Refinancing student loans from abroad

Michael Lux Blog, Consolidation, Lower Payments, Student Loans 0 Comments

Addressing your student loans is never easy.  If you have student loans from your time overseas, dealing with your student loan is that much more complicated.

The difficulty dealing with loans from your time outside the United States will depend greatly upon how you were enrolled and who received the money.  If you studied abroad for a semester or two as part of your stateside education, odds are pretty good that geography won’t make your student loan situation more difficult.  If you were enrolled at a school in the United States, and paid tuition to that school, it won’t matter that you technically studied elsewhere.

However, if you actually attended a foreign institution, things get a little tricky.

Student Loan Consolidation

One of the best ways to attack student debt, is to leverage your good credit and income towards a loan with a lower interest rate by refinancing or consolidating your student loans with a private company.  This can result in lower monthly payments and getting your loan paid off faster.

Unfortunately, the student loan consolidation route gets much trickier for student debt acquired overseas.  Many private lenders are very particular about the schools whose loans they will refinance.  International schools normally are not on the list of eligible schools.

Given the possibility of dramatically reducing your interest rates, it is still a good idea to research companies offering student loan consolidation.  However, you should be prepared for the possibility that your search will come up empty.

Planning your attack

When crafting a student loan plan, we typically look at federal loans and private loans as two separate categories.  For those with foreign debt, they will have to create third category.  Creating these separate categories is important because the rules for each type of loan, and the options if you fall behind, are different.

Given that the debt from the foreign institution can have a variety of different terms and conditions, it would be irresponsible for us to apply any sort of blanket rules for dealing with these loans.  Instead, we will offer a couple suggestions and ideas that might be helpful depending upon your circumstances.

Idea #1: Consider knocking out the foreign debt first

The general strategy for paying off student loans quickly is to pay the minimum on all of your loans and then attack one loan with every penny you have.  Some people opt for paying off the highest interest rate first, while others look for an easy win and pay off the smallest balance loan first.  There are merits to these to strategies, often called the avalanche and snowball method.

You may find that the foreign debt limits your options in a variety of different ways.  If that is the case, paying off those loans first might open a few doors that would otherwise be closed.

Idea #2: Don’t even think of them as student loans

Many people have credit card debt and student loan debt.  However, their debt repayment plans don’t treat these types of debt as being remotely similar.  Treat your foreign debt as though it is a separate category like a credit card, car payment, or mortgage.  Going this route can help you avoid confusing the issues between two very different types of student loans.

Idea #3: Think about a personal loan

Personal loans are completely unsecured loans.  This means that the lender doesn’t have collateral if you fail to pay back the loan.  Unlike a mortgage, where if you fail to pay it you could lose your house, failure to pay a personal loan doesn’t jeopardize ownership of any of your possessions.  (As a side note, student loans are also unsecured, but there are special rules that apply to this debt.)

Because personal loans are unsecured and lenders have far less rights than they would with a student loan or a secured loan, the interest rates are normally higher on this type of debt.  However, if your foreign institution debt has an absurdly high interest rate, a personal loan can be used to pay it off.  It isn’t unheard of to find a personal loan offering 4 or 5% interest.

Even though the interest rates at play normally make the personal loan a bad option for tradition student loans, the overseas debt could be an exception to the rule.

Final Advice…

The rules of the game can be much different from loans you got abroad.  The best thing you can do for yourself is to study all the terms and conditions of your individual loans.  Once you know and understand the rules of the game, you can put together a plan to make sure you pay as little as possible.