If you or your future spouse went to college, chances are you will be dealing with student loans. According to the Federal Reserve Bank of St. Louis, 46% of young married couples had student loan debt in 2016, triple the proportion of couples who had student loans in 1989.
What happens to student loans when you get married depends on when you took out the loans and where you live. But for all borrowers, getting married can affect the payment plans and tax deductions you’re entitled to, and it can even affect your ability to get credit in the future.
7 common questions about student loans and marriage
If you are getting married, you may be worried about the impact of marriage on your finances, especially if your future spouse has significant student loan debt. If so, here are the answers to questions you might ask yourself before tying the knot:
1. Does marriage affect my payments if I am on an income-based repayment plan?
If you have federal student loans and are enrolled in an Income-Based Repayment Plan (IDR), getting married can affect your payments.
With an IDR plan, your payments are a percentage of your discretionary income. If you and your spouse are both working, your income may be higher and your payments may increase.
If you file your taxes jointly, all IDR plans will use your combined income to determine your payments. If you file your tax returns separately, most plans – Income Based Refund, Income Based Refund, and Pay As You Earn (PAYE) – will only use your income to calculate your payment amounts.
The only exception is the revised version of the remuneration according to your income (REFUND). Even if you file your returns separately, REFUND includes your spouse’s income in its calculation.
2. How does my spouse’s student debt affect my credit?
In general, your spouse’s debt will not affect your credit unless you co-signed a loan with them. If you co-sign a student loan and your spouse is behind on payments, your credit rating will be affected.
Marriage can also affect your ability to obtain other forms of credit, even if you have not co-signed your partner’s loans. When you apply for credit as a couple, such as trying to take out a mortgage, the lender usually looks at your combined income and debt-to-income ratio (DTI). If your DTI is high, you may not be eligible for a loan.
3. Is a spouse responsible for student loans taken out after marriage?
Whether you are responsible for student loans that your spouse took out after your marriage depends on where you live. In most states, the debt incurred during the marriage is the responsibility only of the person who is on the loan agreement. However, if you live in communal property states – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin – you are jointly responsible for the debt.
4. Can married people jointly refinance their student loans?
Student loan refinancing can be a way to streamline your payments, lower your interest rate, and lower your monthly payments. If you both have student loan debt, you might be wondering if you can refinance your loans and consolidate them to take advantage of your spouse’s credit rating or higher income.
Few lenders offer refinancing for married couples. However, most private refinance lenders allow spouses to co-sign their partner’s loan applications. As a co-signer, you will share the responsibility for the loan. If you have good credit and a stable income, you can help your spouse qualify for a better rate than they would get on their own. But as mentioned earlier, you will be responsible for the payments as a co-signer if your spouse cannot make the payments.
5. Am I still eligible for the student loan interest tax deduction?
With the student loan interest deduction, you can deduct the lesser of the interest you paid on your student loans for the year or $ 2,500.
However, there are income limits. If you or your spouse has a high income, this can push your combined income beyond the eligibility limit for the student loan interest tax deduction.
The deduction is phased out if your modified adjusted gross income (MAGI) is between $ 70,000 and $ 85,000 ($ 140,000 and $ 170,000 if you are married and file a joint return). You are not eligible for the deduction if your MAGI is $ 85,000 or more ($ 170,000 or more if you are filing a joint return).
6. Will marriage affect my financial assistance?
If you plan to return to school, your marital status may affect your eligibility for financial aid.
You may still be eligible for Federal Pell Grants and Student Loans, but your marriage changes your dependent status on the Free Federal Student Aid Application (FAFSA).
If you get married, you are considered independent for federal financial aid purposes, even if you live with your parents and rely on them for financial support.
As a self-employed student, the government looks at your combined household income to determine the assistance you can receive. If you have a higher income as a couple, you may not be eligible for financial aid programs designed for low-income students, such as Pell Grants or subsidized loans. However, you can take advantage of the higher loan limits for independent students.
7. Do I have to pay my spouse’s loans in the event of a divorce?
As a newlywed, the last thing you want to think about is divorce. But it’s wise to understand how debt is handled – through the good times and the bad – just in case.
Loans taken out after your marriage are generally considered marital debts and will be shared equally in the event of a divorce. If you live in a community property state, the debt is split in half and you will share the responsibility for repaying the loans.
If your spouse took out the loans before you got married, you are usually not owed the debt unless you co-signed the loan. If you co-signed your spouse’s loan, you share the responsibility for the debt even after your divorce is finalized.
Repayment strategies to help a partner pay off their student loans
If you and your partner have student debt, you can use these strategies to speed up your repayment:
With the debt avalanche strategy, list all the loan balances you and your spouse have and their interest rates. Continue to make the minimum required payments on each of them, but devote any extra money you have to the account with the higher interest rate. Once that account is paid off, place the payment on the loan with the next highest interest rate.
By targeting the most expensive debt first, you’ll save more money over the repayment term and pay off your debt faster.
Make additional payments
If possible, pay more than the minimum required each month. Even the small extra payments add up.
Suppose you have $ 35,000 in student loans, a 10-year repayment term, and an interest rate of 5%. With these terms, your payment would be $ 371 per month. if you increase your payments by $ 25 per month, you save $ 815 in accrued interest and your loans are repaid 9 months in advance.
Increase your monthly payments by $ 50, and you would save $ 1,500 and pay off your loans 17 months before maturity.
Refinancing student loans
If you have high interest student loans, you can refinance your loans to lower your interest rate or adjust your repayment schedule.
However, think twice before refinancing federal student loans. They will become private loans and you will no longer be able to enjoy the benefits of federal loans such as income-based repayment plans, loan forgiveness, or federal forbearance.
If you have federal student loans, your payments are suspended and your interest is set at 0% until at least September 30, 2021. If you refinance your federal loans, you will no longer be eligible for this benefit. You will need to start making payments, and interest will accrue on your loan balance.
Loan repayment assistance programs
Depending on where you live and your profession, you may be eligible for a loan repayment assistance program. For example:
- California State Loan Repayment Program: Eligible healthcare professionals in California can receive up to $ 50,000 in exchange for a two-year commitment to work in an approved healthcare worker shortage area.
- Teach the Iowa Scholarship Program: Qualified teachers in Iowa can get up to $ 4,000 a year for five years – either to pay off student loans or as a lump sum cash payment – if they teach in designated shortage areas.
- New Jersey STEM Loan Exchange Program: In New Jersey, workers employed in designated occupations in science, technology, engineering, and math are eligible for repayment assistance of $ 2,000 per year for up to four years.
Visit your national education agency and the websites of professional associations in your field to see if there are any programs in your area.