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Fleeing the country to avoid debt is extreme – and it doesn’t really work

4 minute read

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 answers…

Fleeing the country to avoid student loan repayment rarely works out well for borrowers, and it would probably only succeed if they live the rest of their lives 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…

For one, if you have federal loans, consider switching to an income-driven repayment plan to make your monthly payments as affordable as possible. Grouping your debt via a debt consolidation loan could be your first step.

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.

Finally, you could be eligible for student loan repayment assistance for your undergraduate loans or future doctorate costs. 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.

See a similar question below:

Question: I studied in the United States for many years. But when I got my degree, I moved to another country. I currently have a federal loan 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 if you depend on an American company for pay.

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.

Another option

To keep your options open and your payments low, consider switching to an income-based repayment plan to make your monthly payments as affordable as possible. You could also group your debt with a debt consolidation loan.

Student loan debt is such a massive problem in this country, the federal government offers options to make payments affordable. These are legitimate programs for greedy reasons: The government eventually wants its money back, but with more than $1.2 in student loan debt outstanding – more than all the credit card debt in the nation – it doesn’t want more defaults. It certainly doesn’t want its borrowers fleeing the country.

Buried in student loan debt? Don’t flee the country. Contact Debt.com, we have the solutions to fit both federal and private student loan debt relief.

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About the Author

Andrew Pentis

Andrew Pentis

Andrew covers personal finance expert with a focus in student loans for Student Loan Hero. His work has appeared in 30-plus publications. He is interested in creating actionable content.

Published by Debt.com, LLC