and you had two $1,000 monthly expenses (rent and car payment). The debt-to-income ratio indicates you have sufficient disposable income each month to service a new loan.
A minimum of 690 required credit score
Foreign credit history is generally not taken into account by US lenders. Before applying for a refinancing loan, you should make an effort to establish a solid credit history in the United States.
Visa is Current and Likely to be Renewed
You must have a visa valid for at least two years on the date you apply to refinance your student loans. You should renew your visa first if it is about to expire before applying for a mortgage refinance, so the lender isn’t concerned about your legal status in the country.
Learning Methods for Foreign Students Considering a Refinancing of Student Loans
Suppose you are searching for a more manageable repayment plan on your student loan. In that case, you can refinance it in several ways.
First, you may borrow money from a close relative or friend at a reasonable interest rate.
If you have a friend or relative who has the finances and is willing, try to offer them the opportunity to assist you in refinancing your student loan in exchange for interest income.
Get everything down on paper, including the loan’s terms, the monthly payment, penalties, and the interest rate, if you decide to go this route.
Consider your financial situation before committing to an interest rate on a family loan. The loan could be viewed as a gift by the Internal Revenue Service if the interest rate is too low.
Note that the gift tax is often paid by the giver. Gifts up to $15K are tax-free for US citizens, Green card holders, resident aliens, and nonresident aliens. Except for nonresident aliens, the excess will be used for the $11.4M lifetime estate tax exception (just increased in the 2018 tax law and set to expire in 2022). Future legislation could reduce this prohibition.
Second, get a personal loan to settle your overseas student loan balance.
Personal loans in the United States are available from a number of different lenders. If you plan ahead, you can utilize this money to pay down your school debt. If the interest rate you’re given on a personal loan is lower than the rate you’re now paying on your student loans, you may choose to refinance.
This approach, however, does have certain drawbacks. If you do this, your new loan won’t count as a federally guaranteed student loan but rather as a personal loan. Converting a student loan into a personal loan could mean giving up the tax benefits associated with interest deductions of up to $2,500 per year. You can’t write off the interest you pay on a personal loan.
Examine All Available Refinancing Choices For Your International Student Loans Wisely
Although finding a cheaper interest rate when refinancing an international student loan can be difficult, it is worth the effort if possible. Carefully weigh the new interest rate, loan length, lender costs, and tax implications before moving forward with the refinancing. A professional financial and tax advisor, such as MYRA, can advise you on whether and how to refinance your overseas student loans.