An emerging student loan industry specializes in addressing the financial barriers that often prevent international students from enrolling at American colleges and universities. International students cannot receive federal student loans and are unlikely to get private loans from American banks; U.S. colleges also tend to have few scholarships available for international undergraduate and master’s-level students. Companies such as MPOWER Financing and Prodigy Finance are looking to fill this void, in hopes of expanding access and increasing geographic diversity on college campuses, Inside Higher Ed reports.
“There’s this stereotype that international students are wealthy and don’t need any financial support, and part of that is availability bias,” Emmanuel Smadja, CEO of Washington, D.C.-based MPOWER Financing, told Inside Higher Ed. “You notice that shiny car in the parking lot; you don’t see the other international students who are walking to class, who are skipping meals, who are wondering how they are going to pay for their second year of grad school.”
Interest rates high—but better than the alternative?
The loans offered by MPOWER and Prodigy carry high interest rates, but company officials say the rates are generally lower than what students can access abroad; moreover, students don’t have to put up collateral to get them. “They’re not outrageously high,” Anna Helhoski, a student loan expert at NerdWallet, said of the loan rates. “By student loan standards, they’re high, but they’re better than the alternative, which might be a loan from a home country that could involve putting up collateral, such as a house.”
Many students “couldn’t collateralize a loan of this size” in their home country, says Sam Weber, the chief sales and marketing officer at London-based Prodigy Finance. Rather than require collateral, Prodigy officials believe “the talent is proven for us by admission to some of the best programs in the world” and they are “willing to lend based on that potential and the jobs students will get after that.”
Who can borrow?
The loans come with limitations. MPOWER, which launched in 2014 and has issued 3,000 loans, funds only students who attend one of 350 U.S. and Canadian institutions selected by the company based on graduation rates, alumni earnings, and post-grad employment rates. Prodigy, which launched in 2007 and has issued around 15,000 loans, lends only to graduate students studying certain subjects at one of 500 selected institutions around the globe.
More than three-quarters of MPOWER borrowers hail from emerging markets, and more than half of borrowers have annual family incomes under $15,000. About 80 percent end up staying in the country where they study. Prodigy says that its borrowers tend to come from China, India, and Brazil—with strong growth in other markets—and two-thirds return to their home country after studying elsewhere.
Both companies have attracted financial backing from venture capital firms and institutional investors, but they also have critics. Some have voiced concern that students could leave the country and never repay their debt, although both companies say their default rates are less than 1 percent thus far.
Other skeptics, such as Brendan Cantwell, an associate professor in the department of educational administration at Michigan State University, suggest the emergence of these companies “reflects a public policy failure, that we are in a sense passively demanding talent…from abroad, and yet we are unwilling to create a policy frame that will allow them to be stable or live decently.” Calling the new loan model “a pay-to-play situation,” Cantwell asks, “Is this the way we as a country want to integrate and support high-skilled immigrants?”