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Alexandra Sabalier
November 08, 2023
3 min

Student Loan Payments for American Expats Explained: How to Lower Your Student Loan Payments from Abroad!

For American expats, managing student loans while living abroad can be a financial puzzle and a complex and challenging task. Living abroad comes with its own set of financial considerations, and when you add student loan payments to the mix, it can become even more overwhelming. Fortunately, there are ways for American expats to lower their student loan payments, and one effective method is leveraging the Foreign Earned Income Exclusion (FEIE). This provision in the U.S. tax code can help you reduce your student loan payments and ease your financial burden. In this blog post, we will explore how American expats can use the FEIE method to reduce their student loan payments and ease their financial burden while living abroad.

What is the Foreign Earned Income Exclusion (FEIE)?:

The FEIE is a tax provision that allows eligible expats to exclude a portion of their foreign-earned income from U.S. taxation (for the tax year 2023, eligible expats can exclude up to $120,000). To qualify for the FEIE, you must meet either the Physical Presence Test or the Bona Fide Residence Test, this is done by proving you've spent the required amount of time abroad and/or that you're a tax resident of a foreign country. Once eligible, you can exclude up to the maximum amount specified as the annual limit from your taxable income in your US tax return. This can significantly reduce your Adjusted Gross Income in the US, and in turn, your tax liability.

Now, let's explore how this plays a key role in lowering your student loan repayments.

How you can Lower your Student Loan Payments with the FEIE:

Let's explore the practical steps on how you can use the FEIE to reduce your student loan payments as an American expat:

1. Select an Income-Driven Repayment Plan:

When you're living abroad, choosing an income-driven repayment plan for your federal student loans is a smart move. Options like:

  • Saving on a Valuable Education (SAVE) Plan
  • Pay As You Earn (PAYE) Repayment Plan
  • Income-Based Repayment (IBR) Plan
  • Income-Contingent Repayment (ICR) Plan

Calculate your monthly payments based on your discretionary income. By utilizing the FEIE, which reduces your taxable income, you also lower your Adjusted Gross Income (AGI), ultimately leading to smaller monthly student loan payments based on this amount.

2. Keep Your Loan Servicer Informed:

Once you start benefiting from the FEIE, it's crucial to communicate any changes in your income to your loan servicer. Your loan servicer needs accurate information to recalculate your monthly payments according to your new, lower income. Be ready to provide documentation of your foreign-earned income to ensure your loan adjustments are accurate. Oftentimes a copy of your annual US tax return is required as proof of your annual income.

3. Document Your Foreign-Earned Income:

The success of the FEIE method depends on maintaining meticulous records. Keep detailed documentation of your foreign-earned income, your days of physical presence abroad, and any other documents that substantiate your tax eligibility. Proper record-keeping is vital in ensuring your income-driven repayment plan accurately reflects your income.

4. Renew Eligibility Annually:

Remember that the FEIE is not a one-time benefit; you must meet the eligibility criteria each year. This means continuing to satisfy either the Physical Presence Test or the Bona Fide Residence Test is essential for this method. Stay informed about changes in tax laws and regulations that could affect your eligibility and consult with a tax professional or the IRS if you have questions.

5. Explore Loan Forgiveness Programs:

If you're working for a qualified non-profit or government organization while living abroad, you might be eligible for the Public Service Loan Forgiveness (PSLF) program. PSLF forgives the remaining balance of your student loans after 120 qualifying payments while working full-time for an eligible employer. By using the FEIE to lower your monthly payments, you can expedite your qualification for PSLF.


In conclusion, the Foreign Earned Income Exclusion Method offers a valuable opportunity for American expats to reduce their student loan payments. By lowering your taxable income, selecting the right income-driven repayment plan, keeping your loan servicer informed, maintaining accurate documentation, and exploring loan forgiveness programs, you can make your financial journey more manageable while living and working abroad. Remember that personal financial situations can vary, so don't hesitate to seek advice from a tax professional for personalized guidance. At Sabalier Law, we're committed to helping you plan your tax strategy and reduce your student loan repayments while staying compliant and following the rule of law, but using the tax code to your favor. You can get all your questions answered and start the path to financial clarity and freedom as an American expat, starting today, simply by scheduling an online consultation easily via our virtual calendar. With proper planning and the strategic use of the FEIE, you can navigate the challenges of student loans as an American expat more effectively and sustainably.

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