How to pay your student loans from abroad?

Learn about how you can pay your student loans from abroad. Includes guidance on picking the right repayment plan, things to discuss with your lender, repayment options. Get an instruction-based guide to paying off your student loans from abroad and the consequences of falling behind.

Updated by B Harshitha on 20th January 2020

A lot of us aspire to travel abroad for a variety of reasons. A few of these reasons could be educational or career-related. Some of us wish to travel to different places simply to quench our appetite for exploring different places. 

Student loans are cumbersome on a borrower’s mind, regardless of which phase of their life they are in. Sometimes you may end up pushing aside or putting off your dreams of travelling abroad because of your worries regarding your student loans. 

But the reality is, a lot of your concerns can be handled in a holistic way when it comes to student loans. This is true for your desires of traveling to different countries, too.

Student loans need not necessarily hinder your expeditions. This is especially true and may even end up working in your favor if you put in some effort to plan well beforehand. 

As with anything, it is very important for you to have a good understanding of how student loans work before making any bold decisions. Moving abroad does not make any major change to how your student loans accrues interest. It will follow its protocol of accumulating interest on a regular basis. 

Before moving abroad, learn more about the idiosyncracies that come with both federal and private student loans to get a clear understanding of your responsibilities. Learn about what you have to do, what offerings these loans have and more to ensure a seamless transition from your home to the place that you will be travelling to.

TABLE OF CONTENTS

Is your repayment plan right for you now?

If you are planning on moving abroad with the prospect of a new job, this means that your cost of living and your income will also undergo changes. Accommodating these changes into your repayment plans can be quite challenging, especially if you have taken your student loan from a private lender. Their repayment plans aren’t always the most flexible. This, of course, varies from lender to lender. Federal loans, on the other hand, have repayment options that are quite flexible to changes and customizations.

If you wish to reduce your interest rate and cut down on the amount that you pay on a monthly basis, refinancing your student loans could be a good option for you. One requisite for this is a good credit score. But it is important to remember that this could end up extending the period of your repayment. You might also end up losing some other privileges and benefits. Always do your bit of research before signing up for anything major.

If you are encumbered by numerous separate loans with their own due dates and other concerns, student loan consolidation could be beneficial for you. This again has its downside in  that your period of repayment may be extended and the total amount that you end up paying may be higher. But if your income abroad is smaller than before, this could help reduce your monthly payment amount, thereby making your payments more affordable and manageable. 

Get a good understanding of different student loan repayment options available in the market and how each of them work in order to avoid any confusion or ambiguity in the future and to pick one that best suits your expectations.


Some things to discuss with your loan provider about your student loan while moving abroad?

It is very important that you talk to your loan provider before moving in order to avoid any ambiguities or confusion. Do not assume anything. Instead, have a clear conversation with your provider about the future of your repayment and the corresponding terms.

Make sure to do the following:

  • Notify them of your address and phone number in the new place: Your loan provider must be able to contact you without any hassles. So, it is important to ensure that your most up-to-date information is with them. Give them your contact number and/or the number of someone that is close to you, preferably a parent. This also ensures that you do not miss any updates or information that they may wish to convey to you.

  • Keep track of your due dates and monthly payment details: Create a document on the cloud that is accessible from any place to keep track of all your due dates and payments. This will help you clearly and efficiently keep up with your repayment schedule. It is also important that you have your lender’s information up-to-date.

  • Enquire about any fees involved: Depending on the mode of payment that you may choose, you may incur a number of different fees. Some of these include card processing fees, transfer fees from banks, and overseas transaction fees. If you wish to reduce unnecessary fees that you may have to pay, do your research and explore for other options.

  • Think about setting up autopay: Autopay is a sure fire way to avoid missing out on payments, since your monthly payments are automatically deducted from your income. Most providers offer a 0.25% discount on autopay, which means that you could save some money. But be sure that you always have enough money in your account to afford this.


Some ways to ensure that you do not fall behind on your loan payments

In addition to communicating with your lender, there are some other things you could do to ensure that you do not fall behind on your payment:

  • Set up a connection with an international bank to your home account: If you earn money abroad you will most likely use an international bank account to save your income. Some banks are spread out universally, while others operate only on a more local level. Such banks also charge fees for foreign transactions. To avoid such fees, it would be advisable for you to start a new account with an international bank. Link this new account with the one that you had in your home. This ensures easy payment on a monthly basis, especially if you have autopay. Also make it a point to deposit some money in your home account regularly. This way you won’t miss out on any payment.

  • Do your best to avoid getting into a default: Hectic as your life may get, do not avoid repaying your loans. This is because defaulting can have adverse effects on your credit profile. A bad credit score can hamper your chances of availing a loan in the future. You may even lose a ton of privileges. The government has the right to garnish your wages and your Social Security benefits.


Student Loan Repayment Options if you are living abroad

It is important to ensure an organized way to keep track of your student loan repayments. This way, you will not miss out on any payment. Also pick the right method of payment in order to avoid any extra fees and maximize funds.

  • Use a US bank account if you are working with a US company: The company that you are working for, if US based, could directly deposit your pay in your US bank account. This is a very easy and seamlessly to ensure that your payments are made regularly.

  • Connect your home bank account with an international one: You may not be able to directly pay off your student loans if you are working for a company abroad that deposits your income in an international bank account.Connect your home and international bank accounts and regularly transfer some money from the latter to the former. This could mean that you will incur some transfer fees.

