KSG International Students Pay Changing Price for Education
by Sam Jeffers on November 14, 2007 in News
With stagnant growth, a tightening housing market and poor prospects for investors, the already gloomy economic mood in the U.S. is likely to get worse, according to Ben Bernanke, Chairman of the Federal Reserve. But for KSG’s international students – many of whom hold savings and loans in accounts abroad and plan to work overseas when they graduate – the faltering American economy provides a significant advantage: strong foreign currency with which to buy a weak U.S. dollar.
Many international students are using savings overseas to help meet KSG’s near-$66,000 annual financial certification requirement – the amount that international students are required to have at the start of the academic year before they can register for classes. For students who keep their money abroad, the dollar’s slide makes this and other financial hurdles less daunting with each day.
Many international students are therefore taking a tactical approach. Vidya Nagashwaran, MPA2, has found leaving funds abroad and only transferring them to the U.S. when they’re needed to be an advantageous strategy: “I left my earnings from my summer internship in Switzerland in a local bank account and plan on transferring the amount here only at the latest possible time.” This isn’t the first occasion that foreign exchange rates have proved valuable to Nagashwaran either: “Last year I left some of my savings in a rupee account in India and transferred that back to the U.S. after a year.”
In the two years since most second-year students applied to the Kennedy School, the decline of the dollar against most major currencies has been pronounced. For the 60-plus KSG students from the 13 countries that use the Euro, the annual cost of tuition and living expenses has fallen from €56,400 (at 1.17 euro to the dollar) to €45,200 (1.47 euro to the dollar) per year – a “saving” of 20 percent.
Karim Bardeesy, an MPP2, has, like Nagashwaran, kept the bulk of his savings in a Canadian dollar that was, until recently, the junior of its southern neighbor’s. In the last year alone, the Loonie (a slang term for the Canadian dollar) has appreciated nearly 18 percent against the U.S. dollar – a fact that Bardeesy recognizes makes it difficult for exporters back home, but which allows him to “selfishly bask” in his relative personal wealth.
The recent strength of the Canadian dollar, said Bardeesy, “really helps me to make my tuition payments,” and eases some of the financial pressure of earning one of the world’s most expensive graduate degrees.
Asked if there are other strategies students could pursue to take advantage of favourable exchange rates, Akash Deep, a Senior Lecturer in Public Policy who specializes in financial risk management, argues that students face significant obstacles. “Currency markets are extremely difficult for students to speculate in. With $2 trillion changing hands each day in the foreign exchange markets, students’ lack of leverage, the credit risks they pose and the transaction costs they face will likely eat up any benefits.”
Although many international students are benefiting, the picture is far from uniform. Many have been unable to gain from the declining dollar. KSG’s four Venezuelan students have seen their currency pegged at an unchanging rate of 2,344 Bolivars to the dollar since their arrival in Cambridge (the Bolivar has not floated freely against the dollar since 2003). With significantly higher inflation rates in Venezuela than in the U.S., a Venezuelan student would be significantly disadvantaged by leaving funds at home.
Other international students have seen KSG become relatively more expensive over the past couple of years due to the weakness of their native currencies. For example, the 38 South Korean KSG students, who would have enjoyed an exchange rate of 956 Won to the dollar at the start of school year 2006, today find the rate nearer the 900 mark. As a result, their education is some six percent more expensive than it was a year ago.
For some foreign students, individual funding circumstances have left them unable to take advantage of the system. Katherine Randall, a British MPP2, would have benefited greatly had her scholarships been paid in pounds, which would have offered her a Harvard graduate degree (hard work permitting) for a discount of around 18.5 percent.
But Randall’s scholarships pay her in dollars, so she’s been unable to take advantage of the exchange rate. “If I had any money in Britain – and I only have overdrafts in the UK now – I would definitely be bringing it across strategically. Unfortunately, I don’t have any pounds left,” she said.”
Despite this, Randall plans to use her Christmas break to earn some money in her native currency: “I’m working for the UK government in my holidays more than I might otherwise have done, because pounds are so valuable.”
Prof. Robert Lawrence, who specializes in international trade and investment, believes that the dollar’s slide may yet continue as domestic economic pressures force interest rates downwards and further slacken demand for the greenback. Prof. Lawrence has been “personally bearish against the dollar for some time” and said that he would “not be surprised” if the dollar continued to depreciate a further 10 to 15 percent against the currencies of major industrialized nations in the near future.
Asked if he had any advice for international students, Lawrence said, “Bring your families over for graduation, have them stop over in Miami, maybe even buy a condo.There’s never been a better time.”
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