Question: I just read a news article in CNBC about people moving to foreign countries to stop paying their student loans. I was thinking about it, and I know from the news article I would be hit with garnishments of my salaries and Social Security. And I know I can’t work for a USA company because they would take money from my paycheck. But I have a question I didn’t see answered:
What if I get adopted overseas, change my name, and then apply as an immigrant? Would they catch me?
This isn’t a hypothetical. I’m 27 but my mother who raised me died two years ago, with no relatives in this country. I have distant but friendly relatives in China. I also have $42,000 of student loans. If I go to China, get adopted by my well-to-do relatives, then return to this country as a Chinese national to pursue my doctorate, how would this country know who I was and what I owe?
– Kim in California
Andrew Pentis from Student Loan Hero answers…
Fleeing the country to avoid student loan repayment rarely works out well for borrowers. Moving to a different country does not eliminate your legal obligation to repay the money you borrowed. And while it might make it harder for lenders to track you down in order to collect, it would probably only succeed if you live the rest of your life outside the United States. It’s not something I recommend.
What about fleeing and then returning under a different identity? With all due respect, Kim, that is a hypothetical, and a juicy one at that.
As one lawyer specializing in student loans, Simon Goldenberg, told me: “No one knows whether her lenders will eventually catch her.”
From a legal standpoint, Goldenberg says changing your name and citizenship status won’t affect your liabilities. You would still owe your creditors what you borrowed — plus interest.
We won’t pretend to know whether the Department of Education or your private lenders have the wherewithal (or willingness) to track you down. We also won’t get into the ethics of knowingly not repaying what you borrowed. That’s fodder for a different type of advice column.
Instead, let’s review how to deal with your debt here at home…
Student loan solutions that don’t involve fleeing the country…
Option 1: Use a hardship-based federal loan repayment plan
For one, if you have federal loans, consider switching to an income-driven repayment plan to make your monthly payments as affordable as possible. There are several plans that focus on matching your monthly payments to your income, while also taking your family size into account. That way, if you’re supporting kids, your payments will be lower since your cost of living is higher.
These programs could drop your monthly payments to about 10 percent of your income (or less) depending on your financial situation. They increase the term of your loans, so you would be in debt longer. However, you’ll be able to comfortably afford your payments. Then, if your financial situation improves, you can switch plans to one that focuses on paying off your debt faster.
Option 2: Refinance through a private lender
If you have federal and private loans, you could attempt to refinance with a private lender. You’ll need a strong credit score (among other factors) to unlock refinancing companies’ lowest interest rates. Also, you’d lose the perks of federal loans, such as the ability to alter your repayment plan.
Option 3: Student loan repayment assistance
Finally, you could be eligible for student loan repayment assistance for your undergraduate loans or future doctorate costs. This is where your employer agrees to help pay off your loans or offers tuition reimbursement for your future education costs. Many companies are starting to offer student loan assistance as part of their employee benefits package.
So, I’d recommend looking for help before you look for an exit. After all, it’s better to receive a helping hand than to have to look over your shoulder.
Andrew Pentis is a personal finance expert at Student Loan Hero.
Here’s a similar question from someone who wasn’t a U.S. citizen starting out…
Question: I studied in the United States for many years. But when I got my degree, I moved to another country. I currently have federal student loan debt of around $120,000 that I cannot repay. Soon it will go into default. However, I am NOT an American citizen, and I live outside the United States. What could the consequences be, if any? Do I have to pay back the loan anyway? Will my credit score be affected? Can that hurt me in Mexico?
– John in Naucalpan, Mexico
Howard Dvorkin answers…
Moving abroad and leaving debt behind is a dangerous game. Like many games of chance, it’s hard to predict if you’ll win or lose.
Let’s break it down by first answering what I think you’re asking: “Can debt follow you to another country?” The answer is no, the United States government isn’t going to send a debt collector to your door in Mexico.
However, if you ever want to live or work in the country again, you’ll face the same penalties as any U.S. citizen who stops paying their student loans for 270 days (after which it goes into default). One of those penalties is serious: The government will seize a chunk of your paycheck.
It’s called student loan garnishment, and it works like this…
When most people hear the term garnish, they might think about parsley on the side of a dinner plate. But that’s not the garnishment we’re talking about. This garnishment will make you lose your appetite. Student loan garnishment means the government will take a chunk of your paycheck or your tax return. The government then uses that money – your money – to pay down your student loans.
Thankfully this only happens when you’re in default. That’s when you fail to make monthly payments for nine consecutive months. At that point, the government goes after your cash and it’s totally legal. How much can they take? Up to 15 percent of your check and all of your tax refund. This is definitely something you want to avoid. And luckily there are proven ways to grind garnishment to a halt. Learn about them at Debt.com.
That means, should you ever land a U.S. job, the government can remove 15 percent of each paycheck and apply it to your student loan debt. The government can also garnish Social Security checks and disability benefits if you’re receiving them. You probably aren’t, but I mention both to show just how serious the federal government is about the student loans it guarantees.
You might think, “OK, I’m safe as long as I don’t cross the border,” but that might not be true. If you work for a company based in the United States, your paychecks can still be garnished. You’re in Mexico, John, which is a major U.S. trading partner. It’s not unlikely you might find good work with a U.S. company – and suffer the consequences.
As you can now see, just because you left the country, you didn’t leave behind your debts. They survive and even grow. In this way, U.S. debt follows you as can eventually catch up to you if your income is tied in any way to an American company.
As for your credit score, it operates much like your debts. Because you’re no longer paying what you owe, it will plummet. The only good news: Lenders in Mexico don’t use U.S. credit scores. However, if you ever try to get financing on this side of the border, it would be a problem. The good news is that if your federal student loans are in default, you may be able to reverse any credit damage that’s been caused.
Federal student loans have a unique place in credit reporting where you can remove past credit damage by catching up. If you make ten consecutive payments on time, then all the past credit damage disappears as if you never defaulted in the first place. This is the only type of debt that does this. It doesn’t work for private loans, but it might be able to help so you can begin digging out of hte credit hole that your student loan payments have caused.
