How marriage affects your student loan repayment
It's wedding season. And brides and grooms are combining all the parts of their lives – their hearts, their families, their households and yes, their student loans.
Sorry romantics, but marriage may require a heart-to-heart about those pesky student loan payments.
That conversation was necessary for Mary Siders, who married in June, and is repaying student loan debt from a special education master's degree at Arizona's Grand Canyon University.
She currently repays her loans on an income-based plan, which ties her monthly bills to her salary. But now that she's part of a two-paycheck partnership, she's not sure that income-based repayment still makes sense.
The good news is that she's planning to talk to her human resources department and assess whether she can adjust her tax filing or repayment plan to tackle her loans in the savviest way. "For this year, I'll probably qualify," she says of the income-based repayment plan. "Next year, I don't know."
When it comes to marriage, preparing how to deal with combined finances is – almost – as important as finding the right spouse. Here's what newlyweds can do to prepare for a marriage's effect on student debt.
• Reassess income-driven repayment: Like Siders, borrowers on income-driven repayment plans have an important decision to make come tax time.
Filing taxes as "married filing jointly" may cut their tax bill. But filing jointly will combine the income of both partners, potentially causing an income-based student loan bill to skyrocket, or even pushing the borrower out of the ability to repay based on income.
"There's a marriage penalty when it comes to income-based repayment," says Blaine Blontz, financial aid consultant at Financial Aid Coach, where he helps families navigate the financial aid process.
On the flip side, filing taxes as "married filing separately" may disqualify the couple from certain tax benefits. But – since it separates each spouse's income – it could end up costing the partners less by reducing the income-driven student loan bill.
To figure out which route is best for them, borrowers should engage in some premarital math, say experts. They can head to a tax preparer or other financial expert to weigh the tax benefits of filing jointly against the potential student loan drawbacks.
• Know who's responsible: When it comes to student loans, "a lot of people worry, 'Is my spouse ever going to be responsible for this?'" says Joshua Cohen, a Vermont-based attorney who focuses on student loans.
"The truth is a lot of it depends on what state you live in and if it's a federal loan or a private loan," says Cohen.
All federal loans – and a number of private loans – contain a death discharge when the original borrower dies. In that case, widowed spouses know that the lender won't come after them or their estate seeking payments. Private loans without that clause can be a risk for borrowers' families and cosigners. When considering a private loan, "borrowers should read the fine print," says Blontz.
In certain cases, loans borrowed during the marriage may become both partners' responsibility. "Sometimes student loans you get during marriage are deemed to be marital debt," says Heather Jarvis, an attorney specializing in student loans. "That's particularly true if you're in a community property state."
Those states, in which money borrowed during marriage may become joint debt, include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, according to a NOLO, a resource for consumer-oriented legal information.
Cosigning on a partner's student loan will make a spouse responsible for the debt if the borrower neglects to repay. Refinancing student loan debt under both names can also set up both partners to adopt ownership of the loan.
• Be prepared to live with another's debts: While student loans may not become each partner's legal responsibility, both must live with the financial repercussions of a hefty student loan bill.
Crippling loan debt may affect a couple's ability to buy a home, start a family and reach other lifestyle milestones.
When it comes to discussing your sweetheart's student loan debt, "it's not the most romantic," says Leslie Tayne, director and managing partner of Tayne Law Group, a New York-based firm, and author of "Life & Debt: A Fresh Approach to Achieving Financial Wellness." "But so much stress is caused by spouses not being on same page financially."
Siders, the Arizona teacher, has the discussion partly out of the way. "We've put all of our debts and finances on the table and have talked about them," she says. "We're real clear about who owes what, and we help each other out when we need to."
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