Federal Student Aid and Tax Benefits for Expats Attending Foreign Institutions
Federal rules and regulations in Plain English
February 9, 2011
by: I.J. Zemelman, EA
Taxes for Expats
You are an American citizen living overseas. You have the opportunity to take classes at a renown
European University located in the town where you live. Or, you want your son or daughter to pursue
higher education abroad and garner deep insights into the global economy, analyze Plato’s dialogues, or
perhaps study medicine.
What are your chances of getting help from the U.S. Federal Government in pursuing these ambitious
goals? Does living abroad limit your or your children’s eligibility for the Federal Student Aid Program
or thwart your ability to take advantage of educational tax credits available to US based schools?
Given the complexity of Federal Legal Documents we include below a summary of the aid and tax rules
and regulations for American students attending foreign institutions. Hopefully this will make initial
inquiries less daunting to those who are unable to wade through Federal Documents which at best are
difficult and at worst impossible to understand. Title IV of the Higher Education Act covers Student
Assistance, encompassing 160 pages of legalese from section 400 to 498B. As with all such documents,
it attempts to cover all possible scenarios in the strictest terms for the benefit of both the student and the
institution as well as to protect the US Government in all aspects legal and financial.
In order to assist US students pursuing overseas studies the US Department of Education operates
various student aid programs. This allows eligible students to borrow from the program to help pay their
education expenses at approved institutions located outside the U.S.
Until June 30, 2010, foreign institutions were allowed to participate in the Federal Family Education
Loan (FFEL) Program. This regulation has been recently changed. In 2010, Congress passed and the
President signed into a law a bill that eliminates the FFEL program for all new loans made as of July 1,
2010. All federal student loans will now be made under the Direct Loan program – the program initially
limited only to the domestic higher education institutions.
Three types of foreign institutions are eligible:
● Private non-profit
For-profit foreign institutions must be either
■ Freestanding graduate medical schools
■ Freestanding veterinary schools
■ Freestanding nursing schools (effective July 1, 2010).
In addition to having the ability to borrow Federal student loans, students attending eligible institutions
qualify for in-school deferment of payments on existing federal student loans they have previously taken
Basic Eligibility Criteria
Under current regulations, subject to review and change by May 2012, foreign institutions and
educational programs offered must meet the following basic eligibility criteria:
1. Institution must admit as regular students only persons holding a completed secondary school
certificate or equivalent.
2. Institution must be legally authorized to provide educational program beyond the secondary school
3. Institution must be legally authorized to award a degree equivalent to an associate, baccalaureate,
graduate, or professional degree awarded in the United States.
1. Eligible program must be at least a two-academic-year educational program acceptable for full credit
toward the equivalent of a baccalaureate degree awarded in the U.S. or
2. Educational program must be equivalent of at least a one-academic-year training program in the U.S.
leading to a certificate, degree, or other recognized educational credential
3. The Program is not eligible if it is distance or correspondence education program in whole or in part.
Additional eligibility criteria apply to foreign graduate medical schools, veterinary schools, and schools
which offer nursing programs. This information can be found at the U.S. Department of Education
For clarification on specific foreign institutions eligible for Student Federal Aid, call FAFSA (Free
Application for Student Aid) at 1-800-433-3243. Be ready to provide the full name, country and city
location of the foreign institution. If FAFSA confirms that the institution is eligible, don’t hang up. Go
on and ask for school code required for filing a FAFSA application.
This information is available online at http://www.fafsa.ed.gov - but only for U.S. institutions. Don’t be
discouraged if you don’t see the University of your dreams on the website – just call FAFSA and ask.
The list of eligible foreign institutions is quite extensive, but you can only ask for a specific school
rather than see the entire list..
Please note that even if your family does not intend to take government loans and plans to pay out of
pocket, it is important for an expatriate planning on attending a university abroad to find out whether the
institution is eligible for Federal Student Aid. Being designated as “eligible” qualifies the foreign
institution and its students to participate in non-federal student aid programs, such as the HOPE and
Lifetime Learning Tax Credit programs. These credits may come in quite handy when it comes to filing
the student or parents’ U.S. tax return.
All tax benefits for Higher Education - whether outright tuition deduction or education tax credits
are extended to expatriate taxpayers if the student attends an institution eligible for Federal
The same rule applies to Student Loan Interest deduction - interest can be deducted if the loan (federal
or private) was taken to obtain higher education at an institution eligible for Federal Student Aid.
Hopefully the above will serve as a good framework for expatriates interesting in attending universities
abroad. Remember, your own eligibility is not the only status to check; to avoid any confusion and
added cost -- and possibly benefit from the aforementioned programs -- it is essential to find out the
eligibility of the institution you seek to attend.
IJ Zemelman, EA is a Principal at Taxes for Expats
She may be reached at: +1-646-397-2887
Web site: www.taxesforexpats.com