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A college degree that didn’t lead to your ideal job. A stack of student loan bills you can’t afford. A collections agent blowing up your phone.
For any of these reasons, you might be seeking a way out — even out of the country. Leaving the U.S., however, might not solve your education debt.
Can you escape debt by leaving the country?
The short answer is no. The debt will still be there.
There’s no statute of limitations on federal loans, meaning that you’d be responsible for repaying your debt when or if you return to the U.S.
For private loans, on the other hand, state laws do put limitations on lenders’ ability to sue over your old loan debt. However, these statutes last years and won’t stop collections agencies from contacting you, regardless of where you reside.
If you abandoned your debt, you would need to establish an income and credit report in your new country and otherwise lay down roots.
But just because you could abandon your American debt doesn’t mean that you should.
For one, you have a moral dilemma on your hands: You borrowed money to fund your education, and although the borrowing and repayment process might seem unfair, you did agree to repay it.
But even if that’s not an issue, you still have to ask yourself whether you’re willing to face the consequences of creating zombie debt that will hang over your head.
Consequences of a move overseas to escape student loans
It’s impossible to say whether you’d need to look over your shoulder, wary of creditors on your tail. They might not have the willingness or the wherewithal to track you down.
You also can’t be arrested for your debt, and, no, your passport isn’t at risk. Still, the punishments of ignoring your debt can be severe. Some effects include:
Your loan balance will balloon
Just because you disappear doesn’t mean your debt will too. Quite the opposite — it’ll continue to grow. Interest will accrue and capitalize onto your balance each month that passes without payment.
If you skip town $40,000 in the hole at 7.00%, for example, your balance would collect about $16,000 worth of interest after 10 years, and almost $35,000 after 20 years.
Your credit score will tank
Although your credit score won’t follow you overseas, it will only worsen while you’re away.
After all, more than a third of your score’s composition rests on your payment history. By ignoring your payment due date, your score will take a nosedive. And when you default, the status will show up and stay on your credit report for up to seven years.
With such poor credit, you’ll have a hard time after your stateside return borrowing money in any form, including a home mortgage, car loan or credit card.
Your wages could be garnished — and worse
Once you default on your federal loans — that is, fail to make a payment for more than 270 days — your servicers could send your debt to a collections agency, where it will incur more fees.
The Department of Education could then take the following measures to collect your debt:
- Treasury offset: The government could withhold any federal money you were set to receive, such as income tax refunds and Social Security benefits. Your driver’s license and/or other state-issued licenses could even be forfeited.
- Wage garnishment: Your collections agency could require your employer to hand over 15% of your paycheck to put toward your defaulted loan. If it’s unable to take your income — perhaps because you’re self-employed — then you might face a lawsuit from the Department of Justice.
Private lenders vary in their practices, but you can bet they’ll farm out delinquent loans to their debt collection agencies. They can also sue you to secure a percentage of your income.
Your cosigner could be left hanging
Federal loans are borrowed in the student’s name, so you — and only you — are on the hook for them. The family you leave behind in the U.S., however, might have to deal with phone calls or mail from collections agencies.
Private loans are a different story. In all likelihood, you asked a family member to cosign your loan as an undergraduate, since about nine of 10 private loans are cosigned.
By leaving your debt and country, however, you’d be passing the buck to your cosigner. Mom, Dad or whoever else could be legally responsible for repaying your debt, potentially putting a stranglehold on their finances.
Can you even move to another country with student loan debt?
Just because you shouldn’t leave the U.S. to flee your student loans, however, doesn’t mean you’re trapped inside the country until your debt is repaid. If you’re motivated to live abroad for reasons other than escaping your education debt, consider that you could take your debt along for the ride.
You might make progress in repayment, for example, if you can earn an American salary but reside in a country with a lower cost of living.
No matter where you decide to shack up while repaying your education debt, consider these tips.
Explore repayment plan options
Whatever ails your loan situation so much that you’re considering quitting your repayment, know that there are debt relief options, including:
Income-Driven Repayment (IDR)
On the federal loan front, consider switching repayment plans. IDR would allow you to limit your monthly payment amount to a percentage of your discretionary income, making it a good option if you’re out of work or climbing the career ladder from the bottom. Keep in mind though that when you lower your payments and extend your loan term, your debt grows because of accruing interest.
Unfortunately, private lenders generally don’t offer IDR, but they could be willing to adjust your repayment if you fall on hard times.
Deferment or forbearance
There are more than a dozen types of eligibility for deferment and mandatory forbearance on federal loans. These measures pause your payments while you get back on your feet. To cure your wanderlust, you could even defer your loans for up to three years by joining the Peace Corps.
Private lenders’ protections are typically less comprehensive, so talk with your lender about what it offers.
Student loan refinancing
You’ll need good credit and steady income (or a cosigner) to qualify, but student loan refinancing could solve several of your repayment problems simultaneously. It could consolidate your debt into one new loan, potentially lower your interest rate and give you the power to choose your new (private) lender.
Just be aware that by refinancing federal loans, they’ll be stripped of the federal safeguards that come with them, such access to IDR and some loan forgiveness programs.
Budget for travel — and loan payments
Once you know how much you need to spend to keep pace with — or, better yet, attack — your loan balance, it’s time to budget. This step is crucial if you’re planning to live abroad. A budget will serve as your roadmap, helping you to estimate the affordability of the life you want to lead and the debt you’re due to repay.
Cutting U.S. expenses like apartment rent and utility bills is a great start. You can also maximize your money by choosing the right country. You might have designs on visiting Scandinavia, for example, but then find that Southeast Asia is more in your price range. Nomadlist is an excellent resource to help plan for potential monthly costs on a city-by-city basis.
Increase your income
You can budget until you’re blue in the face, but eventually you’ll run out of expenses to trim. Give yourself more wiggle room by increasing your income at home or abroad.
If you’re fortunate enough to work remotely and take your American salary with you, you might already have the cash flow necessary to travel cheaply and still pay down your debt. You might also seek side gigs like teaching English as a second language in another country.
Keep your American bank account
Even if you’re not sure when you’ll return to the U.S., keeping your American bank account will ease your student loan payments. You won’t want to deal with foreign transaction fees, for example.
Additionally, by keeping your domestic checking account, you can score an interest rate reduction with some lenders and servicers by signing up for autopay.
You can repay your debt and still wander the world
Leaving your home country for a clean slate elsewhere is an age-old strategy. But unless you’re planning to leave the U.S. permanently, it could wreck your student loan debt situation.
Before you book a flight, consider the consequences of wandering the world without a repayment plan. Whether you choose to live in the U.S. or abroad, there are plenty of ways to get back on track. You just have to look for them.