Living outside the U.S. can be an amazing experience, but it presents its own challenges when it comes to student loan repayment. Before you pack your bags, you need to have a plan in place.
As long as you’re prepared, your loans don’t have to stand in the way of your travel dreams. You can live abroad and still stay up to date on your student loan bills.
Here’s what you need to do with your student loans before getting your passport stamped.
1. Set up autopay on your student loans
The best way to ensure you don’t miss a student loan payment is to set up automatic payments. You can typically set autopay up online by signing into your account on your loan servicer’s website.
Some loan servicers even offer a 0.25% interest rate deduction for setting up autopay. You’ll just provide your account and routing number, 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.
2. Connect an international bank account to your home account
Besides setting up autopay, you also need to ensure you have the 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. 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. That way, you won’t run the risk of missing a student loan payment while you set up cash flow back home.
3. 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 thousands of dollars on your student loans. You could choose a shorter repayment term to get out of debt fast. Or you could extend your term, so you don’t have to funnel as much money to your student loan payments each month.
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 plan as an expat or after you return home, refinancing isn’t the best option for you.
If you have a steady income and solid credit, refinancing could be a good option. Be sure to research several lenders, though. Some refinancing companies, such as CommonBond and Citizens Bank, don’t work with borrowers who are living in another country.
They require U.S. residency to apply, so you’ll need to provide a U.S. address. And Citizens Bank also needs to see income from a U.S. company or organization.
Other lenders, such as SoFi, Laurel Road, and LendKey, will work with you if you’re already abroad. Laurel Road allows you to apply with a foreign address and international income. And SoFi will help you verify foreign-earned income as long as you can provide a permanent address in the U.S.
LendKey will also accept proof of employment abroad as long as you’re still paying taxes in the U.S. If you’re interested in refinancing and already living internationally, speak with a lender about your plan of action.
And if you haven’t left yet, it could be easier to start the process before you fly off to your new destination.
4. Consider federal loan consolidation
Besides refinancing, federal student loan consolidation could also be a smart financial move before you relocate. This type of consolidation applies only to federal student loans. It 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.
So instead of having to track multiple loans, interest rates, and servicers while you’re living abroad, you only have to deal with one. Handling your payments from another country can be confusing enough. This type of consolidation could be just the money move you need to make things less overwhelming.
5. 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 terms 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). Your AGI is the amount of income you report that’s subject to income tax.
But 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. Before you get too excited, though, remember that low payments mean you’re barely scratching the surface of the principal or interest.
You could end up with a mountain of interest from all those months of low payments. Of course, the remaining balance could get 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.
6. 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 poor 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.
If your student loans are a huge burden, take steps to refinance or get on an income-driven repayment plan before you leave. By lowering your monthly payments and setting up automatic payments, you’ll stay on top of your bills without having to stress about them.
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 while secure in the knowledge you’ve taken care of your student loan responsibilities.
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