Student Loans and Marriage: What You Should Know Before Tying the Knot

When you start hearing wedding bells, there’s a lot to think about. One thing that often gets overlooked is student debt. Many people don’t know all of the implications that go along with student loans and marriage. There are numerous details, and it can definitely get confusing. So, we’ve compiled some key considerations to discuss before tying the knot.

Know what you’re getting into

When dealing with student loans and marriage, it’s important to be honest. Lay it all out there. Make sure you and your spouse are communicating about how much student loan debt you have or will have.

If you both have a lot of student loan debt, it might be difficult to manage it all. Bigger student loan payments will affect the budget you make together. This can also affect future financial milestones like buying a house, getting a new car, or starting a family.
No matter the financial situation, you’ll need to tackle it together. Part of dealing with student loans and marriage the right way is working together. It’s important to come up with a plan to get ahead of your debt, it’ll make your lives easier in the future.

Possible increased monthly payments

If you have an income-driven plan for your federal student loans, your payments could be affected after you tie the knot. This really has to do with your taxes when it comes down to it. If you file as “married filing jointly” your income will be combined with your spouse’s. This means your payments on an income-based plan could increase – by a lot.

Filing taxes jointly might reduce your tax bill, but it could hurt you when it comes to student loans. One option to look into is to file as “married filing separately” instead. This should reduce your student loan bill if you have an income-driven plan compared to filing taxes jointly.
The effects of student loans and marriage can be confusing and it’s normal to be concerned. You may want to consult a tax specialist to figure out what’s best for you and your spouse financially.

Other financial affects

Your spouse’s student loan payment could affect your finances, and your payment could affect theirs. Handling student loans and marriage is detailed and confusing, so be sure to look into everything before making any decisions you’ll regret.

If either of you take out a student loan while you’re married, there could be consequences for the other person. If your spouse takes out a loan and defaults, creditors can go after both of you in some states. This means your wages, assets, and tax refunds (if you file jointly).
In some situations, you could be responsible for your spouse’s student loan debt if they die. Federal loans have a death discharge if the borrower dies, so you wouldn’t have to pay. But, private loan lenders might not offer this, so you’d be responsible for the rest of their debt after they’re gone.

Consolidation

When it comes to student loans and marriage, it might seem like a good idea to consolidate with your spouse. But this is not something we would recommend.
Once you tie the knot you start sharing your lives together, but should that really include debt from before you got married? Perhaps your spouse shouldn’t be responsible for the debt you incurred before the date of your marriage, and you shouldn’t be responsible for theirs. It’s more straight forward that any credit cards or loans you take out together are a shared financial responsibility, but previous debt you incurred separately should be something you discuss.

Another scenario worth considering is if one of you decides to return to school. You are both responsible for the consolidated student loan, but only one of you is in school, so you’ll still be obligated to make payments. Had you not consolidated your loans, returning to school would likely mean you could defer your payments, if needed, until graduation.

While iHELP does not offer spousal consolidations for the reasons mentioned above, consolidating on your own is still a good option. You may be able to reduce your interest rate or your monthly payment, or both. Consolidation can be a great tool to simplify your payments and help budgeting.

If you get divorced

When looking into getting married, no one thinks it’s going to end in divorce. But this is a real possibility you need to consider when analyzing student loans and marriage. You could still be responsible for your spouse’s debt if you end up getting divorced. The debt you bring into a marriage typically remains your own. But if you take out any loans while married, they can be subject to state property rules in a divorce.
Plus, if your spouse cosigns a loan for you, they’ll be legally obligated to the loan even after separation. Mixing new student loans and marriage may not be the best idea. Having your spouse cosign for you, or vice versa, could land you in a messy financial situation later on, if the marriage doesn’t go well.

If you consolidate loans with your spouse, that means you’re getting a whole new loan to cover the sum of all your student loans. Let’s say that you have $30,000 of student loan debt, and your spouse has $90,000. When you consolidate your student loans you’re taking out a new loan for $120,000. If your marriage ends in divorce, you could get snagged with half of that loan, or $60,000. In this situation, consolidating with your spouse would double your personal student loan debt. If your numbers are different, it could do even more damage than that.

It’s important to understand the implications of student loans and marriage. Before saying “I do” take a look at your situation and do some research to find the best options for you and your spouse. Knowing the financial consequences of your actions can save you a lot of money and stress in the future. Ephrata National Bank does not offer tax advice, please consult a qualified tax professional.