There are a number of financial aid options available to students in the USA looking to fund their education. However, getting a loan is often the only viable option for many international students and new immigrants in particular. The strength of the American market, its high penetration rate, and the ease of obtaining them make these loans an attractive proposition for Indian students looking to study in the USA. It’s not easy to get an education loan if you don’t have a co-signer or any other source of income. Considering that almost every applicant has weak credit history, lenders tend to be wary about issuing loans without collateral. Education loans for international students can be broadly classified into two categories: Direct Loans and COFA Loans. These loans can only be availed after completing all other types of aid like grants, scholarships, and work study programs. If you are an Indian student looking for an education loan in the USA to fund your study there, we have listed the best resources available online that might help you finalize on the right scheme with ease:
What is a Direct Loan?
Direct Loans are provided by the US Department of Education (US DOE) to American citizens and permanent residents for higher education. As the name suggests, these loans are given directly by the DOE without any private lending institution as a middleman. Direct loans have flexible repayment options and have a zero or very low interest rate. In addition to this, if you have existing credit card debt, you can use it as collateral to fund your education. However, the downside is that you will have to take a long-term loan, which will stretch all the way to 10 years or more.
What is a COFA Loan?
COFA stands for the “Citizenship-Based Federal Entitlement”. It is a loan scheme that was launched in 1987 by the US government to simplify the process of financial aid for international students. With this scheme, Indian students can get a loan of up to $7,500 a year against a collateral of their Indian passport. While the direct loan needs you to have a U.S.-based co-signer, COFA is independent of any other form of financial aid and doesn’t require a co-signer. Moreover, you can get this loan without visiting any bank or lender and without any other form of credit check. However, the interest rate is very high and the duration of the loan is very long, stretching up to 15 years. In addition to this, if your Indian passport gets stolen or misplaced, you will have to spend a lot of time and effort to get it replaced with a new one. This is because COFA bases its loan on the passport, which is a very flimsy and risky collateral to base your loan on.
Pros and cons of a direct loan
Since these are federally funded loans, they are very easy to obtain. Students don’t have to go through a tedious process of applying for a loan and getting approved like they would with a private bank loan. Moreover, direct loans have a very minimal or zero interest rate. So, if you can’t pay off your loan in time, you don’t have to pay the interest on it. This makes the loan a very good option for students with a poor credit history, as they can still get financial aid with these loans. However, the main drawback of these loans is the fact that they are long-term loans, which need to be repaid over a period of 10 years. This means that you will have to make a monthly payment for a very long time, which can make it hard for you to save enough money for your post-graduation.
Pros and cons of a COFA loan
The main advantage of COFA loans is that you can get the loan without having a co-signer or any other collateral. However, it has some serious drawbacks as well. First of all, the interest rate is very high, so it’s important to pay back the loan quickly. Moreover, the loan has to be repaid within a very short span of one year. So, if you want to use this loan to fund your post-graduate education, you will have to somehow find a way to earn a decent amount of money within a year. Furthermore, since COFA bases its loan on your passport, which is a very flimsy form of collateral, you will have to be very careful with your Indian passport. If it gets lost or misplaced, you might face a lot of trouble getting it replaced, which will make it hard for you to get a loan or even travel back to your home country.
Education loans are a great way to fund your higher education, but they can also be a huge financial burden if you aren’t careful. Be sure to do your research and choose your loan wisely, so that you can avoid debt and graduate debt-free. To make sure you get the best possible deal, you can compare different education loan providers and find one that best meets your needs.
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