We all know that a college education in the United States is extremely expensive. As such, it is necessary for most students to take out student loans; that includes international students. But while an international student loan may make your US education dream possible, you will still be faced with the obligation of paying it off after graduation.
For many international students, Optional Practical Training (OPT) is the logical next step after completing your degree. OPT allows you to work in your field of study for up to 12 months, or for an additional 24 months with a STEM OPT Extension.
This means you can earn income in your field, as well as professional experience that will hopefully lead to sponsorship for an H-1B visa.
OPT is an ideal time to make a big dent in your student loan payments, as you will be earning a respectable income, yet you are still at a period in your life where you can keep your expenses low. If you play your cards right and follow these tips, it can be possible to pay off your student loans partially – or maybe even completely – during OPT.
Paying Off Your Student Loans on OPT
Don’t Discount Grants and Scholarships
The quickest way to pay off your student loans while on OPT is to have less debt to begin with. Apply for every grant or scholarship available to you.
While most grants and scholarships will not pay for your education outright, every little bit can help. A $2,000 scholarship here, a $1,500 one here, and a $500 grant there can really add up. You can receive grants and scholarships based upon your income, your academic merit or interests, your race, gender or background, athletic ability, and even your extracurricular interests.
Where do you look for scholarships and grants? Start by checking with your school. If you’re part of an academic program with a sponsoring organization, check with them too. You can also look for social organizations, and use the power of the internet to search for financial aid you may qualify for.
Oh, and don’t think that you can’t qualify for financial aid simply because you’re farther along in your program. Many schools and organizations offer grants and scholarships to students in all phases of their academic careers.
If it all adds up to a few thousand dollars, that can mean being able to pay off your student loan months earlier. If you can qualify for larger scholarships or grants, all the better.
Explore Different Repayment Plans
When you will be required to start paying off your loan, as well as how much you will be obligated to pay each month, is determined by the terms of the loan you have taken out. Typical repayment plans include:
- Standard repayment – You pay a fixed amount each month for a predetermined period until the loan is repaid.
- Extended repayment – You pay a smaller fixed amount each month over a longer period of time, thus decreasing the monthly financial obligation.
- Graduated repayment – You begin paying off your loan at a lower amount, but your monthly obligation increases over time until you begin paying the full amount, along with interest.
- Income-based repayment – You begin repaying the loan after you’ve graduated at a rate determined by your income.
What Option is Best for Repaying Your Loan on OPT?
If your plan is to pay off the maximum amount of your loan during OPT, the repayment plan does not matter as much. Since you will pay more in interest the longer you have an outstanding loan, you will want to overpay on your loan as much as possible each month to absolve you of the largest amount of principal and interest in the shortest amount of time.
If you are less certain about your income about graduation, or see yourself taking part in OPT for much less than the average salary, it may be in your best interest to secure a loan with an extended or graduated repayment plan. You will not be able to pay the loan off as quickly with these options if you only pay the minimum monthly amount, but it can reduce the financial burden until you establish yourself in a well-paying career.
Refinancing Your International Student Loan
While on OPT, you may find yourself in a situation where your loan terms just don’t fit. You might feel as if your payment is too low or high, or that you’re stuck with far too high of an interest rate for your income or credit score. If this is the case, refinancing may be a good option.
What is International Student Loan Refinancing?
In simple terms, it means replacing your existing loan with a new loan. This new loan will have terms that more closely align with your income, credit score, and ability to repay.
Traditionally, many US banks and credit unions have only offered student loan refinancing to US citizens. However, this is changing. When you think about it, graduates on OPT are prime candidates for student loan refinancing. With an average annual income of $61,894 as of 2022, they earn more than most new college graduates. Plus, most new international graduates will have no credit score, rather than a bad credit score. While having no credit score isn’t as helpful as a having a good credit score, it far is preferable to having bad credit.
How to Position Yourself Best for Student Loan Refinancing
If you are able to secure a lender willing to refinance your international student loan, you can give yourself the best chance for securing a new loan on OPT with favorable terms if you can provide:
To Refinance, or Not?
- Proof of OPT employment or a written OPT job offer.
- A valid visa and any necessary work permits.
- A loan cosigner, if at all possible.
- Proof of residence in the U.S.
- A qualifying minimum credit score.
Once you have submitted all the necessary documentation to apply for loan refinancing, you will receive a final offer letter from the lender. Examine it extremely carefully. Compare the terms of the refinanced loan to your current terms. Consider your current and projected future income, as well as your current and future cost of living and other expenses. Using this information, you can determine if it makes sense to accept the new terms, stick with your current loan terms, or seek out a different lender for refinancing.
Tighten Your Purse Strings
“Tightening your purse strings” is a common American idiom that means eliminating unnecessary expenditures to save money and pay off debts. While you may be tempted to live it up now that you have OPT employment, these extra expenses can make it a more difficult and longer process to pay off your student loans.
If your goal is to fully, or at least mostly pay off your student debt while on OPT, consider these money-saving measures:
Choose a Cheap Apartment
While you may technically be able to afford a somewhat luxurious apartment on your OPT salary, does it really make sense to throw away all that money on rent? Instead, look for a more basic apartment in a not-so-trendy part of town for a bit less. It will still be safe and comfortable, but can potentially save you $200-$300 per month in rent. That much money can go a long way in paying off loans. Besides, you can live without a swimming pool for a year, can’t you?
Live with a Roommate
Whether you lived in a dorm or in an off-campus apartment, chances are you shared your space with a roommate in college. There’s no reason you can’t continue to do it while on OPT. A roommate can cut your rent costs in half. Plus, you might make a great new friend or future job reference, which can be worth far more.
Eat In, not Out
The average cost of eating at an American restaurant is $20.37 per meal. By comparison, the average cost of a home-cooked meal is $4.37 per serving. Switching from eating out to eating in for two meals per day can save you $1,000 per month. Put those savings into your student loans, and watch the balance disappear much faster.
Decrease your Alcohol Intake
Besides the obvious health issues, alcohol is expensive. Expect to pay an average of $5-$15 per drink at a bar. Going out a few nights a week can easily add up to $250 per month in avoidable expenses. Instead, drink sparingly and mostly at home; you’ll be able to put that extra few hundred bucks you save each month into your loan.
Put Off Car Ownership if Possible
While it can be more difficult to live and work in many parts of the US without a car, it is possible. If you can manage without, the savings are significant. When you add up the cost of car payments, taxes, insurance, and fuel, it costs an average of $7,000 per year to own a car in the United States. By comparison, choosing to commute by bus costs an average of $1,200 annually. If you can commute by bike, it’s easy to cut even that number in half.
How Much can Frugal Living Add Up?
Let’s say you’ve decided to rent a reasonable apartment with a roommate, eat most of your meals at home, moderate your alcohol intake, and commute to work by bicycle while on OPT. What kind of savings can that equal in one year?
If that sounds crazy, consider the fact that just eating at home vs. eating out for most meals can easily save you more than $10,000 per year. Riding a bike instead of owning a car can save you more than $6,000 annually. Along with all the other places you save, from lower rent, to nights at home instead of the bar, saving as much as $30,000 in avoidable expenses is possible in one year. All of that money can go into paying off your student loans.
Will it necessarily be fun? No. Will you sometimes miss out on activities with your friends? Probably. But remember: This isn’t forever. By buckling down now and paying off most of your student loans while on OPT, you can begin your professional career largely debt-free, and reward yourself for all of your hard work.
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