Jenn talks with Mark Kantrowitz, a leading expert on financing a student’s college education. Mark is currently Publisher of Private Student Loans, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation.
Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis.
Podcast Transcript –
Intro: You’re listening to the Beyond the States podcast with Jenn Viemont. Did you know that you can go to Europe and get your entire degree taught in English for less than one year of tuition at many American schools? Jenn will take you on a deep dive into the many benefits and options around English-taught higher education in Europe, helping to make the possibility less foreign.
Jenn Viemont: Hi, I’m Jenn Viemont. Thanks for joining me today. So things are finally settling down here. And I’m really glad to be back to our twice a month frequency for the podcast, writing the book has been consuming my life, but the writing portion of it is finally done. And we now have a title. It’s going to be called College beyond the States European schools that will change your life without breaking the bank. I’m super excited about this project. The book talks about all the benefits and obstacles around college in Europe. And it also profiles 13 schools that I visited, that were selected based on cost, educational experience and outcomes, and the international student experience. It’s going to be published in September of this year. So be sure you’re subscribed to our newsletter, or follow us on social to get updates on that. So as I mentioned last time, I recently spoke at a college fair in Atlanta, I caught the tail end of the presentation before me which was about financial aid. Even sitting there for 10 minutes, my head was spinning with all the talk about loopholes and sticker price. Fortunately, things are a lot more straightforward with European schools. Some schools offer scholarships or tuition waivers and some don’t. It’s generally pretty transparent about what the criteria is and what’s included in the scholarship. Some schools do have FASFA numbers. But for those that don’t, I’m often asked about what that means about savings. It’s in a 529 plan. So today, we’re joined by financial aid expert, Mark Kantrowitz, who’s going to break this down for us. Mark, thanks so much for joining us today. Thank you. So we have a lot of families who are interested in college in Europe and have money saved in a 529 plan. There are a lot of schools that don’t have a fastest school ID number, and many who have told me they have no intention or desire to work with FAFSA, what happens to the money that these families have saved in a 529 plan if they go to a school that does not work with us.
Mark Kantrowitz: So there are two ways to study abroad. If your entire education is at an international school, there are two types of international schools there are like three or 400 schools that have federal school codes, and are eligible to receive federal student aid for their students who are US citizens or permanent residents or otherwise eligible for US Federal Student Aid. And that mostly consists of loans because they’re not eligible for the Pell Grant. But if a school has a federal school code, then you can use your 529 plan money to pay for that school. And the distributions will be qualified distributions. So there’ll be entirely tax rates. If you’re enrolled at a school that is not a participant in the title for federal student aid programs, then the distributions that you take from your 529 plan to pay for that foreign institution will be considered non qualified distributions. And that means you’re going to have to pay taxes on that the earnings portion of that distribution, the taxes will be at the beneficiaries rate, the students rate plus, potentially a 10% tax penalty. And that’s just on the earnings portion of the distribution, not the full amount of the distribution.
Jenn Viemont: So if somebody let’s just use a round number two, for the ease of this, if someone had $10,000 saved, do you know off the top of your head, what a typical average earnings on 10,000 would be if they saved over let’s say the last 10 years?
Mark Kantrowitz: Have they saved for the last 10 years, probably about a quarter of that $10,000 will come from the earnings. So that would be around 2500. And then the students tax rate 10 They usually are pretty low. Federal income tax rate has changed this year due to the tax cut legislation. In 2017. We had 1015 and 25%. In 2018, we have 1012 22 and 24%. For in student, you might expect 10 or 12%. So if it’s 2500 that is earnings. And let’s say that you’re at the 10% tax bracket and then you also have to pay a 10% tax penalty that will be 20% of the 2500 which would be a total of $500. Gotcha. So you still have 9500 left to pay for school.
Jenn Viemont: Wonderful. That’s incredibly helpful to understand it that way. But what if so let’s say that there is a family who has saved significantly more so that that would be a nice chunk of change, or there have a higher tax rate for their student or whatever? Is there anything else they can do with that 529 money that will enable them to not have a penalty?
Mark Kantrowitz: Well, they could change the beneficiary to a child who isn’t studying abroad, but is studying in the United States. And money’s fungible. So if you have more money for one child from the 529 plans, and you maybe have more money from income, and other savings for the child’s, the other child, and so you could avoid the potential tax penalty by changing the beneficiary of the 529 plan.
Jenn Viemont: So I was looking at a couple of school websites the other day, I’m I’m wrapping up writing this book right now, that profiles a number of European schools. And I noticed that a couple of them that did not have faster school IDs they did and that will they do work with Sallie Mae loans. So I got on the phone to Sallie Mae and and I sat on hold forever and talk to someone to try to find the list of Sallie Mae schools that are abroad. They said a list like that did not exist. So we individually went through my list of 15 schools, only two of which worked with Sallie Mae. But are there other options for student loans besides those that work with? With that have a faster school ID or that work with Sallie Mae? Are there other options for students?
