For better and for worse, marriage can really change your financial situation. The tax bracket you fall into, the investment rules you need to follow, even your financial priorities can, and likely will, change after you tie the knot.
That principle also holds true when it comes to student loans. Getting married can help, hurt or simply alter your student loan repayment trajectory.
Read below for a breakdown of the most important things to consider when it comes to marriage and student loans.
Marriage Will Affect Income-Driven Repayments
Borrowers with federal loans on an income-driven repayment plan may end up paying more every month when they get married.
These plans include:
- Revised Pay As You Earn Repayment Plan (REPAYE)
- Income-Based Repayment Plan (IBR)
- Income-Contingent Repayment Plan (ICR)
- Income-Sensitive Repayment Plan
The federal government will include your spouse's income when calculating your monthly payment. You may see a huge increase in the amount due if your spouse earns significantly more than you.
Let’s say you earn $50,000 a year and owe $80,000 in student loans with a 5.3% interest rate. If you choose an income-driven plan, your monthly payment will range between $257 and $621, depending on the specific plan you choose.
If you marry someone whose Adjusted Gross Income (AGI) is $100,000, your monthly payment under an income-driven plan would increase to between $1,024 to $1,035 a month. You could end up paying tens of thousands more over the life of the loan.
Only the REPAYE plan won’t factor in your spouse’s income, assuming you file taxes separately. However, filing taxes separately can hurt your overall bottom line because you may miss out on significant tax deductions and credits. Talk to an accountant to see which filing status is best for your financial situation.
If you earn much more than your spouse, you may see your payments decrease or only slightly increase when you get married. You can use the official federal loan simulator to see how your payments will change.
May Lose Student Loan Interest Deduction
Borrowers may be able to deduct up to $2,500 in student loan interest on their taxes, whether they itemize or take the standard deduction. But only those who earn below a certain amount are eligible for this deduction. For more information about this option, speak with your financial advisor.
In 2020, single borrowers whose Modified Adjusted Gross Income (MAGI) was $70,000 or less may be able to deduct the full $2,500. Those with a MAGI between $70,000 and $85,000 may be able to take a partial deduction. Individuals who earn more than $85,000 do not qualify for the deduction.
Married couples may be eligible for the deduction if their MAGI is less than $140,000. The deduction is reduced for couples whose MAGI is between $140,000 and $170,000, and is eliminated for those whose MAGI is more than $170,000.
If you currently qualify for this deduction, you may lose that eligibility if you marry someone who pushes your income past the threshold. Also, you cannot claim this deduction at all if you file taxes separately. This is another instance where filing taxes separately may not be worth it.
Federal student loans remain the borrower’s responsibility, even if they die or default on the loan. The government won’t request payment from a spouse for their husband or wife’s student loan balance.
Private loans are different based on state laws as far as protocols for handling the original borrower’s death. Contact a local attorney if you have questions or concerns. Borrowers who are worried about leaving their student loans behind can increase their life insurance payout to compensate.
Divorce Impacts Student Loans
In most states, you're only responsible for the loans incurred in your name, unless you’re a cosigner. But if you or your spouse take out private student loans while married, the other person may still be liable for them even if you get divorced.
A prenuptial or postnuptial agreement can sometimes work around this. Make sure to have a qualified lawyer draft one of these agreements if this is a concern.
Make Payments Easier
Most couples find that their overall living expenses decrease when they get married because there's someone to split the rent, utilities and groceries with. This can free up more money for student loans.
Married borrowers may also be less likely to miss payments or default on their loans if they lose their job, because their spouse can pick up the slack. Obviously, this only holds true if both spouses have sources of income.
Can Cause Disagreements
Statistically, money is one of the most common reasons for divorce. Conflict can easily arise if one person is bringing in $100,000 of student loan debt and the other person is debt-free. The debt-free spouse may feel burdened, while the indebted spouse may feel shame and judgment.
Before you get married, discuss how you want to handle the student loan situation. Should you keep finances separate until the borrower repays the balance, or should you combine your incomes and knock out the debt together?
Marital counseling can help both parties work through these issues before they become a major problem, and a financial planner can help couples formulate a strategy that works best for everyone.
Your Spouse Can Cosign
If you were denied a student loan refinance because of your income or credit score, you may be a better candidate with a cosigner. Most lenders consider a spouse an eligible cosigner if they have a good credit score and stable income. Refinancing your student loans to a lower interest rate can save you hundreds and thousands in interest.
Having your spouse co-sign on your refinance means they'll be legally liable if you default. This will also impact their credit score and show up on their credit report, so make sure your partner understands what they're agreeing to before cosigning on your refinance.
Refinancing your student loans involves a simple application process. Explore the ELFI website today to learn more about student loan refinancing.