If you plan to pack up and move to another country, your student loan debt will follow you. Your responsibility for your federal and private loans doesn’t end at the US border. If you don’t pay your student loans and leave the country, you could return to a huge financial mess that makes it difficult for you to buy a home, get a professional license, or pay your living expenses.
Here are a few things you should know if you plan to live as an ex-pat.
Do student loans follow you out of the country?
Federal and private student loans follow you from the US to your new country. Moving overseas doesn't remove your responsibility for the loan. The Department of Education and your private lenders will continue to expect payment from you each month. If you don't pay, the late payment history will be sent to the credit bureaus here in the US.
But if you're planning to stay abroad permanently, negative marks on your credit report may not have an impact on you. Your country of choice will likely have its own credit reporting system where your student loans don't appear.
What happens if you don’t pay your student loans and leave the country?
US citizens who leave for a new country and don’t pay their federal student loans will eventually default. A student loan default can affect you in many ways.
Consequences of defaulting include:
- wage garnishment
- tax refund and Social Security Benefit offset
- collection fees and late fees added to the loan balance
- damage to your credit score
- your professional license may be suspended
In addition, you won’t be able to buy a home with an FHA mortgage because your name will be listed in the CAIVRS System.
Finally, because the interest rate isn’t suspended when you default and federal loans have no statute of limitations, you could end up owing a lot more than you originally borrowed.
- Americans don’t need to worry about losing their passport privileges. You can freely travel to and from the United States without issue, even if your student loans are in default.
- You also don’t need to worry about going to jail. You can’t go to jail for student loans.
Can I move abroad if I have student loans?
You can move abroad if you have student loans debt. There’s no law against it. In fact, leaving the country could be the best financial decision for your future.
You may find a better job, healthcare, cost of living, or even love.
The added benefit of leaving the US is the possibility of getting rid of your student loans.
While your school debt won’t just go away, there are rules you can leverage to legally lower your monthly payments to the minimum amount until you’re eligible for forgiveness.
What happens to student loans when you renounce or change citizenship? Renouncing or changing your citizenship has no effect on your student loan debt. You’re still obligated to repay the money you borrowed for school. However, for private student loan debt, moving abroad make it more difficult for the lender to serve you with a lawsuit, which is the only way it can forcefully collect payment from you.
What to do with your federal student loans in a new country
When you move to a new country, you’ll still owe you federal student loans. But there are steps you can take to lower the amount of your monthly payment to $0 and, ultimately, get your loans forgiven.
What to do for your federal student loans:
- Keep a US bank account
- Keep a mailing address in the US
- File a federal tax return
- Submit an income-driven repayment plan to your loan servicer
- Complete the annual recertification of your income and family size
You’re eligible for income-driven repayment plan forgiveness after 20 to 25 years if you follow these steps.
This process works for two reasons. First, the federal government allows borrowers to have an affordable payment based on their discretionary income. Second, US citizens who move to a new country can exclude $100 thousand in income earned abroad from their US tax return using the Foreign Earned Income Tax Exclusion.
Those two rules combine to allow borrowers who live abroad and earn less than $100 thousand annually to have a $0 monthly payment.
How can I pay my student loans if I don't have a US bank account or address? If you don't have a checking or savings account from a US bank or an address in the states, you can use a third-party service to get a domestic mailing address. Many of those services will forward your mail to a foreign address. That way, after you apply for a checking account, your debit card will be sent to you abroad.
What is the Foreign Earned Income Tax Exclusion?
The Foreign Earned Income Tax Exclusion allows you to exclude your income if you earn less than $100 thousand annually.
If your income is excluded, your adjusted gross income (AGI) on your tax return maybe $0.
The Department of Education offers student loan repayment plans that look at your AGI and family size to calculate your monthly payment amount. If your AGI is $0 on your tax return, then your monthly payments under an income-based repayment plan will be $0 as well.
Without putting your loans into deferment or forbearance, your student loan payments will remain $0 for the next 12 months.
And if the income on the tax return you file with the IRS is again $0 due to the Foreign Earned Income Tax Exclusion rule, then your payment will again be $0.
You can keep doing this until you qualify for student loan forgiveness after 20 to 25 years of monthly payments. (Borrowers who work for a government or nonprofit entity may also be eligible for the Public Service Loan Forgiveness Program after 10 years of payments.)
Leaving the country and private student loan debt
When you move to a foreign country with private student loan debt, you’re still required to make your monthly payments. However, if you can’t afford to make those payments, your student loan servicer has limited power to collect.
Private lenders can’t garnish your wages or take money from your bank account without an order from a judge. To get that order, those companies have to file a lawsuit against you.
When you live abroad, it’s difficult for lenders and debt collectors to sue you because they’re required to serve you with a copy of the lawsuit. It’s uncommon for student loan lenders to serve ex-pats with lawsuit paperwork in foreign countries. If you live outside the country long enough, the statute of limitations on your private loan will lapse. When that happens, you’ll no longer be liable to repay those debts. This result is one of the pros of strategic default on student loans.
What happens to my cosigner if I move abroad with student loan debt? While you may be able to escape your college loans by moving abroad, your cosigner is still at risk of financial harm. The lender and debt collection agency will start by adding negative information to their credit reports with the 3 major credit bureaus and calling the cosigner nonstop. After a while, the loan holder will sue your cosigner for the entire loan balance.
Before that happens, see if you can negotiate a student loan settlement that protects both you and your cosigner.
How long do you have to live abroad to not pay student loans?
For federal student loans, you’d have to live abroad for at least 20 years before you’d be eligible for loan forgiveness. To qualify, you’d have to enroll in an income-driven repayment plan (PAYE, REPAYE, IBR, etc.) and complete the annual recertification. After you make 240 to 300 monthly payments, the Department of Education will forgive your federal student loan debt.
For private student loans, check your promissory note for the applicable statute of limitations. If you live abroad long enough, you may be able to get out of paying your private loans. Keep in mind, if you have a cosigner, they remain at risk of being sued for your debt.
Could I refinance my federal loans with a private lender and then leave the country?
Refinancing your federal student loans with a private lender and then moving to a new country with a lower cost of living is one option to try and tackle your student loan debt.
Recently, more and more financial institutions have begun refinancing student debt. So depending on your credit history and personal finances, you should be able to get a competitive interest rate.
Best countries to move to escape student loans
Honestly, there’s no universally best place for student loan borrowers to move to escape student loan debt. I have clients that left New York for the UK. And I’ve had others move from California to Bangkok. In my opinion, you move to a different country that you love and figure the rest out later.
Where would I move?
I’ve been looking into Mexico City and Mazatlán. Both have much lower living expenses than the United States. Mexico City is great because it’s a large, cosmopolitan city with mild weather. Mazatlán is awesome because it sits on the Pacific Ocean. Plus, they’re both a short flight back to the states. I can rack up a bunch of points on my credit card.
Move where you want. Don’t let your student loans stop you from living your life.
If you’re thinking about moving abroad to escape your student loans or if you’re moving back after having ignored your student loan debt for years, let’s talk. Let’s look at your situation realistically and create a plan that will provide you with results. Schedule a free 10-minute call with me today and take the first time in getting your life back.
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Let’s look at your situation realistically and create a plan that will provide you with results. Schedule a free 10-minute call with me today and take the first time in getting your life back.