What happens to student loan debts for people who leave the country?

Factual Questions
21

You meet all sorts of unsavory individuals when you’ve been over here as long as I have and that includes student-loan dodgers. Just off the top of my head, there have been at least a couple that I knew, and I wouldn’t be surprised if there were more and they just kept quiet about it. But the ones I knew about, they never seemed to have a problem receiving services or obtaining a new passport at the embassy or even entering and leaving the US. I chalk it up to the behemoth bureaucracy that does not let the left hand of government know what the right hand is doing. Maybe some day the technology system of the US government will send a red flag to all official computers worldwide or even nationwide regarding this or that financial transgression, but it doesn’t seem to be the case yet as far as I can tell.

I don’t know about other countries, but I can tell you that in Thailand, I’ve never heard of a local company or school actually checking with someone’s school back home. If you have your diploma and maybe some transcripts obtained before you default and can no longer obtain them, that seems to be good enough for the Labor or Education Ministry.

Bankruptcy was mentioned somewhere above, and my understanding is that student loans are not covered by bankruptcy proceedings. You’ll still be saddled with those.

EDIT: I’ve never heard of any foreigner being refused a visa to Thailand for having debts of any kind. AFAIK, as long as you don’t appear in the criminal database of Interpol, you’re not going to be denied a visa to Thailand.

22

Don’t student loans often get co-signed by the parents? Besides everything else, someone could be throwing their family under the bus by doing this.

23

Well, then “your friend” should sue his lawyer for dereliction of duty, or something along those lines. Playing hardball with school administrators (and not limited to med school) about an accusation of crime is extremely stupid. It is always best to come clean with them, and show transparency in dealing with them. Since the crime accusation resolved itself, then he should have shown good faith with the administrators. And since this is med school, that means that he already has his undergrad done. Is he not aware of how discipline issues are handled? These “kangaroo courts” are the norm in all colleges and universities in the US at least for sure, possibly in the entire world over also.

24

On a related tangent: If the friend is moving abroad for other reasons, one thing to consider is that federal student loans only accept payment in US dollars. I maintain a US bank account primarily for the purposes of paying my student loans, and of course, I have to eat the currency conversion fee.

Your US credit rating does not follow you abroad: you start from zero. This has its advantages and disadvantages, and I am not sure how long it will be the case since we already have the technology to share that information. If you are abroad permanently, chances are that your US credit rating isn’t terribly important.

I debated ceasing to pay my loans when I left the US permanently, but I changed my mind since, unlike the OP’s friend, I took them out in good faith and only perhaps 10 percent of it went to my university acting in bad faith. [Edit: the “bad faith” was not specific to me, but a couple of decisions meant to make more money for them. For example, charging full tuition to students who were off campus writing a dissertation and taking no classes, which was begun for my year and meant my degree cost tens of thousands more than the year ahead of me. Maybe it was more than 10%: I don’t want to think about it.]

The story about being kicked out of medical school sounds fishy. Not as in “I’m sure the school was right,” but it looks like they were looking for an excuse to get rid of your friend, anyway. I can’t imagine that happening to a student who was otherwise exemplary at a state school, and I have seen schools bend over backwards to keep students that should have been dropped like hot potatoes. I wonder if you got the full backstory.

25

It’s not a criminal offense to be unable to pay debts. It’s not even generally a criminal offense to just refuse to pay debts even if you’re able to do so.

If there was a court order, where it said “pay this money to this party” and you had said money, and you refused to pay said money, then you could be jailed for contempt. Sometimes indefinitely. However, typically if you are still working it would ultimately end up in wage garnishment so you wouldn’t even really be in a position to get yourself in contempt since the garnishment would be the total of your required payments each month.

It seems your friend’s goal is to live life, but not pay any of this debt back. He could indeed achieve that by finding residence and employment in another country, because living in another country most likely puts him in the category of people “too hard to try and collect money from” even if there are available ways to collect from a person living abroad. But he’d need to temper his expectations, you mentioned Australia. Like most first world countries, Australia doesn’t just let anyone roll in and live there and start working there. Much like the United States, Canada, or the countries of Europe you need to actually have job skills and go through an immigration process and etc.

