Expats can get their federal student loans forgiven through Biden’s debt cancellation plan, the Public Service Loan Forgiveness Program, and after 20 years of making student loan payments, but relief for private student loan debt isn’t available.
The Department of Education adjusted its student loan forgiveness programs during the pandemic. These fixes have wiped out billions in loans for hundreds of thousands of borrowers. They promise to reduce the total loan balance for millions more.
Many of these opportunities are available to Americans living abroad, even if they have missed payments for years and their loans have defaulted and fallen off their credit reports. In most cases, forgiveness will take time. But it will happen so long as they meet the eligibility requirements.
Read on to learn more about how to get your student loans forgiven if you live abroad.
Related: What Happens if You Don’t Pay Your Student Loans and Leave the Country?
Biden’s debt cancellation
The Education Department plans to start discharging millions of Americans’ federal student debt before the end of the year. Once implemented, Biden’s student loan forgiveness would cancel:
$10 thousand in debt for those whose adjusted gross income was less than $125 thousand per year during the pandemic, or $250 thousand for married couples.
$20 thousand in student debt for Pell Grant recipients who meet the income requirements.
Living in a new country doesn’t block you from this opportunity. But you may need to file a US tax return before you can apply. After you provide your personal information — email address, Social Security Number, etc. — the form requires you to attest that you filed a tax return in 2020 or 2021 and earned less than the cap.
The application was launched a few weeks ago. Some student loan borrowers who lived abroad reported being denied access in the first few days. The department fixed the problem, and everyone can now access it regardless of where they live.
Visit StudentAid.gov to apply.
Learn More: How to Apply for Student Loan Forgiveness
IDR Plan forgiveness
When you move abroad, you open up a loophole in your student loan repayment options that can wipe out your entire balance without you paying a dime. The catch? The forgiveness isn’t instant, and the IRS may consider the amount forgiven as taxable income.
Related: Income-Driven Repayment Plan Forgiveness
Here’s how it works. The federal government created repayment plans that allow borrowers to cap their monthly payments at a portion of their income. To calculate their payment amount under one of the income-driven repayment plans — IBR, REPAYE, etc. — borrowers may submit a copy of their most recent federal income tax return showing their AGI to their loan servicer.
Here’s where things get interesting.
US Citizens who live and work abroad can use the Foreign Earned Income Exclusion* to exclude $112 thousand in foreign income. That means if you earn less than that amount in US dollars, your AGI will be zero, as will your monthly payment under an income-based repayment plan. And, because the Education Department writes off your loan balance after you’ve made your final payment under an IDR plan, you can get your federal student loans forgiven without making a physical payment or living in poverty.
Added bonus: The Education Department announced earlier this year that it would use a one-time waiver and account adjustment to retroactively credit borrowers for monthly payments made under non-IDR plans and for months spent in forbearance and deferment, including the payment pause. The IDR Waiver is expected to immediately forgive the debts of tens of thousands of people and push millions more closer to forgiveness.
Learn More: How to Pay US Student Loans From Overseas
* You also may be able to use the Foreign Tax Credit to help reduce your taxable income.
Public Service Loan Forgiveness
You can qualify for Public Service Loan Forgiveness overseas if you’re a full-time employee of a US-based government or nonprofit organization. Here are three examples of people who qualify for PSLF while working in another country:
Doctors Without Borders participants
Federal agency employees (State Department, DOD, USAID, etc.)
Peace Corps volunteers
Here are some hints that your international employment may qualify for PSLF:
Your employer has a federal tax identification number (check an old W2 to find the EIN).
You’re paid in US dollars into a US bank account.
If you believe your employer qualifies for the program, the next step is to visit StudentAid.gov and check what type of loans you have. Only Direct Loans qualify for PSLF. If your account shows that you borrowed FFEL or Perkins Loans, you must consolidate those loans into a Direct Consolidation Loan to get that debt forgiven.
Learn More: How to Consolidate Student Loans for PSLF
Bottom Line
Moving abroad can lead to your federal student loans being forgiven, but it’ll take a lot of paperwork and time. Unfortunately, the same can’t be said for your private student loans. Private lenders don’t offer similar forgiveness options. Your best options to deal with those may be to refinance for a lower interest rate or, if you don’t have a cosigner and aren’t worried about your credit score, strategically default and see what happens.
Blog
July 14, 2023
#Repayment
