How Marriage Can Impact Your Student Loans: What You Need to Know
Student loans and marriage might not sound like they go together, but education debt can have a big impact on you after tying the knot.
It’s quite possibly the least sexy topic newlyweds can discuss: Student loans. While education debt may not be something you want to talk about during your honeymoon, it’s something you should sit down and review once you’re in your home living together.
Student loans and marriage may not sound like they have a lot to with each other, but getting married can have a significant impact on your student loans.
Student Loans and Marriage: 5 Ways Tying the Knot Affect Your Debt
By understanding how marriage and student loans are linked, you and your new spouse can develop a plan for tackling your debt. Getting married can affect your loans in the following ways:
1. You Could Have a Higher Payment on Your Income-Driven Repayment (IDR) Plan
If you have federal student loans and are currently enrolled in an IDR plan, getting married can affect your minimum required payment.
When you get married and file a joint tax return, the government will look at your combined household income when calculating your IDR payments. If your spouse works and earns income, that means the government may increase your payments.
On some IDR plans — Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn — you can avoid this change by filing your taxes separately.
However, that’s not the case with Revised Pay As You Earn (REPAYE). REPAYE always considers your spouse’s income when calculating your payments, even if you file your taxes separately.
2. You May Not Qualify for Other Forms of Credit
If your partner has a significant amount of student loan debt, their debt can affect your ability to qualify for other forms of credit, such as a mortgage or car loan.
When you apply for a loan, lenders will typically look at your household income and debt when calculating your debt-to-income ratio (DT) — the amount of your gross income divided by your required payments.
In general, lenders look for a DTI of 36% or less. If your spouse has a considerable amount of debt, that may push your DTI too high to qualify for a loan, or you may get approved with a higher interest rate than you would’ve gotten if the student loans didn’t exist.
3. You May Be Responsible for Your Spouse’s Debt
If you’re marrying someone with student loan debt, you may be worried about being responsible for repaying some of the loans if you split up. (We know; you don’t want to think about splitting up. This is just a warning about the worst case scenario).
In community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. — debt incurred after marriage could be considered joint debt, and you’ll have to repay it after the divorce is finalized.
If you co-signed your partner’s loan, you’re still responsible for the payments even if you divorce.
If you’re worried about your spouse’s debt and your responsibility for paying it, talk to a divorce attorney or student loan lawyer.
4. Marriage Can Limit Your Eligibility for the Student Loan Interest Tax Deduction
If you have student loans, you may qualify for the student loan interest tax deduction. If you’re eligible, you can deduct up to the $2,500 of the interest you paid toward your loans on your tax return.
However, your marriage can affect your eligibility for the deduction. If you’re married, you must file your returns jointly to qualify, and your household income must fall within the maximum limits. For 2020, the deduction is reduced once your joint income reaches $140,000, and eliminated once your income reaches $170,000.
With your spouse’s income added to yours, you may be over the $170,000 maximum limit, and you’ll no longer be able to claim the deduction.
5. Marriage Affects Your Dependency Status
For federal financial aid, marriage and student loans are connected. When you get married, your dependency status changes to independent, even if you live with your parents or they provide you with financial support. Your status will affect your maximum borrowing limits, and your combined household income could affect what loans you’re eligible to receive.
For example, Direct Subsidized Loans are only for undergraduate students with financial need. Since the Free Application for Federal Student Aid (FAFSA) will ask about your spouse’s income, your combined earnings may be too high for you to qualify for Subsidized loans.
How to Tackle Your Debt As a Couple
If one or both of you have student loan debt, you may not be sure how to start handling it. Together, follow these steps to manage your debt and pay it off faster:
1. Get on the Same Page
Make sure you both know exactly how much debt there is. If you aren’t sure, you look up your federal loans on the National Student Loan Data System, and your private loans can be found on your credit report. You can get your credit report for free at AnnualCreditReport.com.
Once you find all of the outstanding debt, make a list of their balances, interest rates, monthly payments, and due dates.
2. Create a Budget
Next, create a budget. List all of the income you bring in together. Then list all of your fixed expenses, like your rent, car payments, student loan payment, and insurance premiums. Finally, see how much you typically spend on variable expenses like groceries and utilities, and on non-essential items like streaming services and dining out.
If you’re spending more than you make — or if you’re barely breaking even — look for areas where you can both cut back.
3. Follow a Debt Repayment Plan
Once you know what debt you have and how much extra money you have each month, you and your spouse can focus on repaying your loans.
Two popular debt repayment strategies are the debt snowball and the debt avalanche. With the debt snowball, you make extra payments toward the loan with the smallest balance. Once you pay that loan off, you take that payment and apply it to the next loan, and so on.
The debt avalanche is similar, but you make payments toward the account with the highest interest rate first.
Both strategies are effective ways to accelerate your debt repayment.
4. Consider Refinancing
If you or your spouse have high-interest loans, student loan refinancing can be a smart idea. When you refinance, you can potentially get a lower interest rate than you have now, reduce your payments, or extend your repayment term.
Lenders will generally look at your combined income when you refinance. If you have good credit and qualify for a low interest rate, you and your spouse could save thousands.
Kat Tretina is a freelance writer based in Orlando, FL. She specializes in helping people finance their education and manage debt. Her work has been featured in Forbes, The Huffington Post, MarketWatch, and many other publications.
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