Previous generations might have left the U.S. to avoid fighting a war. Current generations are similarly wondering if they can escape debt by leaving the country.
Unfortunately, fleeing to a far-off country or even just moving to Canada to avoid student loans is a strategy fraught with pitfalls. Yes, you could leave your debt behind, but it could still be here upon your return. And even if you’re not planning a round trip, you could risk cutting ties to your home country, harming your credit and assets in the U.S. and potentially leaving a family member to clean up your mess.
So before you try to escape debt by leaving the country, ensure you’ve considered all the ways it could go wrong.
Can you escape student loan debt by fleeing the country?
If you’re a struggling student loan borrower, you might see leaving the U.S. as the right move for many reasons. Perhaps another country offers brighter job prospects to increase your income, for example. Or maybe the lower cost of living in a less-developed nation could mean easier managing of your everyday expenses.
But if escaping your debt is the real motivation to skip town, be aware that the consequences could catch up to you. That goes for both federal and private education debt.
Keep in mind, that there’s no statute of limitations on your federal student loans, meaning the government could take you to court no matter when you return to the U.S.
And although your state’s statutes of limitations might keep private lenders’ lawyers at bay after a set number of years, that won’t stop collections agents from demanding payments. Meanwhile, the statute of limitations protecting you from a lawsuit could be reset by a small move, such as making a payment.
What about moving to Canada to avoid student loans?
This solution was previously used for a very different problem. During the Vietnam War, an estimated 40,000 American men dodged the draft and fled to Canada, leaving behind family, friends and the hope of returning home without facing severe criminal penalties.
These conditions weren’t lifted until a little over decade later when an official pardon from President Jimmy Carter allowed them to return to U.S. soil.
As for moving to Canada to avoid student loans, the U.S. government won’t chase you down like they do in the movies. It would be too costly to file a judgment against you in an American court only to hope a Canadian court will hold you accountable for your now-foreign debt.
The only problem is that like with those draft dodgers of the 1960s, running away can spell major trouble for your finances. So before you run off and move to Canada or another locale, keep reading.
What are the problems with escaping student loan debt overseas?
Consider five reasons why leaving the country might not be a realistic solution to get rid of your student loans.
1. Your student loans won’t go away
2. You could lose most of your financial privileges
3. Your credit will take a big hit
4. You might have to resort to using cash only
5. Your family might have to shoulder your debt
1. Your student loans won’t go away
Nothing will absolve you from your student loans or make them magically disappear, not even moving to another country. Interest will continue to accrue, and your overdue payments will keep racking up.
The most viable option for pausing payments is to seek deferment or forbearance. The federal government offers many ways to take a break from your repayment. If you’ve suffered a job loss and can’t replace your paycheck, for example, you could defer your loan payments for up to three years.
And if reducing federal loan payments would help your situation, consider income-driven repayment (IDR) plans. Your lender will only ask you to pay a percentage of the income you bring in each month.
If you have private loans, meanwhile, income-driven repayment won’t be available, but check to see if your lender offers any form of deferment — some, though not all of them, do have this option.
2. You could lose most of your U.S. financial privileges
Dodging your federal student loan debt could prevent you from taking advantage of some financial rights and privileges if you hope to move back to the U.S. after a stint in some far corner of the world.
If caught, the IRS might come after you for your unpaid debts, taking penalties straight from your income-tax refund. If you come back home and find a job, you might even have your wages garnished. Or, if you expect to ease into retirement upon your return to the States, remember that the government could hold onto your Social Security benefits.
3. Your credit will take a big hit
Overseas or at home, if you don’t pay back your loans, it’ll harm your credit report and scores. After all, payment history comprises 35% of your credit score, according to FICO.
When your lender reports your loan as delinquent or worse, in default, the mark could stay on your U.S. credit report for up to seven years.
A marked-up credit report or reduced score will make your efforts at taking out more loans, getting a new credit card or applying for a mortgage much more difficult or costly once you return to the U.S.
4. You might have to resort to using cash only
Leaving the country for some European paradise might sound good in theory, but in reality, you might find that you’ve traded your student loans for another tough financial situation.
You might need to stick to transacting with cash only. Establishing a credit history could be difficult if you’re not an official resident of your new country and you’ve got a boatload of student loan debt back home.
On top of that, will you have enough cash on hand to buy a home, make investments or establish residency? If you do have such funds, you might as well just pay off those loans here in the U.S.
5. Your family might have to shoulder your student loan debt
You might be lying on some beach in the Greek islands or sitting at a cafe in Brazil, thinking your student loan providers can’t touch you. But back home, your cosigners (if you have any) will be the ones responsible for repaying your debt.
Just as with any cosigned loan, lenders go after the next name on the contract. If you care about troubling your cosigner this way, consider staying home and making those payments.
Even if you don’t have a cosigner, you might not be scot-free. If you were to leave assets behind in the U.S. and your credit becomes aware of them, they could be vulnerable in litigation. Consulting a student loan lawyer might be wise.
How to tackle your student loans with or without fleeing the country
Your best solution to tackling significant student loan debt might be staying right where you are — but setting a different path forward.
Making a budget, for example, could help you hack away at that debt balance. Here are some other strategies to consider:
- Switching repayment plans: If you have federal student loans, you can switch to an IDR plan to lower your monthly payment. If you have private loans, you’ll need the sympathetic ear of your lender or loan servicer.
- Repayment assistance programs: Look into state- and employer-based repayment assistance programs that help borrowers repay debt, typically in exchange for working in a particular field.
- Student loan refinancing: If your private lender won’t help you adjust your repayment plan and you can’t get repayment assistance, you could refinance your education debt with a lender that will be more helpful. You might refinance with a bank or company to lengthen your loan term and lower your monthly dues, for example.
And if you still want to relocate to Canada or elsewhere, think differently about living abroad with student loans. In fact, if you want to become a legitimate expat, do it the right way:
- Find a country with a reasonable cost of living
- Obtain the appropriate visa for your stay
- Seek a paying job that helps you become financially fit
Also, investigate your eligibility for the IRS’ foreign earned income exclusion: If you are able to make money abroad but have an adjusted gross income of $0 in the States, you could qualify for a $0 monthly payment on an IDR plan that leads to eventual loan forgiveness. Learn more about this strategy using our guide to paying U.S. student loans from overseas.
Paul Sisolak contributed to this report.
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