Douglas Olsen
With student loan debt at an all-time high, many borrowers are looking for ways to escape paying their student loans. The financial burden of student loans impacts everything from home ownership to childbearing, and some borrowers even consider leaving the country to escape their debt. While there is no simple way to get rid of student loans without paying, there are some legal options for student loan relief. For example, those with a total and permanent disability (TPD) may qualify to have their federal student loans discharged, and those working in the public sector may be eligible for the Public Service Loan Forgiveness program.
| Characteristics | Values |
|---|---|
| Leaving the country | If a debtor is enrolled in an income-driven repayment plan, they can make $0 payments for 20-25 years, after which their debt will be forgiven, though they will be left with a tax debt based on the amount of forgiven debt. |
| Public Service Loan Forgiveness program | If you work in the public sector, you may be eligible to have your loans forgiven. To qualify, you must make on-time monthly payments for 10 years under a qualifying repayment plan while being employed full-time with a public service employer or volunteering full-time with AmeriCorps or Peace Corps. |
| Teacher Loan Forgiveness Program | Teachers at low-income schools or educational agencies may qualify for the federal Teacher Loan Forgiveness Program. Teachers of mathematics, science, or special education may qualify for up to $17,500 of student loan relief. |
| Perkins Loans | Depending on your employment or volunteer service history, you may qualify for partial or full cancellation of your federal Perkins Loans. |
| Total and permanent disability (TPD) | If you have a TPD, you may qualify to have your federal student loans discharged. To apply, you must provide documentation of your TPD from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or a physician. |
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What You'll Learn
Move abroad for 20-25 years
Moving abroad does not cancel your student loan debt, but it can help you manage it more effectively. Here are some things to consider if you plan to move abroad for 20-25 years to escape paying student loans:
Firstly, it is important to understand the difference between federal and private student loans. Federal loans remain under the jurisdiction of the Department of Education, whereas private loans fall under the terms agreed with your lender. If you have federal loans, you can take advantage of income-driven repayment plans and the Foreign Earned Income Exclusion (FEIE). FEIE allows you to exclude a certain amount of your income earned abroad from US taxation, which can effectively reduce your student loan payments to $0. This strategy works well if your income abroad is less than six figures.
However, if you have private loans, comfortable solutions may be harder to come by. Private lenders do not offer income-driven repayment plans, and they may not agree to deferment or forbearance. Therefore, if you plan to move abroad to escape paying private student loans, you may need to consider refinancing with a different lender or exploring other options.
Secondly, you should be aware of the potential consequences of neglecting your student loans. Federal loans will go into default if you do not pay for more than 270 days, and the government can take severe actions to collect what you owe, including garnishing your wages and bank account. Defaulting on your loans can also damage your credit score, making it difficult to obtain affordable credit in the future, especially if you plan to return to the US.
To manage your student loans effectively while abroad, consider the following:
- Maintain a US bank account and set up automatic payments on your loans. Some loan servicers require payments to be made from a US bank account or with US-based funds.
- Understand the exchange rates and how they impact the amount you are paying to avoid unexpected increases in your loan payments.
- Explore international money transfer services, but be mindful of the fees associated with sending and receiving international wire transfers.
- Stay up to date with your loan servicer and provide them with your most up-to-date information before you leave the country.
- Monitor your credit regularly to keep an eye out for fraud and other issues that could negatively affect your credit score.
Lastly, consider seeking professional advice from a qualified tax and financial advisor to ensure you are compliant with the laws and regulations of both your home and host countries. Moving abroad can be a complex process, and it is important to understand all the implications, not just for your student loans but also for your overall financial and legal situation.
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Work in the public sector
Working in the public sector is one way to qualify for Public Service Loan Forgiveness (PSLF). PSLF is a federal program that forgives student loan debt for borrowers who work for a government or non-profit employer. This includes teachers, firefighters, first responders, nurses, military members, and other public service workers. To qualify for PSLF, you must be employed at a US government organization at any level (federal, state, local, or tribal) or a qualifying non-profit organization. Religious organizations may also qualify, as long as the work is unrelated to religious instruction, worship services, or proselytizing.
It's important to note that PSLF has strict requirements and not everyone who applies is approved. To qualify, you must work full-time or a minimum of 30 hours per week and make 120 qualifying monthly payments over the course of 10 years. These payments must be made on time (within 15 days of the due date), in full, and under a qualifying repayment plan, typically an Income-Driven Repayment (IDR) plan. You must also submit a PSLF certification form annually to stay on track for forgiveness.
There are other loan forgiveness programs specific to certain professions in the public sector, such as teachers and lawyers. For example, eligible teachers can receive up to $17,500 in student loan forgiveness if they work full-time in low-income schools or educational service agencies for five consecutive years. Lawyers can look into Loan Repayment Assistant Programs (LRAPs) offered by the American Bar Association.
