Financing an overseas veterinary education for U.S.

citizens
© 2008 Scott Quakkelaar
Last updated Tuesday, 29 July 2008

So you’re considering attending veterinary school overseas. It’s a wonderful

opportunity to get a great education and see a bit of the world. But you still have to
figure out how to pay for it.

This article will serve as a guide to financial aid for United States citizens studying
veterinary medicine abroad. In fact, what you find here might also apply to U.S.
citizens studying other health professions abroad. There are certain built-in
assumptions, both explicit and implicit. I’m not a financial aid expert, so this article
reflects my experience and learning as it pertains to me – there may be additional
hidden biases that do not or cannot reflect your situation. To add complexity, the
financial aid landscape has undergone tremendous change in the last 12 months due to
the volatile lending market in the United States.

What qualifies me to write this type of guide? I accumulated a fair amount of debt in
earning my first two degrees, consolidated my loans to achieve a manageable
repayment schedule, subsequently paid off my loans, and now am going through the
process again. I’ve had Stafford loans, and I’m in the process of determining which
Graduate PLUS or private loans work for me. More than likely, my experiences can
be of benefit to others.

This is an evolving work. Constructive comments, including suggestions and

corrections, are welcome. Feel free to contact me via private message to discuss your
concerns.

A disclaimer – I may reference various loan products throughout this document – I

cannot endorse loan products or lenders one way or another. Any reference is purely
for demonstration purposes. It is imperative that you do your own research prior
to taking out any loan.

Special issues and terms

COST CONSIDERATIONS
I’ll begin by covering some fundamental issues and terms. First, some cost
considerations. Maybe this is obvious, but when studying in a foreign country, you
will be required to use the local currency. That’s not so bad, really, it works just like
your own native currency. Problem is, most of your money may originate from U.S.
sources and require conversion. Here you’re subject to the same exchange rate
everyone else is, and that may not be a good thing. When I moved to Australia in
2006, my U.S. dollar (USD) was worth about $1.35 Australian dollars (AUD). That
was nice while it lasted, but as the exchange rate has risen, my USD$1 is now worth
only about AUD$1. I feel the sting every time the university cashes my student loan
checks. While my tuition hasn’t risen, the cost of my education has increased 35%
over the last 3 years.

Another cost consideration is that many overseas programs are 5, even 6 years in
duration, compared to the 4-year programs at American universities. When I decided
to study in Australia, I determined the cost of the 5-year program to be roughly
equivalent to paying out of state tuition for 4 years. That may or may not be true,
depending on where you decide to study, and depending on what the exchange rate
does.

Students studying and working overseas are eligible for a foreign earned income
exclusion on their U.S. income taxes. You are required to report your foreign earned
income, but any money you spend on rent and utilities can be excluded from your
U.S. income. Technically, it’s not excluded, but it does reduce your U.S. tax liability.
Rather than being taxed only on your U.S. income, you pay the difference between the
tax on your total income and your U.S. only income. In Australia, I also pay tax on
my Australian income.

LENDER INCENTIVES

Current Stafford loans are offered at a fixed 6.8% interest rate. If you’re not aware, a
fixed rate means that the rate doesn’t change over the life of the loan. That can be
good or bad. When I was paying off my previous student loan fixed at 9% and the
rates dropped below 5%, I was wishing I could consolidate again. But had the rate
shot up to 12%, I would have been quite happy to be at 9%.

Some lenders offer an interest rate reduction under various circumstances, for
example if you use direct debit to make your payments, or you’ve made on-time
payments for a number of years. I’ve found one lender that offers a 1% interest rate
reduction at origination – this means less interest accumulating on your unsubsidised
loans. These programs save you money over the course of the loan, and it’s in your
best interest to find the best incentives.

Be aware also that some lenders charge you an origination fee. I paid 3% when I took
out my first loan. Subsequent years have been fee-free. There are some lenders who
advertise “zero origination fee.”

REPAYMENT
You might think it’s a bit too soon to start thinking about repayment. On the contrary,
failing to consider possible repayment terms now can have important consequences
later. Note that for the repayment options listed, interest continues to accrue on the
principal amount of your loan. Unless you pay down the principal, you will continue
to pay more interest.

The definitions below are taken from the master promissory note (MPN) for my
Stafford loans, but may also apply to GradPLUS (MPN here) and private loans.

Grace period (Section 11) – The amount of time after graduation before you are
required to start repayment. For Stafford loans that have not been consolidated,
the grace period is 6 months.

