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What You Should Know About Living Abroad With Student Loans
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Living outside of the U.S. can be an amazing experience, but it presents its own challenges when it comes to student loan repayment. Even if you’re not paying student loans living abroad, you still need to stay up-to-date on them.
Because you can’t move overseas to escape student loans, you’ll want to have a plan in place before you pack your bags. As long as you’re prepared, your loans don’t have to stand in the way of your travel dreams. Here’s what you need to do with your student loans before getting your passport stamped.
How to ensure you don’t fall behind on paying student loans while living abroad
If you are currently paying off your student loans, you don’t want to fall behind on repayments while living abroad. To help make sure that doesn’t happen, consider the tips below.
1. Update your contact info with your loan servicer
For starters, it’s essential that you update your contact information with your loan provider. Do this before you leave to study abroad so you can rest assured you will have all of your important documents on hand.
To update your contact information, you can simply log in to your loan account online, such as at MyFedloan.org. Go to your profile and click on your contact information. From there, you can update your address, phone number and email address. You can also contact your loan servicer by calling to speak to a representative directly.
You can choose to provide your international address or opt to use a permanent home address in the States. A parent’s mailing address is a good idea if you want to keep your mailing within the U.S., but still easily available when needed.
2. Set up autopay on your student loans
The best way to ensure you don’t miss a student loan payment while you’re abroad is to set up automatic payments. You can typically set autopay up online by signing into your account on your loan servicer’s website.You’ll usually need provide your account and routing numbers, along with the name of your bank.
Every month, the loan servicer will withdraw money to cover your student loan bill, and you won’t have to worry about sending a check overseas or missing a due date. As an added perk, some loan servicers even offer a 0.25% interest rate deduction for setting up autopay.
3. Connect an international bank account to your home account
Aside from setting up autopay, you also will need to ensure that you have enough funds to cover your student loan payments. If you’re making money abroad, you might be using an international bank instead of your home bank.
Some banks, such as Chase and CitiBank, have locations all over the world. But others are limited to the U.S. and charge substantial fees for foreign transactions. To avoid withdrawal fees and access your funds abroad, you might want to set up a new account with an international or global bank.
After you’ve set up autopay, your student loan servicers will still withdraw from your home account, so make sure to link your new international account with your home bank. In addition, check that your U.S. bank account accepts electronic transfers in foreign currency from foreign banks.
Set up automatic transfers once a month to your U.S. account to cover student loan payments. And since the process may take some time to figure out, put a cushion of savings in your U.S. account before you leave. That way, you won’t run the risk of missing a student loan payment while you set up cash flow back home.
4. Avoid going into default on your student loans
When you move abroad, it’s easy to get caught up in a whirlwind of adventure. You’re busy adjusting to a new culture and setting up a new home. With everything else going on in your life, you may be tempted to forget about your student loans.
But you can’t escape student loan debt by moving overseas, and defaulting on your loan payments has long-term consequences that are difficult to shake off. For one, defaulting can completely tank your credit score. A bad credit score makes it difficult to buy a home or take out another loan in the future.
Plus, the government can garnish your wages and even your Social Security benefits. If and when you move back to the U.S., you could face severe financial setbacks.
By following the steps above, you’ll be able to stay on top of your bills without having to stress about them from overseas.
How to reduce student loan payments while living abroad
If your student loans are a huge burden, you can also take steps to reduce your monthly payments. Student loan payments can be pretty steep, and you may want to keep them as low as possible while living outside of the country so you can better cover other expenses.
Here are a few ways that you can reduce your monthly payment amount on your student loans.
1. Consider refinancing your student loans
If you have multiple student loans, it could be helpful to refinance with a private lender. Refinancing combines your various loans into one new loan. You can choose a different repayment term and may score a lower interest rate, too.
With a lower interest rate, you could save money on your student loans. You could choose a shorter repayment term to get out of debt fast, or extend your term so you don’t have to funnel as much money to your student loan payments each month. (Notably, though, the latter option would likely result in you paying more in interest over the life of the loan.)
Keep in mind that when you refinance federal student loans, you lose access to federal repayment and forgiveness programs. If you think you’ll need an income-driven repayment plan as an expat or after you return home, refinancing isn’t the best option for you.
If you have private loans and a steady income and solid credit, though, refinancing could be a good option. Be sure to research several lenders before making your choice; for instance, you may consider working with an online lender or a lender with a strong online presence, as they’ll likely make it easy for you to conduct your business through your computer or mobile device.
2. Consider federal loan consolidation
Besides refinancing, federal student loan consolidation could also be a smart financial move before you relocate. This type of consolidation, which applies only to federal student loans, combines your federal loans into one new loan.
Your new interest rate will be the weighted average rate of all your loans rounded up to the nearest one-eighth of a percent. Even though federal loan consolidation doesn’t lower your interest rate, it does simplify your monthly payments.
Instead of having to track multiple loans, interest rates and servicers while you’re living abroad, you’d only have to deal with one. Handling your payments from another country can be confusing enough, so this type of consolidation could be just the money move you need to make things less overwhelming.
3. Learn about income-driven repayment options
If you’re struggling to make monthly payments, you could qualify for an income-driven repayment plan. These plans extend your student loan repayment term to 20 or 25 years and lower your monthly payment in the process.
And if you’re making money in a foreign currency, an income-driven plan could substantially lower your monthly bills. That’s because an income-driven plan typically reduces your monthly payments based on your adjusted gross income (AGI), which is the amount of income you report that’s subject to income tax. Just keep in mind, an income-driven plan can only be used on federal loans, not private loans.
If you’re making money abroad, your AGI could be close to zero. According to the IRS, U.S. citizens living internationally could be eligible for the foreign earned income exclusion. This allows you to exclude income earned abroad from being taxed in the U.S.
As a result, your payments on an income-driven plan while living abroad could be extremely low.
You could even avoid paying anything on an IDR. If you have a job while studying abroad and apply for an income-driven repayment plan, you could be looking at no monthly payments on your federal student loan.
Just remember, there are some drawbacks to not paying student loans while living abroad. Your student loan debt won’t go down, but instead it will grow thanks to accruing interest. You could end up with a mountain of interest from all those months of low payments and then will need to pay it all back when you return back to the States. Of course, the remaining balance could be forgiven — but that will take 20 or 25 years, depending on your plan.
Before switching to an income-driven repayment plan, make sure you’re aware of all the implications and speak with a student loan lawyer or your loan servicer.
The bottom line
As long as you take proactive steps before you move, you won’t have to worry much about your student loans while you’re away. You can enjoy a life of travel, secure in the knowledge you’ve taken care of your student loan responsibilities.