It is somewhat surprising that the United States gives American university students federal financial aid to go to foreign universities. This goes for many European institutions, including UvA.
It’s not like the U.S. is handing out free money – the assistance is in the form of loans, not scholarships, meaning everything has to be paid back, and paid back with interest. Still, it’s slightly counterintuitive that the U.S. government has OK’d this practice given Republicans’ proposed slashes to student aid, as well as their repeated knocks on Europe.
It wasn’t long ago, after all, that Republican presidential candidate Newt Gingrich attacked Barack Obama for being too European. In a BBC article titled, “How ‘Europe’ became a dirty word in the US election”, we find this quote from Gingrich:
“I am for the Declaration of Independence; he is for the writing of Saul Alinsky. I am for the Constitution; he is for European socialism.”
And that wasn’t long after Mitt Romney had this to say about Obama:
“The truth is that Barack Obama is just way over his head. He is taking our country down a path that is very dangerous. He’s making us more and more like a European social-welfare state.”
I wonder if Gingrich and Romney know that that their tax dollars make it possible for Americans to live, and be educated, in that dastardly European socialist culture.
Anyway, the point is that, however unlikely it seems, money is available for Americans (like I) to educate themselves in Europe.
That much is great. But it raises an interesting issue: When the U.S. government sends over a loan, it is immediately converted to euros according to the exchange rate that day, that minute.
Which, naturally, poses yet another issue: With the euro on a months-long roller coaster ride, the value of a U.S. loan can vary wildly, even if the dollar amount of the loan doesn’t change.
A hypothetical American student – we’ll call her Jane Q. Study – may help best illustrate what I’m talking about.
Let’s say Ms. Study is getting a Master’s degree in law. For non-EU students, UvA’s tuition cost for a Master’s in law is €12,000. As such, Ms. Study may have gotten a $20,000 loan, broken up into two parts: $10,000 came at the beginning of the school year, $10,000 more at the beginning of the second semester.
That first chunk of money would have arrived in September 2011. At the time, the exchange rate was $1 = €0.69. Therefore, $10,000 equaled €6,900. Here is a chart to show what I’m talking about:
Then things changed, drastically. Shortly after the school year started, the problems in Greece (and Italy and Spain) started to get more and more attention. This drove down the value of the euro. Thus, only one month after Ms. Study received that loan, that $10,000 total was equal to about €7,600.
In other words, even though the dollar value of the original loan hadn’t change, the euro value changed more than 10 percent. Or, put different, that €6,900 was now worth just $9,000. So even if Ms. Study didn’t touch the money, the loan was worth 10 percent less.
While the specific numbers vary, this happened to many Americans who were studying here (myself included): We received loans at the start of the school year, only to find out that receiving the exact same loan a few week later would have been worth hundreds of extra euros.
The second installment of most U.S. loans, including Ms. Study’s, just came at the beginning of second semester. And it was quite the mystery how much that $10,000 would be worth. Remember, after the exchange rate soared to 1-to-0.76 in September, it dropped back to 1-to-0.71 in November. Then in December it was back to 0.75, and in January 0.785.
Basically, the closer the exchange rate it to 1.0, the better for Americans. But it is impossible to tell how high the rate will climb, or how long it will stay there.
Right before those second semester loans came out, the euro rebounded (a bit). By the time the U.S. government transferred the money to UvA, the exchange rate was 0.75557, meaning Ms. Study’s $10,000 loan was worth €7,555.70. This was obviously a lot more than the first loan (€6,900), but not as good as if it had come in January (it would have been worth nearly €7,900).
And that’s why Americans students across Europe have kept a keen eye on the exchange rate. And that’s why – now that the loans have all been handed out – we’ll be keeping our fingers crossed for the euro to rally. At least until the next loan is on its way.
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