Your friend was in medical school but did not graduate, if he had then he’d probably be an attractive immigration candidate. Depending on what his undergraduate degree was in and his other work experience, it’s entirely possible he might actually get residence in another country under various “high skilled” immigrant policies. Or if he finds a company in that country to sponsor him. But ultimately it’s just not that easy, and each country is going to have different rules. There’s also a problem that eventually getting various documents renewed may run into trouble because of outstanding collections claims against him and all that.

A much better alternative for him would be to continue living in the United States and simply not pay his loans. Sallie Mae was mentioned, Sallie Mae allows for continued deferments and forbearance. You didn’t mention if any of the loans are FAFSA loans, but if they are–those are the same deal. I’ve known people who have enough money to pay their Federal loans but have been in forbearance for decades (the loan grows continually because of interest, forbearance doesn’t freeze interest accumulation while deferments do.) I don’t know what the end game is for the people that have just kept their Federal/Sallie Mae loans in deferred payment forever, but I know you can get away with it for 20+ years and no one comes knocking on your door.

Now, if any of his debt is held by other private lenders they may not have a forbearance program at all. Or, they may have one that is based on income or certain life events, and you have to document that you can’t pay or etc. But they will most likely utilize a normal collections process against your friend, that he would have to deal with.

26

Of course, if your buddy emigrated to the UK, or Canada, or Australia, or Tahiti - with valid immigration (equivalent of a green card) he could in 3 to 5 years become a citizen there (there are a dozen threads or more here on dual citizenship). Then the question “will the Embassy renew my passport?” is irrelevant. Pick a modern country (the first 3, for example) and you will have no more problem getting visas to the rest of the world for tourism that US citizens.

There is the added complication that the USA is unique in having a law that no matter how long you have been gone, you must file taxes and declare large property holdings with the IRS. This is probably more troubling than any student loan debt. It is a scare point for example, for Canadians born in the USA who have rarely set foot in there since their childhood - yet by birth hold US citizenship. When Homeland Security sees the US birthplace on a foreign passport holder or overseas resident entering the USA, will they one day look up the name on an IRS list and toss them in the clink until they pay up?

I suspect you overanalyze the student loan thing. I assume it is more like this… He lost a case saying he did not have to pay, so the judgement is “the debt is legal and the payment conditions stand”, not “I order you to pay $X/month on penalty of contempt.” He’s no different than anyone else skipping out on his loan.

Of course, if he were to go bankrupt in Australia, does the USA law “can’t clear student loan with bankruptcy” hold any meaning there, or is it just another debt? Then the only problem is, of course if he returns to the USA to work or has any holdings there, then the US courts would still consider the debt outstanding.

As Siam mentions, in another thread someone asked the question about passport renewal and found that the embassy did not care about student loan backlog. They certainly aren’t going to spend good money extraditing you, that would probably just cost more than the current debt. Plus, back in the USA and tossed in jail how do they expect you to pay down your debt. They’ll wait, and hope he gives up eventually, I suspect.

27

It’s not easy to discharge Student Loans in bankruptcy but it can be done.

28

I assume this is only true among American med schools.
So here’s an idea: can the friend complete medical school in a foreign country?
There are lots of English-language med schools in Europe----especially in Italy and Roumania. (Google “Italy medical school english”, with various country names)
I’ve heard that these schools are generally very happy to accept Americans, because it boosts their reputation.

Your friend already has half or more of his studies. So if he completes -what?- one or 2 more years, he could become a licensed physician in a European country. I assume that he can then return to America, take the same exams required of any foreign doctor wishing to be licensed in America, and then start making an American salary, and repay the loans.

Just a drive-by thought. I don’t know any of the details.

29

Here, at any rate, if you decamp abroad and ceasing paying then they write the debt off as unrecoverable eventually - 25 years, I think. They’ve never attempted to sue in foreign jurisdictions for the money.

30

'm not getting into this one - except to say: in the last re-write of US Bankruptcy Code (with which I have personal experience), it was decided that one too many students grabbed the sheepskin with one hand and file a Bankruptcy Petition with the other.
Result: Student loans are now a specified type of debt (along with child support) which cannot be discharged by bankruptcy. Most taxes also fall into this category.

Well, and to suggest:
Try Canada - when an amnesty was announced for the draft evaders, very few came home - it seems they kinda liked their new lives.