If you're considering working in the public sector to qualify for PSLF, it's important to carefully understand the rules and requirements before applying. The legislative landscape is constantly changing, and the paperwork can be daunting and time-consuming. You can schedule a free consultation with a student loan specialist to learn more about your options and whether your employment qualifies for PSLF.
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Have a permanent disability
One way to escape paying student loans is to have your debt canceled or forgiven through the Total and Permanent Disability (TPD) program. If you are unable to work due to a disability or ongoing medical condition, you may qualify for loan forgiveness under the TPD program. It is not a requirement to be receiving Social Security Disability benefits to qualify for loan forgiveness.
There are a few ways to qualify for TPD, but the simplest method is to have a medical professional complete the TPD form, confirming your disability. A medical professional must certify that you are unable to engage in any substantial work activity due to a physical or mental impairment. For instance, if you are a veteran with a 100% service-connected disability, you may qualify for TPD.
The Department of Education's TPD loan servicer, NelNet, handles TPD applications. You can submit your application and supporting documentation via mail, fax, email, or by uploading them to the TPD website. Additionally, the Department of Education may automatically cancel your loans under the TPD program if they receive information from the Department of Veterans Affairs (VA) or Social Security Administration (SSA) indicating that you have an eligible disability.
While the TPD program can provide much-needed relief from student loan debt for individuals with permanent disabilities, it is important to carefully review the eligibility requirements and application process to ensure a smooth and successful discharge of your loans.
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Refinance your loans
Refinancing your student loans can be a good option if you are looking to lower your monthly payments and save money. It involves getting a new private loan with a lower interest rate to pay off your existing loans (both federal and private). This will leave you with one loan and a new repayment schedule.
However, it is important to carefully evaluate the terms of a new loan. While a lower interest rate can reduce your monthly payments, extending the length of the repayment term can increase the total loan cost as you will be paying interest for longer. Additionally, refinancing federal loans to private loans means forfeiting access to federal benefits, such as income-driven repayment plans and loan forgiveness programs. Therefore, if you are planning to take advantage of federal loan forgiveness programs, refinancing your federal loans may not be the best option.
To qualify for refinancing, you typically need a good credit score (at least in the high 600s) and a steady income. If you do not meet these criteria, you could apply with a creditworthy cosigner.
Overall, refinancing can be a good strategy to manage your student loan debt by consolidating multiple loans into one and potentially securing a lower interest rate. However, it is important to carefully consider the benefits and drawbacks before making any financial decisions.
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Leave the country
Leaving the country is an option for those wishing to escape their student loan debt, as it can be impossible for the US government to collect debt outside of the US. However, this does not mean that leaving the country cancels what you owe. Federal loans remain under the Department of Education's jurisdiction, and private loans still fall under the terms of your agreement.
If you stop paying your federal student loans, the US government can garnish any wages earned from working for US-based companies and can also offset your income tax refunds and your Social Security benefits. Private lenders have fewer ways to pursue you outside the US, but they can still negatively impact your credit score, which can limit your opportunities to buy a house or open a credit card.
If you are planning on leaving the country, it is important to create a plan to ensure you can continue to make your loan payments. For example, you could set up a US-based bank account that accepts electronic transfers from foreign banks and set up automatic transfers once a month to cover your student loan payments. Alternatively, you could build up savings to cover your monthly payments while abroad.
If you are considering remaining abroad for 20 to 25 years, after which your debt will be forgiven, it is important to note that you will owe income tax on the amount of forgiven debt. This can be avoided if you are insolvent, meaning your debts exceed your assets. This can be achieved by keeping most of your assets denominated in your new country of residence and using the Foreign Earned Income Tax Exclusion (FEIE). The FEIE allows US citizens to exclude a certain amount of income earned abroad from their tax returns, which was $126,500 per person for the 2024 tax year.
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Frequently asked questions
Leaving the country does not make your debt disappear. Federal loans have no statute of limitations, so you will likely be pursued indefinitely. Private loans do have a statute of limitations, but this can be paused if lenders can prove that you have left the country.
If you work in the public sector, you may be eligible to have your loans forgiven through the Public Service Loan Forgiveness program. To qualify, you must make on-time monthly payments for 10 years while being employed full-time with a public service employer or volunteering with AmeriCorps or Peace Corps.
Teachers who have taught low-income students full-time for five consecutive years may qualify for the federal Teacher Loan Forgiveness Program. The amount of forgiveness depends on the subject area taught, with most subjects qualifying for up to $5,000 in loan forgiveness, and mathematics, science, or special education teachers qualifying for up to $17,500.
If you have a total and permanent disability (TPD), you may qualify to have your federal student loans discharged. To apply, you must provide documentation of your TPD from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or a physician.
