One of the most attractive aspects of moving abroad is the opportunity to leave your troubles behind and start fresh. But does that concept apply to student loans? Unfortunately, escaping student loan debt isn’t quite that easy. We’ll explain why, as well as what you need to consider when paying back your student loans abroad.
Can You Move to Another Country With Student Debt?
The federal government does not prohibit borrowers from moving abroad when they have student loans. No matter where you live, you can still make your payments. Private lenders also do not have restrictions on where you can live while paying off student loans.
Why You Can’t Run Away from Student Loans
Graduates who think moving abroad will help them avoid their student loan payments may be in for a rude awakening. Student loans follow you wherever you go, even to a different country or continent. If you stop making payments on federal student loans, the United States government can garnish your wages if you work for a US-based company. The US government can also seize your tax refund when you file your taxes. Defaulting on student loans can also affect your employment in some cases. For example, if you work for the federal government and receive a security clearance or are part of the US military, they may run a credit check and deny you a promotion. Some private US-based companies may also view your credit, especially if you work in a sensitive field like security or finance. This may not impact your employment opportunities while working abroad, but could make it much harder to find a job back in the states. According to student loan lawyer Joshua R.I. Cohen, borrowers who default on private student loans may not be sued if they live abroad, but it will still affect their credit. Whether you have federal or private student loans, the late payments and defaults will be visible on your credit report. If you ever move back to the US, you may find it difficult to rent an apartment, buy a house or open a credit card.
How to Manage Student Loans When You Live Abroad
Set Up Your Bank Account
Paying your student loans abroad is similar to paying your student loans in the US, but you’ll need to use a US-based bank account to make your payments. If your employer requires that you use a foreign bank to get paid, then you’ll have to transfer money between your foreign bank and a US bank to pay your student loans while abroad. Find a bank that charges low fees for transferring money between foreign and domestic banks. Some private student loan companies may accept US credit cards, but they will generally charge a fee for paying this way. Go through your options to find the easiest and least expensive option. Whether you manually pay your student loans or use automatic payments, make sure your bank account always has enough money to cover the payment. If you do miss a payment, make it as soon as possible. Most of the time, only loan payments that are more than 30 days late are reported to the credit bureaus, so if you’re just a couple of days behind, you’ll likely have time to submit the payment without repercussions.
Apply for Public Service Loan Forgiveness
The Public Service Loan Forgiveness (PSLF) program forgives the remaining loan balance after a borrower has made 120 payments under a qualifying employer. The employer must be a US government agency or a US-based non-profit organization. For example, if you work for the State Department in Washington, D.C. and are transferred to a branch in Spain, your payments will still qualify for PSLF. If you’re a member of the military deployed overseas, your payments will also count toward PSLF. “It does not matter where you physically live,” said student loan lawyer Adam S. Minsky. Don’t assume that your occupation automatically qualifies you for PSLF. For example, a teacher in Paris will only be eligible for PSLF if they work for a US-based nonprofit school. If they work for a French public school, their payments will not be eligible. Students must use one of the four income-driven repayment (IDR) plans to be eligible for PSLF. The standard, extended and graduated repayment plans do not qualify. Eligible borrowers should submit the employer certification form at least once a year to verify that their payments count toward PSLF. The remaining balance forgiven will not be taxed.
Switch to Income-Driven Repayment
Borrowers who can’t afford the standard payment plan can switch to an income-driven repayment plan. These plans base the monthly payment on your adjusted gross income (AGI) and family size. Because of the Foreign Earned Income Exclusion, borrowers living abroad can deduct $100,000 worth of income on their taxes. This means their AGI could be $0, in which case their IDR payment would also be $0. While this may sound like a good deal, making $0 payments over decades will result in the balance heavily increasing over time as interest accrues. And because the forgiven loan balance on an IDR term may be taxed, you might find yourself with a huge tax bill when the loan term is over. However, Congress recently passed a law eliminating income tax on income-driven loan forgiveness through 2025, and some experts believe they will make this a permanent change.
Apply for Deferment or Forbearance
If you can’t afford your payments and don’t want to apply for IDR, you can defer your loans to apply for forbearance. Interest will accrue during both deferment and forbearance if you have unsubsidized federal loans, but interest will not accrue if you have subsidized federal loans and are eligible for a deferment program. If you’re working for the Peace Corps, you will receive an automatic deferment for your federal student loans. Servicemembers who are stationed abroad can also receive interest-free deferment.
Refinance Your Student Loans
Borrowers with private student loans may also be able to refinance their loans for a lower interest rate, lower monthly payment or both. If you’re considering moving abroad, you should refinance your loans before moving, as it may be harder to do so from another country. Extending your payment term may provide more flexibility in your budget, especially if you’re on a variable or seasonal income. By choosing the lowest payment possible, you could make it easier to avoid defaulting or missing payments. Remember that student lenders don’t charge prepayment fees, so you can always pay more when you can afford it and you repay the loan ahead of schedule. Contact ELFI today to learn more about student loan refinancing.* When you refinance your student loans with ELFI, you’ll be paired with a personal loan advisor who can offer one-on-one support through the process.