Prepayment (Section 12) – the Stafford loan MPN states that there will be no penalty
for paying your loans off early.
Repayment term (Section 12) – The maximum repayment term for Stafford loans
under $30,000 is 10 years. Barring special circumstances, if your loan exceeds
$30,000 you can have up to 25 years to repay it.

Repayment options (Section 12) – You may repay your loan on a standard repayment
schedule. Other repayment options include a graduated repayment plan,
extended repayment term (discussed above), or income-sensitive repayment
plan.

Capitalisation (Section 14) – When lenders capitalise interest, they add the accrued
and unpaid interest to your loan, increasing the principal. As the government
pays the interest on your subsidised loans while you are in school, interest
continues to accrue on your unsubsidised loans. Unless you pay this interest
while you are in school, your lender will capitalise it, or add it to the principal,
at the end of your grace period. This also applies to loans in deferment or
forbearance: interest may only be capitalised at the end of the deferment period,
but may be capitalised up to quarterly on loans in forbearance. Read the fine
print – while this is what the MPN states, I found one lender that stated it
would compound interest more frequently.

Consolidation (Section 20) – You can roll all your separate loans into one massive
loan. This may enable you to extend your repayment term or reduce your
interest rate. There may be special considerations, usually dependent upon the
types of loans you want to consolidate and their interest rates, among other
things. It may be possible to consolidate some, but not all, of your loans, or to
do multiple consolidations. You may also forfeit some of your repayment
incentives if you consolidate. Speak to your financial aid officer or a
financial advisor regarding consolidation options.

Deferment (Section 21) – A deferment is simply a postponement of repayment. There

are several circumstances under which you become eligible for a deferment,
including returning to school half-time, enrolling in a full-time graduate
fellowship, unemployment, or economic hardship.

Forbearance (Section 22) – If you are having trouble making your payments, you may
apply for a forbearance. If granted a forbearance, your payments might be
reduced, your payment time extended, or your payments temporarily stopped
altogether. You may be eligible for a forbearance if you experience an
economic hardship or suffer from an extended illness. Additionally, there are
other circumstances for which you may receive a forbearance.

The process of financial aid

Once you’ve been admitted and accepted your position, you’ll be required to complete
a free application for financial student aid (FAFSA). This allows the government to
determine how much you can contribute to your own education, your expected family
contribution (EFC). Your financial aid officer will determine the cost of attendance
(COA) at your university. You will be eligible for financial aid in an amount up to
the difference, i.e. financial aid = COA – EFC. This includes financial aid from all
sources, including Stafford loans, GradPLUS loans and private loans.
Traditional finance options
For most students, Stafford loans are the first option in education financing. In
general, you won’t be able to finance your entire education on Stafford loans alone.
Two other loan options are available to meet your financial needs, each with its own
advantages and disadvantages. Graduate PLUS (GradPLUS) loans are government-
based loans, while private loans are offered by some lenders. Each of these loan
programs is discussed below.

STAFFORD LOANS
Stafford loans are government-based loans with a fixed interest rate, currently 6.8%
for graduate students. Loan limits vary depending on whether you are an
undergraduate or a graduate. If you have not yet earned a degree, you are considered
an undergraduate (even though veterinary medicine is a professional program), and
qualify only for the undergraduate loan amounts. Murdoch University offers a dual-
degree program – students earn a Bachelor of Veterinary Science degree after year 3,
and are considered graduate students for their final two years. Graduate students
qualify for slightly more in Stafford loans.

Information on Stafford loans, including annual loan limits, can be found in the 2007-
2008 Federal student aid handbook. The 2008-2009 Federal student aid handbook is
conspicuously missing the chapter on Stafford loans, but can be found here.

One thing of note here: U.S. citizens studying at AVMA-accredited universities in the
U.S. are eligible for a total of $38,000 annually in Stafford loans, of which $8,500 is
subsidised. Currently, U.S. citizens studying at overseas AVMA-accredited
universities are not eligible for the increased limits.

GRADPLUS LOANS
With GradPLUS loans, you can borrow up to the COA minus any other financial aid
received. As with private loans, your credit will be checked when you apply for a
GradPLUS loan. They claim that your credit score will not affect your interest rate,
but some students with adverse credit will require a co-signer to qualify. And you
must be considered a graduate student to qualify for the GradPLUS loan.