  • It is important for your home account to have enough money in it at all times: During the process of your transition, make sure that you have enough money in your home account as a safety net. Automatic transfers can be made to your home account. Make sure that there is no time lag between the due date and your date of deposit. Make a note of all the fees involved in your transfer of funds.

  • Pay your student loans with a credit card: While federal student loans can not be paid off with a credit card, most private lenders accept a credit card. Find out if there are any fees for transferring funds via a credit card. Use a US credit card and use a US bank account to pay off your credit card bill. Your bills need to be paid on time in order to avoid any interest charges. With credit cards, you get a certain grace period between when your student loan payment is made and when you pay off your credit card bill. This time bought for you by the payment method could prove helpful to you if you are in a tough spot.


Income-Driven Repayment plans

Federal student loans have four different government-offered income-driven repayment plans, namely Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).

Your monthly student loan payments will be adjusted based on your income in all four plans. With the IBR, for example, if you took your loan before July 1, 2014, you will have to pay 15% of your discretionary income. If the loan was taken after said date, you will have to pay 10%.

The IBR plan, PAYE and REPAYE expect 10% of your discretionary income. ICR has higher expectations, 20% of your discretionary income. Depending on what your type of loan is and when you took out your loan, explore a range of income-driven repayment plans to find one that you think will be best for you.

Your period of repayment may be extended to 20 or 25 years, after which any remainder of your debt will be forgiven. However, the forgiven debt will be taxed.

Your federal tax returns can be used as a proof of income. Your student loan payments are then adjusted by the government based on your adjusted gross income or AGI and this is the amount of money that is subject to income tax. 

If you are employed in a different country, this means that your AGI in the US is $0. You do not have any taxable income in the US in this case when applying for a federal income-driven plan.

A certain part of your income is excluded under the foreign earned income exclusion rule. As of 2019, if your income from a foreign employer is less than $105,900, you may not have to pay any income taxes in the US. The amount that can be excluded from your income varies annually depending on inflation.

Going by this logic, since your student loan repayment depends on your AGI, if your AGI is reported to be $0, your student loan payments can also go down to as low as $0.

This may sound risky since not repaying your student could cause you to go into default, which is dangerous. But if you are on an income-driven repayment plan and live abroad, you can sit back and not worry about your student loans for the time being.


How can you repay your student loan when living abroad?

Here are some steps you can follow to keep up with your student loans if you are going abroad:

Inform your lender

  • Keep your contact information updated with your student loan lender: Let them know about your plans to move/travel and re-confirm the terms and conditions.

  • Overseas Income Assessment Form: Your lender will need evidence from you about what you earn abroad and this evidence has to be presented to them by you. The Overseas Assessment Form provides information about your employment abroad. Along with this, you will have to produce other pieces of evidence such as:

  • If you have an external employer: Last 3 payslips or a copy of your contract.

  • If you’re self-employed: To confirm your gross annual income, your most recent financial accounts copies or a letter from your accountant confirming the same. In your first year of self- employment: Bank statements from the last 3 months, or ‘The Third Party Declaration Section’ from the Overseas Assessment Form. this section will have to be filled out by someone who is financially supporting you abroad.

  • If you are unemployed:

  1. Government benefits proof received in the last year

  2. Third Party Declaration

  3. Proof of savings

  4. Proof of travel

  5. A letter from the company you will be employed under, stating their support

  6. A letter of support from the place of your study

  • Keep them posted: Notify your lenders about any changes or updates regarding your income regularly. Once they review your details, your loans will automatically get debited on a regular basis without any hassle.


What happens if you don’t repay your student loan while abroad?

If you think that you can escape your loans by running to a different country, you are mistaken. While the idea of literally running away from the responsibility may seem relieving, the following are some reasons why it is imperative for you to keep up with your student loans regardless of where you are:

  • Your student loans won’t vanish: A change of location will not make your student loans go away or stop them from executing protocol. They will continue to accrue interest and your overdue payments will stack up if you ignore your loans. If you wish to pause them for a little bit, think about forbearance or deferment. Federal loans come with a lot of such options. Income-driven repayment plans are also apt for you if you are looking to reduce your monthly payments. A part of your payment will have to be paid every month.

  • You may end up losing numerous US privileges: If you are hoping to move back to the US after a brief period of time abroad, dodging your student loan payments could cause you to lose a number of rights and privileges that you may have received otherwise. The IRS has the right to take penalties from your income tax if you have unpaid debts. If you start looking for a job after coming back home, your wages might get garnished. If retirement in the US is your long-term goal, the government could hold back some of your Social Security benefits.

  • Your credit will be adversely affected: Your credit report and score will be adversely affected if you refrain from paying your loans back, regardless of whether you are at home or elsewhere. A delinquent or default mark from your lender could remain on your credit report for up to a period of 7 years. You will face difficulties when you apply for new loans or credit cards or mortgages if you have a poor credit score.

  • Your payment options will be limited to cash: In the place that you travel to, you will have to resort to using cash only if your credit score in your home country is poor. This is because setting up a credit history in the new place could be hard, especially if you have a lot of debt back at home. On top of that, it will take some time for you to make money sufficient enough to afford basic amenities in the new country. 

  • Your family might have to take responsibility for your student loan debt: If you try to dodge your student loans, your cosigners at home will be made responsible for your loan.


In conclusion…

Before moving abroad to explore places and collect experiences or look for new prospects, make sure your student loan is taken care of. This not only ensures that you don’t get into further trouble with either the lender or the law, but also alleviates your worries about the same.