How Are Your Student Loans Affected by Marriage?
You’ve probably heard the phrase “marriage penalty” before, but what does it actually mean? In the context of taxes, the marriage penalty is the additional tax burden that a married couple faces when compared to if they were filing their taxes as two single individuals.
But did you know that the marriage penalty can also apply to your student loan payments? If you’re considering marriage or are already married, you may be wondering how your student loans will be affected. In short, it depends on the type of loan and the repayment plan you’re on.
As you probably already know, there are two types of student loans- federal and private student loans.
As for federal ones, your monthly payment will not change if you get married or divorced. You will still be responsible for repaying your loans, and your spouse’s income will not be factored into your repayment plan. So, if you were hesitant to get married and wondering “Am I responsible for my spouse’s student loan debt?” or vice versa, the answer is no.
On the flip side, private loans typically have different terms, so it’s important to check with your lender to see how student loan debt and marriage will impact one another. Some private lenders may allow you to change your repayment plan based on your new income, while others may not. But there are also some other factors we will discuss later.
In this article, we’ll further explore how a marriage can influence your student loan payments and what you can do to minimize the effect.
If I’m On an Income-Driven Repayment Plan, Would Marriage Affect How Much I Pay?
If you’re on an income-driven repayment plan, your monthly loan payment is calculated as a percentage of your discretionary income. Discretionary income is defined as the difference between your adjusted gross income (AGI) and 150% of the poverty line for your family size. So, if you’re married and file taxes jointly, your AGI will increase, which could result in a higher monthly loan payment.
However, there are a few things to keep in mind. First, if you have multiple federal student loans from before you got married, you can consolidate them into a single Direct Consolidation Loan. This could lower your monthly payment because the interest rate on a Direct Consolidation Loan is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%.
So, if both you and your spouse have federal student loans and consolidate them into one Direct Consolidation Loan with a lower interest rate under an ICR Plan, your monthly payment could be lower than it would be if each of you had separate loans and were paying on separate accounts.
What Impact Does the Student Loan Debt of My Spouse Have on My Credit?
When it comes to your credit, marriage can be a bit of a mixed thing. On one hand, combining finances with your spouse can help improve your credit score by adding more positive payment history to your report. On the other hand, if your spouse has poor credit or a lot of student loan debt, it could have a negative impact on your own credit score.
It is important to mention that even if married you could be filing a separate student loan if that is something you and your partner want.
In case you’re considering taking on your spouse’s student loan debt, don’t rush it and weigh all of the potential impacts on your credit before making a decision. In some cases, it may be better to keep your finances separate and make separate payments on each of your loans.
We are by no means saying that you should not be getting married because of student loans, but if you do decide to consolidate your loans or take over payments on your spouse’s loans, make sure you keep up with the payments and stay on top of any changed terms or conditions.
Are Student Loans Acquired After Marriage Payable by the Spouse?
As we already mentioned a few times, in case you’re married and you have student loans, you may be wondering if your spouse will be responsible for repaying your debt. The answer to this question depends on a few factors, such as whether you live in a community property state and whether your spouse co-signed your loan.
If you live in a community property state, any debts that you acquired during your marriage are typically considered to be joint debts, even if only one spouse is responsible for repaying the loan. This means that both spouses are equally liable for the debt and either one can be held responsible for repayment.
Even if you don’t live in a community property state, your spouse may still be liable for repaying your student loans if they cosigned the loan with you. When you cosign a loan, you’re agreeing to be equally responsible for repaying the debt, even if only one person is actually making the payments. This means that if you can’t repay your loan, your lender can come after your cosigner – which in this case would be your spouse – for repayment.
So, if you’re married and have a student loan, it’s important to discuss the situation with your spouse and come up with a plan for repayment that works for both of you. If possible, try to find a way to consolidate or refinance your loans so that only one person is responsible for making payments.
Can Married Couples Refinance Their Student Loans Together?
You may be able to refinance your loans together to get a lower interest rate if you and your spouse both have student loans. This can help you save money on your payments and maybe even pay off your loans faster.
To qualify for a married couple refinancing loan, you and your spouse must have good credit and a steady income. You will also need to provide documentation of your marriage, such as a marriage certificate or tax return.
If you are approved for a married couple refinancing loan, you will be responsible for repaying the loan jointly with your spouse. This means that if one of you defaults on the loan, the other spouse will still be responsible for paying back the whole amount.
Have I Lost My Right To A Tax Deduction For Student Loan Interest?
Many couples wonder if they will have any married student financial aid or lose the right to a tax deduction for the interest. The answer is maybe. It depends on how your loans are structured and whether or not your spouse is also paying interest on their own loans.
If you have decided to consolidate your loans into one with a single monthly payment, then the answer is probably no. You will still be able to deduct the interest payments on your taxes.
The general rule is that if your combined household income is below a certain threshold – currently $80,000 for married couples filing jointly – then you can deduct the full amount of interest paid on your student loans. Above that threshold, the deduction starts to phase out.
Will My Financial Aid Be Affected If I Get Married?
No matter if you already tied the knot or are planning to do so in the near future, it is only normal to be concerned about student loan debt when married. So, here are a few things you should know about how it could affect your loan payments.
For starters, if you plan to file your taxes jointly with your spouse, your income will be considered a household income, which could potentially make you ineligible for certain types of aid. So, now that financial aid for a married student will be off the table, you need to look into other options to make your installments more manageable.
Additionally, if you have private student loans, getting married could impact your ability to get a lower interest rate. Some lenders will consider your spouse’s income and credit history when determining your eligibility for a lower interest rate, so if your spouse has bad credit or no income, it could end up costing you more in the long run. This certainly doesn’t mean that all loans are unfavorable for married students, but only that you should take a look into your loan agreement to find some additional info.
Finally, keep in mind that if you decide to get divorced later down the road, any student loans that were taken out in both of your names will still be your responsibility. Being married in college can have many benefits but think how it could impact your student loan payments down the road. As we already discussed, if you took the loan on your own your spouse will not be responsible for your student loan debt.
Conclusion
While getting married can have some financial benefits when it comes to your student loan payments, there are also potential risks to consider. You’ll need to weigh the pros and cons carefully before making any decisions.
As you can probably guess by now, this topic is quite extensive and there is a lot to be mentioned. Talk to your lender about all of your options so that you can make the best decision for your situation. Additionally, consider hiring a financial advisor to help you understand the whole process even further.