On very important thing to note with GradPLUS loans is that there is no grace period,
though you can defer repayment while you are still studying. You will enter
repayment as soon as you graduate. However, I did find one lender that appears to
offer up to a 6-month deferment period upon graduation. The point here being that
different lenders offer different benefits. Find a loan that suits you.

With the GradPLUS loan, unpaid accrued interest is capitalised once only when you
begin repayment. The GradPLUS MPN can be viewed here.

PRIVATE LOANS
Private loans are offered by private lenders, and are not government sponsored loans.
Your credit will be checked, and you may require a co-signer to qualify.
Currently, Sallie Mae is the only company offering private loans for U.S. citizens
studying overseas. A quick review of their product offerings revealed several
apparent options. As with the GradPLUS loan, it behoves you to compare lenders and
loan products to select the loan that best suits your needs.

GRADPLUS LOANS OR PRIVATE LOANS?

I’ve heard some people say take GradPLUS loans first, and I’ve heard others say take
private loans first. I’ve heard rumours that the government is a bit more
understanding than private lenders when you have repayment issues. With these
loans, it really pays to compare lenders and terms. I cannot emphasise enough – do
your own research and read the fine print before taking out any loan.

OTHER KEY POINTS TO NOTE

It’s not uncommon for your original lender to sell your loan to another company. In
and of itself, this is nothing to worry about. However, I’ve read in a number of places
that your repayment incentives may or may not go with the loan. Some lenders vow
never to sell your loan, or if they do, they promise to send your repayment incentives
with the loan. Ask your lender about these options.

Other finance options

TRADITIONAL IRA
Premature distributions from traditional IRAs are allowed without penalty if the
money is to be used for educational expenses, including room and board for full-time
students. When I returned to university, I rolled my 401(k) over into a traditional IRA
and I have been drawing on that to cover my first three years of veterinary school. If
you do choose to go this route, there are some advantages and disadvantages.

Advantages:
• No early withdrawal penalty when used for educational and room and board
expenses,
• Tax-free contribution, often with employer matching,
• Students often have relatively low incomes, so low tax rates on premature
distributions,
• You can put off taking out unsubsidised Stafford loans, GradPLUS or private
loans until you really need them, reducing the amount of interest that accrues
while you are studying.

Disadvantages:
• You’re draining your retirement account,
• You must ensure you understand the tax implications of taking premature
distributions.

I didn’t take out any unsubsidised loans my first year, and, through my third year, I
haven’t yet taken out GradPLUS or private loans.

Seek guidance from a financial advisor to determine if this option is right for
you.

U.S. ARMY VETERINARY CORPS

This program is only available to U.S. citizens studying veterinary medicine at
universities in the U.S. I mention it only for completeness.

Loan forgiveness
According to the AVMA, a federal loan forgiveness program (National Veterinary
Medical Service Act) has been approved by the federal government. Unfortunately, it
has yet to be fully funded and realised as a true option for those of us in debt.

Ask questions
You may be tired of hearing this, but do your research. Ask questions. Your financial
aid officer is most likely your best point of contact. Students who have been through
the process often know tricks – check out the Student Doctor Network Financial Aid
forum. Veterinary Information Network also has student forums with discussion of
relevant financial aid issues.

Conclusion
This article aims to summarise some of your borrowing options should you choose to
study veterinary medicine (or most any other health profession) abroad. This account
is based largely on my experiences, discussions I’ve had with my financial aid officer,
and research I’ve done for my own borrowing purposes. I hope you find it useful.
Links
Information for financial aid professionals
http://ifap.ed.gov/IFAPWebApp/index.jsp

2008 Stafford loan MPN:

http://ifap.ed.gov/dpcletters/attachments/FP0608StaffApp2008.pdf

2008 PLUS loan MPN

http://ifap.ed.gov/dlbulletins/attachments/DLB0814AttachPLUSMPNrevCCRA
AFINAL.pdf

Student aid on the web

http://studentaid.ed.gov/PORTALSWebApp/students/english/index.jsp

Current federal student aid handbook

http://ifap.ed.gov/IFAPWebApp/currentSFAHandbooksPag.jsp

National Veterinary Medical Service Act

http://www.avma.org/onlnews/javma/jan04/040101c.asp
http://www.avma.org/onlnews/javma/nov04/041115r.asp

Student Doctor Network Financial Aid forum

http:/forums.studentdoctor.net/forumdisplay.php?f=30

Veterinary Information Network

http://www.vin.com/