Federal student loans for Americans to study overseas: Is this a good use of taxpayer money?

If you've decided to get your degree from a school outside the U.S., congratulations. Now let us help you find out which international schools participate in the federal student aid programs and guide you through the process of getting federal aid to make a dent in that tuition bill.

U.S. Department of Education web site

Here's something I bet you didn't know. Not only can you take out federal loans to attend one of 5000 colleges and schools in the U.S., you can get a federal student loan to study abroad. In fact, the Department of Education lists more than 500 foreign schools that are eligible to receive federal student aid.

Would you like to study religion at the Nazarene Theological College in Manchester, England? Just take out a federal loan. Or perhaps you're interested in getting a psychology degree from the Salvation Army's Booth University College in Winnipeg, Canada. The federal government will loan you the money. Literally, you can use federal student loan money to attend college almost any place in the world: China, England, France, Israel, Australia, Hungary, Bulgaria--even Russia.

The Department of Education is particularly hospitable to foreign medical schools and maintains links on its web sites to 25 medical schools outside the U.S.  DOE reported that American students attending Medical University of Silesia in Katowice, Poland, borrowed an average of $80,000 in federal student loans to attend that medical school, plus private loans averaging $55,000.

Or perhaps you prefer to study medicine in a sunnier clime? You can take out federal loans to attend American University of the Caribbean School of Medicine in St. Maarten, but it's pricier than a Polish medical school.  American students borrowed an average of $315,674 to attend the medical school in St. Maarten, which is owned by DeVry Education Group, a publicly traded corporation on the New York Stock Exchange. 

But most Americans don't take out federal loans to obtain medical degrees overseas; most use student-loan money to study abroad for a semester or a year. Indeed, the growing popularity of Study Abroad programs is one reason an American college education costs so much more than it once did. Americans are taking out student loans to spend a few months in Paris, London, Barcelona, or dozens of other exotic cities.

American taxpayers are already subsidizing 5,000 U.S. colleges and schools that participate in the federal student aid program--institutions running the gamut from Harvard University to Toni & Guy Hairdressing Academy.  Do we really want to loan students money to attend schools overseas--especially at a time when so many colleges in the U.S. are on the verge of closing due to declining enrollment?

Ron Lieber of the New York Times published an antidote to Lee Siegel's poisionous essay about the virtues of student-loan default

An antidote is a substance given to counteract the effects of poisoning; and yesterday, Ron Lieber, a New York Times reporter, published the antidote for Lee Siegel's poisonous essay touting the virtues of student-loan default, which the Times had thoughtlessly published in its Sunday Review section on June 7.

In his reckless essay, Siegel had advised student-loan borrowers to do three things before defaulting on their student loans: 1) Take out a lot of credit cards to establish good credit before your credit is damaged by a student-loan default; 2) Establish a good history of paying rent to increase your chances that landlords will rent to you in spite of your default; and 3) marry or live with someone who has a good credit rating.

Lieber poked holes in all that advice, so anyone who reads Siegel's article and is tempted to default on student loans should read Lieber's article too.

Lieber wrote a good rebuttal to Siegel's essay, but he failed to convey some other important information. First, there is no statute of limitations on student-loan debt. A student-loan borrower may suffer no consequences of  default for a quarter century or more. But the government and its debt collectors can go after a defaulter right up to the moment of death. And that includes you, Mr. Siegel.

Second, defaulters face liability for more than just the amount of money they borrowed. They also face liability for accrued interest, fees, and penalties, which can total 25 percent of the amount borrowed plus accumulated interest. It is not uncommon for student-loan borrowers to stumble into bankruptcy court owing double, or even, triple the amount of money they borrowed. By that time, of course, they are in a world of hurt.

Also, Lieber understated the number of elderly people who have seen their Social Security checks garnished by the federal government for nonpayment of student loans. Lieber's article incorrectly stated that the number of people whose Social Security checks were garnished in 2013 was 33,000, but that is the approximate number  of people whose Social Security checks were garnished in 2002. By 2013, the number of people whose Social Security checks were garnished for nonpayment on student loans was 155,000, as reported by the General Accounting Office.  Between 2002 and 2013, the number of elderly people who were having their Social Security checks garnished grew by more than four fold!

Millions of people have defaulted on their student loans, at least 7 million, according to a report from the Consumer Financial Protection Bureau.  But most did not default in order to live more fulfilling lives, which was Siegel's reason for defaulting. Most defaulted because they simply could not make their student-loan payments and still have enough left over from their paychecks to eat and pay rent. And many have seen their loan balances balloon due to additional interest that accumulated during periods when they couldn't make their loan payments.

In short, most student-loan defaulters quit making loan payments out of a sense of hopelessness and despair, not to lead more creative lives. All these people deserve relief from their oppressive student-loan debt. Unfortunately, Siegel may have given Americans the erroneous impression that most student-loan defaulters are feckless deadbeats, when in fact most are honest individuals who wound up in default due to a variety of tragic life circumstances--job loss or failure to find a good job, divorce, or health issues.

References

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

Lieber, Ron. The Downside of Defaulting on Student Loans. New York Times, June 13, 2015, p. B1.

Siegel, Lee. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.