Sorting out personal finances is a huge deal when moving to Spain, and student loans is often one of the biggest concerns. By and large, most participants on the Ministry of Education Auxiliar Program and other Teach in Spain programs are young people just out of college, meaning they’ve likely racked up some debt upon graduation.
Between a small stipend and a (likely) case of wanderlust, it will be difficult to enjoy a year or two or even a lifetime in Spain and pay back Uncle Sam!
Most people choose to defer for a time, favoring experience and a healthy dose of tapas to the financial obligations of their loans. Here’s a quick guide on how to do it.
Different Types of Loans
Like tapas, loans come in every shape and size, but typically fall into two categories: federal or private.
Federal: These loans are given directly to students and require no cash or collateral. What’s more, they have lower interest rates because they are funded by the government. They can also be consolidated after graduation. The most common types are Stafford, Perkins and Parent PLUS loans.
Private: Depending on credit standing and projected field of study, you may have a private loan through a private lender, such as Sallie Mae or a bank. Private loans allow you to take out more money at a time, but often have higher interest rates, are not tax-deductible and lenders are not very forgiving when it comes time to pay.
Understand that there are two ways to temporarily postpone your loan payments: to defer or forbearance.
- Deferment means you put off paying both the principal and interest on your loan.
- Forbearance means you are unable to make payments because of economic hardship. In these situations your loan company can offer you a reduced payment, though you’ll still be responsible for paying interest.
Both federal and private loans are eligible for deferment or forbearance, so long as you’re in good standing (as in, not behind on any payments) and meet the criteria specific to your loan. The government may or may not pay the interest accrued during this time.
Your Status in Spain
Your status in Spain as an auxiliar de conversación or lector is a strange one – you have legal, short-term residence but do not pay taxes or social security in Spain. The government considers you a becario or grant recipient.
Your acceptance letter into the auxiliar program will include all of the necessary information to prove that you are on a student visa and earning a small stipend that is considered post-graduate work by both the US and Spain.
How to Defer Your Loans
If you have a federal loan, you’re in luck – everything can be taken care of easily over the phone. Federal loans can be deferred due to your status as participating in post-graduate studies, so you’re set as long as you present your case. You can call your university’s financial aid office for more information and to request the deferment.
However, since the auxiliar program is not continuing education, per se, the government can deny your request for deference. In that case, you should be offered forbearance per the Economic Hardship option. This means you’ll accrue interest on the lump sum you owe, but you can put it off during the duration of your time in Spain. It should be noted note that though interest is not due during a forbearance it is capped and added to the principal at the end of the forbearance, meaning the balance of the loan increases.
Remember that you MUST continuing paying your loans until you receive notice that your deferment or forbearance has been granted.
Private loans are a different story, and your best option is to ask if your lender has exceptions for internships, fellowships or medical residencies. If so, give them a call to request paperwork and have your acceptance and placement letters translated to send as proof of your stipend.
If knowledge is power, talking to several people within the same private lender could be another way to figure out which options are best for you.
And if I’m Not Teaching?
If you’re not teaching, it’s best to call or log onto your online account to find out what options you have. If you’re not satisfied after talking to someone, try again! Persistence is key when securing a viable option to allow you to live comfortably in Spain without fretting over your financials back in the USA.
Have you deferred loans for your move to Spain and have tips to share with others? Leave them below in the comments!