Can You Get Out of Student Loans by Moving Abroad?

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Dateline: Tivat, Montenegro

A student loan crisis is currently looming over the US. As the cost of college rises, more and more students are taking out loans to get their degree, and even successful people aren’t paying them off until they’re well into their thirties, forties, or even fifties.

The problem with these student loans is that they don’t allow young people to take risks, test different career prospects, or follow unconventional dreams – especially when they don’t have a spouse or kids to worry about.

Instead of testing the waters and finding the best path for themselves, many recent grads take the first job opportunity to be able to get out of their massive student loan debt as fast as possible.

As a result, many young graduates are looking to escape student loans in one way or another. One of the most recent rumors circulating among college graduates looking to avoid or postpone paying off their loans is that you can eliminate your student loans by moving abroad.

For those wondering how to get out of student loans, leaving the country seems like the first and most attractive solution.

Some people may be tempted to move to less developed nations where the low cost of living would allow them to save a lot more money in a short period of time. Others, on the other hand, may prefer to move to countries with better job opportunities that allow them to more easily increase their income.

Meanwhile, for people focused exclusively on the possibility to escape their student loan debts, moving abroad is not the solution they expect unless they plan to never return to the United States again. With no statute of limitations on federal student loans, it does not matter when you return to the country – the government can always take you to court.

While private lenders abide by a different set of rules, this also does not mean that you can escape collection agents. They will come after you to demand payments.

Moving abroad isn’t an easy fix for your student loans. A bright financial future cannot really start with you dodging your responsibilities, but most of all, moving abroad to get rid of debt is simply unrealistic because the debt will follow you wherever you go.

Therefore, although there are a number of financial benefits to moving abroad, you can’t just leave the country, stop payments, and hope for student loan forgiveness – that’s naive and can have unpleasant consequences.

In this article, we’ll debunk this myth about student loans, and we’ll talk about ways that moving abroad can actually help you pay off your loans faster.

The Myth: You can Get out of Paying Your Student Loans by Moving Abroad

One of the myths that I often hear circling around the internet is that you can effectively “cancel” your student debt just by moving abroad and discontinuing your payments.

However, like most things that seem too good to be true, this student loan forgiveness method doesn’t actually work in the real world. Here’s why:

You Shouldn’t Depend on Student Loan Forgiveness

Despite many people’s bold fantasies, student loans never disappear.

You’re stuck with them for life even if you go bankrupt, so you certainly will not be absolved from your debt simply by moving to another country, regardless of what country that is. While you’re away, all that you’ll be doing is racking up more and more interest.

While deferment and forbearance are options for federal loans if you do need to delay payments for any reason, neglecting your loan for too long will only let your interest rack up – leaving you with a larger burden at the end of the day.

With private loans, however, comfortable solutions may be hard to come by. Not only do private lenders not offer things like income-driven repayment plans, but some of them do not even agree to deferment.

student loan crisis
No matter where you go, your student loans will follow you for life until you pay them off.

Granted, there’s been some talk of nationwide student loan forgiveness by presidential candidates and other politicians, but personally, I wouldn’t hold my breath.

Therefore, if you’re moving away and hoping that your student loan debt will disappear by the time you get back, you’ll almost surely be out of luck.

You risk your financial future in the United States

If you move abroad to run away from your federal student loans but plan to return to the US sometime in the future, you may discover that you’re no longer able to enjoy some of the rights and privileges of being a US citizen in the same way as before.

You will immediately become a target of the IRS, which will seek to collect your unpaid debts by taking them straight from your income tax refund – if not by other means like wage garnishment.

In any case, the government will find a way to take its money, and the longer that you’re delinquent, the more that they’ll take from you.

Your credit score will suffer

If you stop paying back your loans, expect your credit score to suffer – and the damage can be substantial since payment history makes up a third of your credit score.

Neglecting payments may lead your lender to report you, which can affect your US credit report for years to come. With a low credit score or a mark on your credit report, you will have to struggle immensely to get a new credit card, take out another loan, or apply for a mortgage upon your return to the US.

Loan default can cause serious legal problems

Typically, when you make no payment towards a loan for 270 days without having arranged a deferment with your lender, you’ll end up in loan default, which is essentially a failure to comply with the contract terms of a loan.

This will not only have an adverse effect on your credit rating for years, but it also authorizes your lender to take legal action against you in order to reclaim full payment of the loan with additional collection costs and penalties.

The defaulted loan will end up costing you drastically more than you initially owed in this case. With the threat of legal action looming over you, you could hardly enjoy your time abroad.

Your debts might get transferred to your family

When student loan lenders cannot find you, they will seek out your cosigners if your contract features any. If your family members have their name on your contract, the responsibility of paying back the debt will be relegated to them.

Fleeing the country therefore means that you will pass the burden of your student loan debt to the person who cosigned the loan, which is an entirely selfish and unethical thing to do. A life of financial success cannot start with you pushing your responsibilities onto someone else.

