One afternoon I was sitting in an ‘Expat Meet Up’ group and I heard the question raised from one of the new expat members, “What should I do if I have debt from student loans or other expenses?” It seemed like an odd question to ask considering most people wouldn’t dare to raise their hand and introduce the fact they are in debt to new friends. Then it got me to thinking, “who doesn’t have debt these days?” No one’s really hiding a dirty secret, debt is just part of life. In today’s economy everyone is doing their best to try and get ahead. The brave souls I meet who have moved overseas for a job, are just people with a good education doing their best to get themselves through these tough economic times. So lets throw the dirty laundry on the table and talk about what happens when you want to move abroad and have student loans.
Do I have to pay back a student loan if I move abroad?
If you have taken out loans that means you are legally responsible to fulfill your financial obligations. Yes I know you heard it all before. In the UK there is no way your debt is going away until you reach the age of 50 or make less than the threshold. And for the U.S. sorry there are no breaks other than deferment due to illness or unemployment.
In the UK you have to make payments no matter where you live but your payments take into consideration currency rates and economic conditions so you need to take an overseas income assessment to take advantage of the overseas repayment options. Your threshold may be higher or lower in certain countries. In the UK you have an annual threshold allowance of earning £16,910 annually in France however your threshold is £25,200. Above the threshold you pay roughly 9% of your earnings annually. You can find more repayment details at the studentloanrepayment.co.uk and download the overseas income assessment application.
In New Zealand you are allowed interest only repayments while going abroad but the loan remains in place and will continue to compound interest. See the Inland Revenue Department for more information.
If your student loans are from the United States bare in mind that the government owns a vested interest in nearly 70% of all student loans when it bailed out banks such as Sallie Mae and Bank of America during the bank collapse around 2009. Governments have an interest in getting their money back and have the authority to go after it. In 2010 the Federal government issued notices to all outstanding debtors warning them that their social security payments would not be paid out at the age of retirement if their loan was not paid in full before they retire. For more information contact the U.S. Department of Education
Banks don’t tell you about moving abroad and what happens to your student loan
It comes as no surprise that banks don’t tell you in black and white that when you move abroad and have student loans, your payments will increase from extra “transaction fees.” They call it additional charges for handling foreign bank transactions. And these so called charges can add a substantial amount onto your loan. Here is why your fees go up. When you earn an income abroad, your banking is usually done at a local bank in the country you are living in. If you need to make a payment, it generally goes by wire transfer or some student loan programs offer the option to pay by credit card. Wire transfers range from $25 to $60 per transaction depending on your lender and your personal bank. If your student loans are from Sallie Mae, U.S. largest provider of student loans, you will have to pay an additional $25 payment to use a credit card. Calculating a loan with ten years remaining to be paid, you will easily add $3,000 on to your cost if you are lucky enough to only pay a transaction fee of $25 per month. If your transfer fees range from $40 or more that’s an additional $4800 plus.
Finding a way to repay student loans living abroad
Your student loans do not get written off or cancelled if you move abroad nor deferred unless you are unemployed. This goes for both the UK and the U.S. As for the real world, in my expat groups, I know several individuals that have made no plans to return to their home country and decided against paying off their debt. It’s risky to do but it all boils down to the big question what happens if I return home? Will I be able to settle down again or will I end up seeing my paychecks garnished and a day in court? No one really knows I have not heard of this personally happening to anyone but that’s the risk you take.
According to the U.S. Department of Education, after 330 days of not making payments the loans is turned over to a collection agency. The loan is in default. At any point you can contact your lender and work out an arrangement. They would rather have you work something out no matter how long it has been than do nothing at all. However if you choose to jump ship, here is what happens.
- You may lose your right to purchase property in the U.S.
- Your credit history will be affected making it difficult or impossible to rent property or apply for credit or loans.
- Tougher laws recently enforced by the U.S. government make it possible for the government to withhold your wages once employed in the U.S.
- Your Social Security payments will be withheld from you after the age of 65.
In the UK moving overseas to escape student loans will result in a higher repayment threshold and higher payment percent of your annual income. If you are ever considering returning to the UK then you may face court proceedings.
Just remember you never know if someday you may decide to return home again. You cannot escape your student loan debt so think it over carefully before you burn any bridges.