Another academic year beckons and graduate students across the U.S. are beginning their quest to become future engineers, bankers, and doctors. Moreblessings Sekenhamo, an aspiring investment banker from Harare, Zimbabwe, wanted desperately to be one of these students—able to come to the U.S. to pursue his graduate degree so that he could one day focus on infrastructure development in his native country.
In 2014, he received a scholarship to attend the University of Chicago’s Booth School of Business. But, that wasn’t enough to move across the Atlantic Ocean, cover rent, purchase books and manage other everyday expenses students have to deal with. And even though he had worked as an investment banker in Zimbabwe for more than 6 years, he was unable to find a single bank in the U.S. or his home country that was willing to provide him with a fair loan. He quickly realized that simply wanting to contribute academically and economically to the U.S. and his home country wasn’t going to be enough collateral.
Moreblessings’ experience isn’t unique. It is a far too common occurrence for students in developing countries trying to finance an education in the U.S.
In 2017, the Council of Graduate Schools reported that U.S. graduate programs received over 700,000 applications from international students. However, for many would-be graduate students applying from overseas, like Moreblessings, putting together the finances to make it from their home country to a U.S. classroom is often harder than the actual entrance exams.
So why in this day and age — with globalization moving forward at such a rapid pace – is it so difficult for even top international students to secure a loan?
Unfortunately, and to the detriment of lower-income students, access to financing is still very much determined by an applicant’s assets and home country. Foreign financial institutions primarily decide whether to offer a loan based on a set of local criteria, including local credit history, the stability of the borrower’s current employer, the borrower’s current income, the borrower’s local home value or sometimes their investment portfolio. To even consider lending to students, the local bank often requires a guarantee or assets to secure the loan. Additionally, U.S. based banks are reluctant to offer a loan to a student who is new to the country, has no credit, and few financial assets.
While these talented students attempt to cover tuition with savings and scholarships, an overwhelming percentage find themselves requiring outside funding, and face incredible difficulty finding a bank that will provide them with a loan. According to our research, 89 per cent of international student borrowers are unable to secure financing from a bank in their home country or the U.S.
This absence of cross-border lending limits the type of person who can study in the U.S. to wealthy students. Access to an American education should not be determined by where someone was born. It should be determined by merit and potential. Students like Moreblessings deserve to study at the best institutions in the world. Being born in a poor country should not bar a driven and smart person from accessing education. This belief is at the core of what we do at Prodigy Finance.
When our company was born, we made it our mission to create opportunities for international postgraduate students trying to finance their education. When our company’s founder, Cameron Stevens, was an MBA student at INSEAD, he experienced this funding gap first-hand. Since then, we’ve been committed to engaging sophisticated investors and alumni of top schools to help fund students from their alma mater or home countries who are interested in studying abroad. We truly believe that talent is borderless and thus credit should follow suit.
Cameron, like most people, was shocked when he realized that for a bank to even consider providing a loan to an international student, they often demand an outrageous amount of collateral, some very limiting terms or a high interest rate. These students end up facing, on average, interest rates that are often a multiple of the U.S. Federal Student Loan rate offered to American students, despite coming from similar financial backgrounds. This type of behaviour by banks puts financing out of reach for the very students who need it the most.
In addition to keeping foreign students who aren’t well-off from studying in an advanced economy, the unwillingness of banks to make loans across borders also has an adverse effect on the U.S. economy. According to the U.S. Department of Commerce, international students contributed over $35 billion to the U.S. in 2015. And in the 2016-17 academic year, more than one million international students studying at U.S. universities supported more than 450,000 jobs, according to NAFSA: Association of International Educators.
U.S. universities also benefit from the addition of foreign students. These new students help academic institutions fund and expand their offerings, creating larger class sizes and more specialized graduate programs with additional seats for American students. International students add to the diversity of the classroom and enrich the quality of the academic programs through broader perspectives. Despite their academic and economic potential, international students make up only five per cent of the higher education population in the U.S. today, according to the Institute of International Education (IIE). Now imagine the benefits to everyone in the ecosystem, if more international students had the opportunity to study here.
Students who gain admittance to U.S. graduate programs should have the opportunity to pursue their academic and professional dreams, regardless of their finances or geographic location. In order to give a greater number of students a chance, we need to take a hard look at how to make cross-border lending more accessible. Only then can we better serve the global student of today and foster their potential as powerful engines of economic growth for both the U.S. and their home countries.