Interest Rate Questions for International Student Loans
December 24th, 2012 by Jennifer Frankel
As the cost of higher education in the United States continues to rise, more international students than ever are looking for assistance when it comes to financing their higher education goals. As a result, while personal savings (self-financing) and scholarships (financial aid) remain the two most widely-used ways for such students to pay for college in the US, more international students than ever are turning to international student loans. International student loans, much like any other loan, represent a legally binding agreement with long-term consequences and should not be entered into lightly. Thus, potential borrowers should make sure they understand the terms and conditions of what they are signing. Here are a few questions (and answers) that may help:
- Is the loan’s interest fixed or variable?
As the name suggests, a fixed interest rate means that the interest rate on the loan will not change over the life of the loan. By contrast, a variable interest rate may, at the discretion of the lender, change over time. Variable interest rates allow lenders to adjust the rate up and down according to market conditions and may, ultimately, make a major impact on a given international student loan interest rate.
- Are variable rates inherently bad?
Not at all. It is entirely possible that, if the index on which a loan is based declines, the borrower’s interest payments also fall. Of course, the opposite it true, too. Fortunately, many loans have maximum interest rate caps to offset this risk. If this is something that you are concerned about, make sure that your international student loan interest rate has a maximum.
- When will interest begin to accrue and when will I be required to start making payments?
Loan repayment falls into three basic categories. With the first of these, full deferral, both interest accrual and principal repayment begin 6 months after graduation. By contrast, interest only loans require students to pay the accruing interest from the start of the lending window and, similarly, immediate repayment requites payments on both interest and principal to be made as soon as the loan has been dispersed.
As you can see, there is no one right answer to any of these questions. As the situation varies from borrower to borrower, however, due consideration of these matters is always encouraged!
If you have additional questions, contact our loan experts for more information about interest rates!