Student loans and marriage don’t have to be mutually exclusive. After all, nearly 70% of students graduate with loans, so it’s likely that you or your spouse (or both) are bringing student debt into your relationship. But it’s crucial to recognize the impact debt can have when you’re ready to get married.
If you or your spouse owes student loans, here’s what you need to know about student loans and marriage before you say “yes”.
Does Marriage Affect Student Loans?
Getting married can be a wonderful next step for couples, but it is important to assess how you will manage your student loans during your marriage. Before entering into a legal union, you need to understand how student loans and debt can affect your finances.
Before you get married, sit down and talk to your partner about how much debt you’ve both put on the table. Avoiding this important conversation can only lead to friction later, especially when it comes to financial milestones like to buy a house or start a family. The amount of debt you each have can affect your ability to meet other financial goals.
For example, owing a lot of student loans can have an impact on your debt-to-income ratio (DTI). If your DTI is too high, you might have trouble qualifying for a home loan. Or if you’ve missed payments on your loans, your credit rating could be bad, making it harder to get a loan or line of credit as well.
Here are some other ways marriage can affect student loans:
1. Your income plan may change
2. Your spouse could be responsible for your loans
3. Not all lenders allow you to jointly refinance your student loans
4. You may cease to be eligible for the student loan interest deduction.
5. Your spouse could help you with the payments
If you are on a income based repayment plan for your federal student loans, the marriage could affect your payments.
If you file your taxes as a “married filing jointly,” your income and your spouse’s income will be combined into one adjusted gross income. As a result, your bill could increase.
If you are reporting joint income, you may not be eligible for some income-oriented plans. This is because to qualify for income-based reimbursement Where Pay as you earn, your monthly payment should be less than it would be under the standard repayment plan. So while marriage can lower your tax bill in other ways, you could lose out on some student loan benefits.
An alternative is to report your taxes as a “separate spouses return,” which typically lowers your student loan bill on an income-oriented plan compared to a joint return. Note that the Review compensation as you earn (REFUND) takes into account both incomes, whether or not you file separately.
Plus, filing separately could cost you other tax breaks that you get by filing jointly, meaning it wouldn’t necessarily be worth it. If you’re concerned about the financial implications of student loans and marriage, consult a tax or financial expert to decide what’s best for your situation.
In certain circumstances, your spouse could be responsible for your student loan debt. While all federal loans and some private loans offer a death evacuation if the borrower dies, some private lenders may not. If they don’t, they might try to collect the debt against the estate. So be sure to read the fine print.
If you go back to school and your partner co-sign your loan, they will be legally responsible for your debt if you don’t make your payments.
Even without a co-signature, your spouse could be responsible for your student loans. This is the case if you take out a student loan after marriage and live in a community-owned state, such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas. , Washington State or Wisconsin. In the event of a divorce, you could be responsible for your partner’s debt if they incurred it during your marriage and you live in one of these states.
You could also be responsible for your spouse’s post-marriage loans if they go into default. In this situation, the government could try to foreclose your salary or your tax refund (if you filed jointly).
You cannot continue to consolidate your federal loans as a couple – only as individuals.
However, some private lenders allow couples to consolidate their loans. Ask a student loan refinancing lender you are interested in if they have a policy allowing couples to consolidate their loans and refinance them at a lower interest rate.
While student loans can be a financial burden, they offer a small benefit during tax season. If you’ve paid interest on a student loan in the past year, you may be eligible for a tax deduction of up to $ 2,500.
However, you can only claim the student loan interest deduction if you earn less than $ 85,000 in adjusted gross income. Once married, you can only qualify if you earn less than $ 170,000 together.
Even if you file your taxes separately, this combined income threshold of $ 170,000 still applies. So if you get married means your joint income is above this threshold, you will no longer be able to claim the student loan interest deduction.
While it’s easy to focus on the potential negative consequences of student loans and marriage, there might be a benefit: your spouse might offer to participate in the payments. Whether or not you combine your income, you or your spouse may choose to help the other repay their student loans.
Of course, this arrangement will be based on your own private agreement between you. If you or your spouse borrowed the loans before your marriage, neither of them is legally responsible for paying off the other person’s debt.
Look at the big picture, read the fine print and find a debt management plan. Happy Forever is much more achievable when you are both on the same financial page.
Rebecca Safier and Jackson Wise contributed to this report.