living abroad with student debt

living abroad with student debt
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#1

I am 35 and have recently completed a PhD and, while I am an American citizen, I did my MA and PhD in the UK and have lived here for the past 12 years (I am now a dual citizen). I am a working mom with a 3 year old and another baby on the way. With the weakening of the pound, my salary which is considered a good salary here now only converts to $45k!! Unfortunately for me, when I took out US student loans the pound was nearly twice as strong. I have about $125k of student loans (ranging from 6.5-7.5% interest!!). A few years ago my father passed away and my inheritance is in an IRA and about $89k. Whenever I take out money from it, it is officially taxable so taking one lump sum is not a real option, but I could take it out over 2-3 years and pay off a large chunk of my student debt. But, by doing that, I lose all my savings. Its not making any money in this market so I feel like I am losing money on it.

Being British means I have free healthcare for life (wohoo) - so contingency plans are not as dire here. I have a pension through my work I started a few years ago and my husband and I own our flat (with a mortgage) which, while we would like to sell and move to a new place is not happening while there is such political uncertainty in the market (Brexit!).

My question is - do I pay off a chunk of the student loan (and how much?), Part of it is with Naviant and part with Great Lakes - do I consolidate? Try a repayment scheme and accept that some will be written off in 25 years? Do I refinance and hope for a better interest rate that is under 6%?

I am feeling at a loss and a bit overwhelmed - I don’t want to mess up and do the wrong thing with my inheritance, which feels like I would be doing wrong by my father in some way. Any clarity would help!

Thanks!


#2

Hi heidiliane,

Congratulations on your PhD and upcoming baby – lots to celebrate!

To answer your student loan questions:

  • You likely won’t qualify for student loan refinancing through a U.S. company if you have a UK employer. If your employer is multinational, I’d suggest reaching out to a few student loan refinance companies before applying to see if they’d consider refinancing your loans.

  • Can you currently afford your monthly payments on the standard, 10-year repayment plan? If so, that option will save you the most money. You could get a lower monthly payment through an income-driven repayment plan and/or federal consolidation, but those options stretch your payments out over a longer time period, which means you’ll pay more in interest overall.

I’ll let another Nerd weigh in on whether you should tap into your Roth IRA, but I’ll leave you with this resource:

Best of luck!
Teddy


#3

Thanks Teddy for such a speedy response and the congrats! Lot’s to celebrate but one comes with maternity leave next year (so I wont be earning for a few months) followed by childcare costs for the next two years. Realistically I can’t afford the payments - they will be over a grand. If I could get them down to under $500 it would be manageable. Unfortunately UK wages don’t account for student loans like US one’s would because they have only just come into place here and are treated like a tax on your paycheck.

Thanks again
H


#4

Hi, Heidi! We generally recommend people stretch out withdrawals from inherited IRAs as long as they can to keep the money growing tax deferred for as long as possible. But there are specific steps that have to be taken that many people don’t know about. Missing a step can mean the entire IRA is taxable.

Stretching out withdrawals on inherited IRAs (traditional or Roth) requires rolling the money over into an inherited IRA account in your own name and starting required mandatory distributions by December 31 of the year following the year of your father’s death. If you do that, you can stretch the withdrawals out over your own lifetime.

If you roll the money into an inherited IRA in your own name, you also have the option of not starting mandatory distributions, but then you have to take all the money by the fifth year after the year of your dad’s death.

If you didn’t do those things, and the money is still sitting in your dad’s IRA, it may already be taxable.

You may already know this stuff, but just in case you didn’t I thought it would be helpful to know. If the IRA is already taxable, you may as well use it to pay down the debt. But you would also need a US tax pro to help you sort this out, since it likely requires filing amended tax returns.

If you already got good tax advice and have the option of stretching out the withdrawals, my instinct would be to do that and look for another solution to making your student loans more affordable, such as stretching out the repayment term to get your payments down.

Hope that helps and congratulations on the new addition to your family!