Loans with Borders?

May 20, 2008 10:36 PM

If someone moved out of the US and defaulted on a federal student loan, and never returned to the US as a resident, what would be the implications/ramifications?

--i.e., on future visits, cross-border financial matters, family still residing in the US (if any), and other potential fallout.

posted by mireille to work & money (8 comments total)

Previously. Summary: no, they won't arrest you, but they might bother your relatives. And your credit will really suck.
posted by sbutler at 11:08 PM on May 20

I'm clear on the morality, I'm just curious about the consequences.
posted by mireille at 11:52 PM on May 20

The LoA quote is nice, loved that movie, esp the uncensored version, but taking a man's compass and thereby his life is a whole 'nother ball of wax from not being in a position to re-pay a student loan one might have singed under duress or whatever, when you know it won't even pay for one missile.
Just noting that extenuating circumstances may apply to this situation and galloping the high horse seems to me more noise that answer.
OP is not asking how to break the law. The question is about consequence and moral judgments really should not enter in to an anwser.
posted by dawson at 12:26 AM on May 21

Well, I'm American and have been living outside the United States for about one third of my adult life. I currently know and have known many, many ex-pats, so this question has come up in our circle before.

You've left out four factors that are critical to determining hassle factor going forward: the country you intend to reside in, the total amount of the debt, any liquid assets you might have, and, of course, their location.

Short answer: under the default scenario, if you've got a brokerage, savings account or any other liquid assets in the United States they are very likely to be seized to honour a judgement. Textbook case, low cost / high profit for the collection agency.

Non liquid assets in the United States - their potential to be seized would depend upon how visible they'd be on an asset search. Again, think cost / profit for guidance.

And a somewhat longer answer: we are seeing efforts at collecting US debts in most of the G7 now. I've known people who have been contacted in Europe. Now that's different than having the debt collected, mind you. But contacted? Hell yeah. Again, cost / profit have to be evaluated.

Under these scenarios I'm not sure if the debt had been sold to a European collection agency, but most certainly folks have been contacted here in London.

In terms of judgements (I'm a banker, not a solicitor by the way, so this is effectively lay opinion), the key issue would be how likely your country of residence would be to honour a foreign judgement.

I spent a lot of time working in Africa, and while in Lagos one colleague who defaulted on some US loans was contacted and a foreign judgment was presented, to his employer no less, but it was not honoured. His debt was rather substantial - tens of thousands of dollars - but he argued that he hadn't been served, and the Nigerians accepted his explanation. Every country has different standards / requirements for the serving of legal notices.

So I guess a lot would depend upon where you're residing, and that country's relations with the United States.

Keeping in mind, other factors such as the dynamics of the debt collection business (i.e., the magic of compound interest over a sufficiently long period markedly increases the size of debt, and collection agencies can purchase said debt for perhaps pence on the pound).
posted by Mutant at 2:29 AM on May 21

I was going to mention that it might be possible right now to get away with it. But I envision a scenario in the very near future where credit ratings and debt will know no borders.
posted by gjc at 6:37 AM on May 21

Yeah, I guess my concern in that situation would be whether, in his lifetime, lenders in his country of residence might decide to start using the U.S. credit ratings agencies, which will show his debt (or whether other credit ratings agencies might link and share data, etc.). Even if the USG can't collect on the debt, the damage to his credit could make life tough when it comes time to buy a car/house, or get a job that requires clean credit (although I don't know how popular credit checks are as employment screens outside the U.S.).

At the very least it seems like it's a bit of a dangerous game for a young person; the direction of the world is pretty clearly towards more globalization of finance and not less, so it seems likely that the debt might come to haunt him within his lifetime.

Ironically, although the US Government is basically as incompetent as a functioning government can be in almost every area, they are surprisingly competent -- not to mention ruthless -- about debt collection. (This is from personal experience; I had the misfortune of being erroneously listed as in debt by an agency at one point.)
posted by Kadin2048 at 7:05 AM on May 21

I agree completely with gjc. It may be possible now, but I wonder how long that will be for. Depending on where you, I would say that at least in the UK credit checks for employment are becoming more and more common.

As far as my student loans go, I know I had to provide references (other than parents) in the case that they lender couldn't find me and I can't imagine that my aunt and uncle would be all that happy to have my lenders start hassling them! So, something to think about.
posted by triggerfinger at 12:00 PM on May 21

We have a friend whose brother owns a business in Thailand and is skipping out on his loans. He just married someone he met there, too, so odds are he's there for good. I think if you have no plans on returning to the US there's not much they can do to you other than mess with your credit.
posted by hulahulagirl at 5:35 PM on May 22