And offer a possible explanation of the Med school’s action:
And what student goes to a lawyer to find out if they are required to disclose to a (what they claim false) accusation?
Would you like having a doctor who decided that that malpractice claim was bogus, so they decide to do what they can to make sure their patients never hear of it?
There’s a difference between “legal” and “ethical”.

31

How do you know he wouldn’t be accepted at another school? Has he applied? Seems to me he could explain the situation politely and provide applicable paperwork (e.g. recommendation letter from attorney to take the action he did, proof that the charges were dismissed and/or a clean background check result, etc.). Not vindictively, but “This is what happened, I was cleared of the underlying accusation <show paperwork> and the course of action I took with respect to the school was in good faith on the recommendation of an attorney.” Is this “jerk” status among med schools limited to US med schools or would a British or Australian med school also play along and shun him?

Also, I believe some (many? most?) schools have a readmission process where a student who was previously expelled can reapply for reinstatement after a cooling off period. Typically they want an essay or other evidence that you have dealt with the issue that caused you to be expelled to help you make sure it doesn’t happen again, but that might be problematic if he feels he didn’t do anything wrong to begin with and thus has nothing to be sorry for. I understand that there are similar issues with “innocent” convicts getting denied probation or parole or having it revoked for lack of remorse, kinda hard to do when you don’t believe you “did it”.

Also, expulsion for just one matter seems a bit harsh. Most schools iirc use “progressive discipline” that starts with warnings, escalates to temporary suspensions if you don’t stop misbehaving, and only proceeds to expulsion after it has seen your name on the naughty list so many times it has given you up as hopelessly out of control. Was this your friend’s first disciplinary writeup or was he having “minor issues” over time and this time they got fed up and threw the book at him?

32

Do you mean UK student loan debt, or consumer debt generally? I don’t know about debt to the SLC, but consumer debt is statute barred in the UK after 6 years (5 in Scotland) from last payment or acknowledgment.

But yeah, my general view is that there would be few immediate consequences to the action the OP describes. I mean, the UK doesn’t even ask “Do you have outstanding civil debts in your home country?” when you apply for a visa, and neither does the USA. I suspect very few countries do.

OP’s friend will not be refused visas for western nations (at least) or arrested at the airport CBP booth on return to the US because of unpaid student loans. Nor can he be “sent back on the next flight” if he’s a USC.

I still don’t think it’s particularly wise, though. As pointed out upthread, it’s not like you can just, as a USC, head off to Australia or China or wherever on a whim. These places do have immigration policies.

33

I think posters in this thread need to be reminded that we live in an ever changing world and just because at this very moment, unpaid loans to the government won’t follow you or have consequences for visas, etc, does not mean such will still be the case in say, five years.

Your friend really should consider Canada, on reflection. Parts of this country have chronic Doctor shortages. It might work in his favour?

34

But that’s the point - student loans can’t be discharged in bankruptcy under US law. Do they enjoy any special status if the fellow were living in Canada or UK and went bankrupt?

Of course, perhaps the USA is under no obligation to respect a foreign court’s decision that a debt is cancelled if US law says it cannot be, but unless the person returns to the USA, what are they going to do about it?

35

This happened to me! I had issues, (2004), got suspended. Life went in crapper. Reenrolled in 2013.

36

Sovereign immunity limits the liability of a government to civil actions. It doesn’t prohibit criminal prosecution. There are other forms of immunity (like prosecutorial) which protect state employees from criminal prosecution, but they are not absolute.

Student loans can be discharged in limited circumstances (disability, fraud on the part of the educational institution, death, and in bankruptcy in cases of “undue hardship”).

37

Would not work in Australia. School would check the academic record, and exclusion would be a red flag. Whatever problem he had in the USA, they would not want to repeat it here.

38

I remember reading an article in the Times about a recent trend among Americans abroad who are giving up their US citizenship to avoid taxes. Apparently if you make over 80k you pay twice, here and where you live. If you manage to gain full citizenship in CA/AU/UK, perhaps renouncing your citizenship would prevent any of the red tape talked about above.

I suppose it might be a pain in some ways, requiring you to get a tourist visa to visit your family; but this is fast becoming a bad place for anyone who isn’t in the top 5%. Move to Canada. They still have a middle class!

39

IIRC Student loans are not dismissible due to bankruptcy.

40

This year old thread isn’t about paying taxes on current income. It’s about paying off debt - changing your citizenship won’t change that.