Federal Student Financial Aid for American Expats Living Abroad

By ZM Ishmurzina

American expats living abroad have an opportunity to send their kids to various American or foreign schools in different parts of the world. It is a well-known fact that the USA has the most expensive education system among developed countries. Although, the tuition fees are low for many European schools, most students still graduate with a school debt. For example, 900,000 students in Sweden received government help in 2012 in the amount of $3.5 billion to cover fees and living expenses. Approximately two-thirds of those funds were loans. Earlier we wrote an article about 529 College Savings Plans. American expats living abroad can start saving for their kids’ education by opening 529 Education accounts.

However, there are other ways to finance kids’ education. One popular option is to apply for Federal Student Financial Aid. Many American expats living abroad still can apply for US student financial aid programs. The purpose of this article is to review the most common questions about Federal Student Financial Aid for American expats.

Federal Student Financial Aid for American Expats

What is U.S. federal student aid for American expats at foreign schools?

The Higher Education Act of 1965 allows eligible U.S. students to borrow federal student financial aid. This financial aid is offered to pay for education expenses at an approved institution located outside the U.S. The borrower is required to pay the loan back at a later date. Grants through the U.S. federal student financial aid programs are not offered to U.S. students who enroll directly in foreign schools in order to obtain their degree from these foreign institutions. Prior to June 30, 2010, US students at approved foreign schools applied for loans through the Federal Family Education Loan (FFEL) Program. Effective July 1, 2010, the William D. Ford Federal Direct Loan Program replaced FFEL.

Which foreign schools can participate in Federal Student Financial Aid Programs?

Foreign schools must meet the requirements (that are currently revised) outlined in the code in the Code of Federal Regulations under Title 34, Parts 600, 668, 682 and 685.

There are 3 types of foreign schools that can participate in the Federal Direct Loan program:

  1. Public foreign schools
  2. Non-profit foreign schools
  3. For-profit foreign schools

For-profit foreign schools are limited to the following:

  1. Freestanding foreign medical schools
  2. Freestanding veterinary schools
  3. Freestanding foreign nursing schools (effective July 1, 2012)

General School Eligibility Requirements:

  1. Foreign school must be legally authorized by its country to provide postsecondary education.
  2. Foreign school must award a degree that is equivalent to a postsecondary degree in the United States.
  3. Foreign medical schools must have an accreditation by a body approved by the National Committee on Foreign Medical Education and Accreditation (NCFMEA).
  4. Foreign medical, veterinary and nursing schools must obtain additional documentation.

General Program Eligibility Requirements:

  1. Foreign program must be at least a one-year program.
  2. Foreign program must lead to a full credit at the undergraduate level or higher.
  3. Foreign program cannot be a distance or correspondence education program.

How can American expats living abroad check whether a foreign school is eligible to participate in Direct Loan Program?

American expats should go to http://www.fafsa.ed.gov to check the latest list of foreign schools. It is helpful to call the customer support directly. It is essential to provide the exact name of foreign school as well as the full address.

What is FAFSA phone number?

American expats can call directly a FAFSA phone number 1-800-433-3243 or 319-337-5665 with additional questions about eligibility requirements.

How can American expats minimize US tax liability if they study at eligible foreign schools?

If American expats obtain federal student financial aid and attend an eligible foreign school, then they can claim one of the education credits for Higher Education: American Opportunity Credit, HOPE and Lifetime Learning Credit. Additionally, American expats living abroad can deduct up to $2500 interest that they pay on a qualified student loan.

Conclusion

American expats should review various options to fund their kids’ education. US taxpayers must remember that they can still apply for Federal Student Aid and take education credits. Americans living abroad with additional questions should contact expat tax CPAs at Artio Partners.