As of March 2019, US student loan holders owed a total of $1.6 trillion in student loan debt. Graduates in 2017 with student loans owed an average of $28,650 each. If a couple consists of average borrowers from that year, and both have student loans, their total debt can easily cross $50,000 even after over a year of payments. Figuring out how to manage when both spouses have student loan debt can be a challenge, particularly since certain things can change when you become a married couple. If you are in that situation, here’s what you need to know.
Payment Plan Changes
If you or your spouse use a repayment plan that adjusts depending on income (Income-based repayment, income-contingent repayment, pay-as-you-earn, etc.), then what you may owe each month could change after you got married.
Many of these payment plans factor in the total income on your tax return. If you file jointly, then your household’s cumulative earnings and student loan debt determines your rate. As a result, your payment could go up or down, depending on your joint financial situation.
However, it is possible to avoid this potential issue if you choose to file your taxes separately. Just keep in mind that filing separately can come with its own financial consequences, so you need to examine your situation to see if one approach is better than the other.
Consolidating your student loan debt may seem like an easy way to make all of your and your spouse’s loans more manageable. However, if you have federal direct loans, using a direct consolidation loan to bring those debts together isn’t an option. While you can consolidate your loans through the program, you can’t bring in loans from another borrower, even if you are married.
If you want to consolidate, you have to use private refinancing options. Now, whether this is a great option for you depends on your financial situation. The interest rate on private student loans isn’t controlled by the federal government, so your creditworthiness will be a bigger factor when it comes to the rate. Additionally, certain protections or loan forgiveness options may not be available with private loans, so you need to consider that as well.
Further, if you consolidate your loans and (heaven forbid) end up divorced later, your student loan debts are now intertwined. Similarly, if you or your spouse were to pass away, the surviving spouse could still be on the hook for all of the debt.
With federal student loans, that doesn’t happen. If the borrower dies, the debt is discharged, so the surviving spouse doesn’t have to worry about that burden.
Creating a Plan for Student Loan Debt
Now that you are married, you need to sit down together and come up with a student loan repayment financial plan. This can include anything from selecting repayment plan options to exploring paths for consolidation, including refinancing existing loans into joint private student loans or using another vehicle (like home equity) to bring the debts together. Additionally, your plan needs to include budgeting for the payments regardless of whether you consolidate or refinance.
Not talking about the student loan debt issue can come with consequences. The payments impact both of your lives, so you need to speak about these debts openly and honestly. You need to factor them into your household budget and understand how they affect your joint financial goals, like saving for the future or qualifying for a mortgage.
Additionally, you need to determine if filing your taxes jointly or separately provides you with the greatest potential benefit. This ensures you can plan for your next filing in advance. That way, you can determine what is best for you both as a couple, ensuring everyone is on the same page.
Do you and your spouse have student loan debt? How do you tackle it? Share your experience in the comments below.
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