New country, new financial struggles

Setting up your life in another country comes with a different, yet equally challenging, set of financial difficulties.

You need to become an official resident of the country, and you’ll need to spend a reasonable period of time there before being able to establish a credit history.

Because you’ll need to cut all financial ties with the US, you will be forced to rely on cash-only transactions for a long time.

If your financial security is threatened by student loans in the United States, it is unlikely that you have enough cash in hand to buy a home in a foreign country or invest in a business in order to get residency status, and it’s difficult to get citizenship through naturalization in most places.

The fact is that moving abroad isn’t a magic cure that will fix your financial woes, and it actually brings new problems into the picture.

Why Moving Abroad is Still a Good Option

While relocating in order to evade student debt collectors isn’t a good idea, there are still plenty of reasons – financial and otherwise – to move abroad while you’re young.

The fact is that you can still work toward becoming a tax-free global citizen even with student loans weighing you down.

However, even if you’ve left without turning back, you don’t want to sacrifice your financial future in the United States if you ever wish to return.

The only real way to eliminate your student loans by moving abroad is to go to a country with a reasonable cost of living and great earning potential, which will enable you to achieve financial balance quicker and pay off your student loan debt from abroad.

The fact is that reducing your tax burden and cost of living while generating more income is the best way to give you more money to save and more money to help eliminate your student loans.

pay off student loans
Moving abroad can help you put a bigger dent in your loans by lowering your cost of living, lowering your tax bill, and increasing your earning potential.

So, while moving abroad isn’t a silver bullet to kill your student debt, it can still help if you do it correctly.

How to Pay Student Loan Debt from Abroad

If you moved abroad and want to keep paying your student loan debt, you will likely need to pay off your student loans from your local bank account.

If your home bank operates exclusively within the US, they probably charge for foreign transactions, and the fees are more often than not quite substantial. Therefore, as an expat, you want to be able to access your funds abroad and complete your regular transactions without having to worry about withdrawal fees and other charges, so setting up a local bank account often becomes necessary if you plan to live somewhere long-term.

Because you will need to remit money to the US frequently, you should choose a larger, more international bank that’s readily available in your country of residence.

After you open that foreign bank account, you can link it to your home bank in the United States and set up automatic payments, and your student loan payment will be withdrawn from your home account.

To move funds from your international account to your home account, you can set up either monthly or quarterly automatic transfers. Autopay and automatic transfers will allow you to stay on track with your debt payments and never miss a single one even as you begin to lay the foundation of a Nomad Capitalist lifestyle.

 

Jovana Andjelkovic
Last updated: Dec 24, 2019 at 1:39PM

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3 Comments

  1. Rachel

    I am currently living abroad in the UK. According to Navient, my Adjusted Income is based on my US taxable income, which is effectively 0 (meaning I do not meet the income threshold to pay tax in the US even though I submit a tax return every year). This also means my income-based repayment would also effectively be 0. This is not the same as neglecting my loan, as it is on a repayment plan that just happens to mean that my payment responsibility is $0 every month. On most of these income based plans, the balance is written off after 240 or 300 months or “payments”.

    If I stay in the UK for the next 300 months using this income based repayment plan, I am aware that I would accrue interest, but would this not be a viable option for effectively “cancelling” the student debt? Again it seems too good to be true, and 300 months is not a short time, but it does seem technically possible that by moving abroad and reducing your US taxable income to 0, it could stand that you could effectively eliminate your US student debt.

    This is partially hypothetical but also potentially a very real situation for myself as I am planning on staying in the UK for probably 5 years, perhaps more (perhaps 25 if I can eliminate my student loans). I am taking a pay cut to what I could potentially earn in the US because financial decisions aren’t the only reason why I am here. However, I do want to be smart about my loans and I’m trying to actually understand what my options are to save money and eventually eliminate my student debt.

    Would love to have a better understanding and to see if others have gone through income-based-repayment plans while living abroad and if that reduced their total loan amount

    Reply
  2. Steve

    That’s surprising you wouldn’t have to pay anything. If you are working overseas you pay tax on world wide income. I realize there is the foreign earned income exclusion and the foreign tax credit. It just doesn’t seem fair to the U.S to not take that foreign income into consideration for purposes of paying your student loans. I’m not going to look further into this. I don’t know if this is a viable option.

    Reply
  3. Justin

    This comment is written in response to Rachel’s claim that her loans will be “forgiven” after 240-300 payments. Rachel, I am on this same plan and I reside in Asia. However, PLEASE be aware that, after those loans are forgiven, whatever the outstanding loan total is will be considered as income for that fiscal year. In that case, you will have to pay US federal income taxes on it.

    I am trying to figure a way out of that scenario. So far, the best I can figure out is to get married in Japan and receive permanent residency. That is the best I can surmise at this point.

    Hope this helps.

    Reply

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