Why Leave?
If you have federal student loans and stop paying them while you live in the US, the government has a variety of methods to pursue you for payment. They can withhold your tax refund and federal benefits. They can also garnish your wages without suing you first (other lenders have to go through the courts). If you go abroad, however, the rules are different.
If you live in a foreign country, work for a foreign company, don’t pay US taxes, and don’t collect US benefits, there’s nothing the government can do to collect. They can’t withhold your income tax refund or your benefits if you aren’t getting any. They can’t garnish your wages because they don’t have control over the foreign business you’re working for. In other words, you can walk away from your loans.
Note that if you’re still working for a US-owned company, paying US taxes, or collecting US benefits, it doesn’t matter if you’re living abroad – the government can still garnish and withhold until your loans are paid back in full.
What’s The Catch?
Of course, it’s not as easy as just hopping on a plane to another country. You’ll still have to deal with your destination’s visa, work permit, or immigration regulations. You’ll also have to find a job and a home in an unfamiliar place – you may even have to learn a new language! However, those issues hold whether you have student loans or not.
The biggest student loan-related catch is that those loans aren’t going away. If you move back to the US, you’ll still be responsible for paying back student loans. Worse, that obligation won’t ever expire. Other creditors are subject to a statute of limitations, which means they can only sue you for collection for a certain number of years. In California, the statute of limitations for debt is 4 years. That applies to any private student loans you have, but it doesn’t apply to federal loans. Federal loans have no statute of limitations, so you’ll still be on the hook even if you wait 50 years before moving back to America.
The Folks Back Home
So, does it make sense to skip town to get out of paying your student loans if they’re private? Maybe – you can wait out the statute of limitations and go home when it’s over. That default will negatively impact your credit, but they can’t force you to pay.
However, you may need to consider the potential impact on the folks you’re leaving behind. Of course they’ll miss you, but they may also be on the hook for your debt. About 90% of private student loans have cosigners and they’ll have to pay even if you’re out of the country. If they don’t, they’ll face the same collection lawsuits, wage garnishments, and other collection action that your private lender could have used against you. It will also affect their credit scores.
A Middle Ground
Part of the reason these borrowers are moving overseas is because they see more opportunities and lower costs of living. If that’s the appeal, you can also move overseas and continue to pay your loans back home. That gives you the flexibility to return to the US if you want to, but still allows you to reap the benefits of living in a new and different place.
Paying Back Student Loans Without Leaving The Country
Moving out of the country for the rest of your life is a big decision. You’re leaving your family and friends back home and you can never again work for a US-owned company or take advantage of US benefits. The good news is that there are ways to deal with your loans that don’t require a passport.
The first step is finding the right repayment program. While private loans are typically pretty inflexible about repayment, the federal government offers a variety of programs that can help make your loan repayments easier. Many of them are linked to your income so you don’t have to pay more than you can afford.
In addition to finding the right repayment program, you can also keep an eye out for loan forgiveness opportunities. For example, you may be able to have your loans forgiven after working as a teacher or at a non-profit for a certain number of years.
If you’re struggling with other types of debt as well, it may help to take measures to deal with that debt first so that you can free up cash for paying back student loans. You may be able to consolidate or settle your credit card debts, for example. You can also file a bankruptcy – it won’t wipe out your student loans, but it will take care of your credit card, medical, and other unsecured debt. That may give you the room you need in your budget to keep up with your student loan payments.
No matter what you choose to do about your student loans, the worst thing you can do is ignore them. The government can and will come after you for collection and it’s difficult to stop that process once it starts.
We may be able to help you manage your student loans and other debts, so contact us today for a free consultation to learn about your options.
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