Author Topic: Student loans vs. start investing / living abroad complications  (Read 1166 times)


  • 5 O'Clock Shadow
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Student loans vs. start investing / living abroad complications
« on: December 01, 2018, 05:08:44 PM »
Hello all! I'm a bit unsure of my next step towards FI, and would really appreciate your thoughts. It's a bit complicated because I'm a US citizen living in the UK, and am getting restricted by all kinds of draconian US financial laws. Here's the situation:

-I'm a US citizen living and working in the UK (the exchange rate really sucks right now)
-My student loans are in USD (about $38k, interest rates vary between 4.5% and 6.55%), I pay the minimum at the moment each month but am losing out due to a bad exchange rate between GBP and USD.
-I have some old retirement pots in USD from past employment in the US, but cannot add to them at the moment due to US financial laws (can only add to them when I pay taxes in US, but currently I only pay taxes in the UK)
-I also have retirement pots from past & current employer in UK, am maxing out the employer match. However I'm not legally allowed to open additional tax-protected accounts in the UK (ISAs) because I'm a US citizen and US laws make this really difficult for foreign banks
-So my only investment options are non-tax protected accounts in the US (with a bit of a loss due to exchange rate), or same in the UK

My question is should I aggressively attack student loan repayments (even though I'll lose a bit on a crappy exchange rate), or should I instead focus on starting investment in non-tax protected accounts, either in UK or USA? Or should I do a bit of both - use half extra money to pay off stud. loan and half to start investing?

Would you consider a 6.55% rate on student loans high enough to tackle it ASAP, or would it actually be smarter to invest & pay off later?


  • Bristles
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Re: Student loans vs. start investing / living abroad complications
« Reply #1 on: December 07, 2018, 01:41:55 PM »
If we didnít have the added complexity of currency exchange rates going into this equation and you were just working in the U.S. and deciding between paying off your 6.55% student loans vs opening an after-tax investing account, I would say you should pay off those loans. 6.55% is high enough that itíd be hard to get better than that after-tax in stocks.

So now letís assess the currency situation. Currently 1 GBP = 1.27 USD. This is nearly the low point over the last 5 years (lowest was 1 GBP = 1.22 USD, highest was 1 GBP = 1.72 USD)

While the GBP to USD exchange rate is at a near 5 year low, I donít think itís going to go up anytime soon. My reasoning for this is that it hit that low when Brexit passed, and while it seemed to recover a bit early on, briefly peaking at 1 GBP = 1.42 USD, it has consistently been on the downward trajectory again since the beginning of April 2017 around when the 2 year exit process was officially started. Now the exchange rate is again back down near the 5 year low, most likely because the latest plan to deal with Brexit isnít looking good. It doesnít look like this is going to be favorably resolved soon, and I could see it dropping a lot more when whatever final Brexit terms become a reality.

So based on that, I would put any extra money towards paying down those student loans, because I think the exchange rate is going to be getting worse for a while.

But I think technically all of this currency analysis is getting at trying to time the market, and since we arenít Warren Buffet, we are on average much better off just going in with what we have as soon as we have it. So not holding onto those GBP because you think theyíll be worth more USD in a few months. So even if we thought the exchange rate was going to get better for you in a few months, you should still pay off your student loan now. And when the source of that guaranteed 6.55% return is all gone, then open the local UK after-tax account and buy the index funds.

Itís nice when my naughty market timing assessments result in the same course of action that youíd take if you werenít trying to time the market. Score!

Hope this helps you make your decision. Good luck!


  • Stubble
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Re: Student loans vs. start investing / living abroad complications
« Reply #2 on: December 08, 2018, 04:18:09 AM »
Is the issue that you're not filing US taxes, or that you're not paying? You should be filing US taxes, but your US tax liability should be off-set by what you pay in taxes in the UK.

This really sounds like the sort of question that you need an experienced advisor for, because you're totally spot on that FATCA sucks and you're getting caught in the crosshairs.


  • 5 O'Clock Shadow
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Re: Student loans vs. start investing / living abroad complications
« Reply #3 on: December 08, 2018, 09:41:56 AM »
If you're a US citizen, you have to file taxes with the IRS, even if you don't live in the US and even if you don't make money in the US or from US sources.