Mark Kantrowitz: Well, there are private student loans, where you can borrow from a bank or non bank financial institution to pay for college. Many of them though require the institution the accredited by a US creditor. And and in fact, many of them require that they be titled for institutions. Sallie Mae has had relationships with International Colleges, they used to have a division called Sallie Mae UK, which they subsequently shut down. But they they were making loans to some of the top colleges outside the US. So you would have to contact each lender to ask these days most lenders are risk averse. So they focus on US colleges and the best of the US colleges, and they don’t want to lend to students at colleges that have a very high default rate. And the problem with college lending to a with a lender lending to a student attending college overseas, is that if that student stays overseas, it may be very hard for a US lender to collect on that debt. It’s much more of a problem for international students who want to study in the United States. Where they are, most US lenders will require them to have a credit worthy US citizen or permanent resident as the cosigner on the loan. Because they want that when that student eventually returns home, they the the lender has some method of collecting on that debt. So it’s much more common challenge for international students with a US student, they presumably have family in the US and their US citizen or permanent residents. And so they are likely to return home. But still, the when you’re asking the lenders to do something that’s a little bit out their ordinary, it becomes more challenging to find a lender who’s willing to do that,
Jenn Viemont: You know, just a side story. One of the benefits of going to college in Europe is that there are so many affordable options that families can use their 529 plans and not have to take out loans. It’s wonderful. I saw an article recently upheld people who were losing their professional license, because they have not paid their student loans in the US. That just seems a little counterintuitive that you would take away somebody’s professional license when you’re wanting them to pay you money. But yeah, you’re right. I mean, there’s a lot of leverage that lenders have to use here in the US to collect that they wouldn’t have if the students were overseas, right?
Mark Kantrowitz: Well, the ability to prevent renewal of a professional license is limited to federal education loans. Private student loans don’t have that power. The federal government has very strong powers to compel repayment of federal student loans. And preventing renewal of a professional license is usually it’s a limited number of states that do it and it’s usually As a last resort, unfortunately, the use of this has expanded. And so it doesn’t make sense to prevent someone from working in the profession for which they’ve trained. Because they, because if you do that they won’t be able to repay the debt regardless. So it’s counterproductive solution.
Jenn Viemont: That’s crazy. I assumed it was just some sort of like, sketchy fly by night operation that was doing this, I didn’t realize it was the federal government who’s able to do that? Wow, that’s mind blowing.
Mark Kantrowitz: If you default on a federal student loan, the government can garnish up to 15% of your wages, they can offset your federal and state income tax refunds. And they can offset up to 15% of your Social Security, disability and retirement benefits, all without a court order. And that’s incredibly powerful tools to force borrowers are in default to actually repay the debt. Because of that the federal government succeeds in collecting on a net present value basis after subtracting the collection charges 80 to 85 cents on the dollar for defaulted bonds, which is a phenomenal recovery right down for credit cards. The lenders recover pennies on the dollar.
Jenn Viemont: Wow. Wow. Is it so is there anything else you feel like it would be helpful for families, you know, who are considering schools that don’t have the traditional funding options?
Mark Kantrowitz: While there are countries which offer free tuition, and including to international students, you still have to pay your living expenses in those countries, and some of them can be rather high. But many families find that the combination of the lower costs, even with the cost of traveling from the US to the foreign institution, and back is cheaper than a private, nonprofit college in the US and in some cases more prestigious.
Jenn Viemont: Well, Mark, this has been incredibly helpful today, even for myself, personally, my own son is pursuing college at a school that does not have a fastest school ID. So this just put my mind to rest about what we’ll end up being penalized for and recognizing that it’s still absolutely worth it in our situation. So thank you so much. And we’ll provide your links and information on our show notes. Thanks again. You’re welcome. Mark has more relevant information on private student loans, dot guru and student aid policy.com. We’ll have those links in our show notes, too. So there are a few other things I want to mention about the Sallie Mae call I had, though I find it hard to believe that they don’t have a list of schools that they work with, they were willing to go school by school to check in their system. It seems that most of the schools have this on their website if they do already work with Sallie Mae. The representative I spoke with told me that students can ask their school to form a relationship with Sallie Mae, and that there are a lot less hoops and bureaucratic nonsense involved, which is what often puts schools off about getting a faster school ID. So Sam plans to go to a school without a FAFSA number. We stopped putting money in his 529 plan a few years ago when we knew he’d be going to college in Europe. But we’ll still be using the money from that fund for schooling, I feel a lot better knowing that it’s just the earnings that are going to be taxed. And that is his tax write not ours. Even if we end up eating a couple of $1,000. That’s from the earnings, not what we put in initially. Further, that’s pennies when we look at what we’re going to save by him pursuing this path. So thanks so much for listening today. If you’re interested in learning more about college in Europe, be sure to check us out on Facebook and Instagram, as well as our website beyond the states.com. We have a lot of information and blog entries there. As well as specifics about our membership. And beyond the states members have access to our database of all of the accredited English conducted bachelor’s degree programs. Throughout continental Europe, there are more than 1700 total. We don’t take money from the school so that we can be completely objective. And since I’ve personally visited many of the schools members get first hand information, I created the database based on the information that I wish I had in one place when I was exploring the option for my son. This includes information about housing proof of means admissions requirements and more. Members can choose from a DIY approach, the best fit list and our new flips my major list and even one to one individual consultations. All memberships include regular access to me and other members to our monthly q&a calls. Thanks again for listening. If you enjoy the podcast, I’d love for you to rate us on iTunes or Stitcher.