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I'm an international student on a J1 Visa pursuing a Master's degree at a university in Chicago. For the duration of my program I will live in Chicago, but will be leaving the US after finishing my program in approx 2 years. I have a driver's license from my EU home country along with the international drivers permit, which to my knowledge serves as translation.

The Illinois rules of the road state the following:

Individuals may drive in Illinois without a valid Illinois driver’s license if they meet one of the following circumstances:
[...]
Are an out-of-state student attending an Illinois college/university; they and their spouse and children may drive with a valid license from their home state or country.

Does this exemption apply to me? I'm unsure whether out-of-state means someone not living in IL but only commuting to IL, or someone without permanent residence, such as me.

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"Out of state" means "not a permanent resident of the state". A Californian student doesn't need to get an Illinois Driver's License (they can continue to use their Californian license), and nor does a German one (they can continue to use their German one).

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