How Your Spouse’s Student Loans Affect You
Millennials are delaying marriage, have you heard? And while some talking heads will lead you to believe that smartphones and video games are largely to blame, I would suggest it is more likely a consequence of the combination of huge student loan debt and low-paying jobs that have shaped the lives of many people in a generation. Y. Who wants to shell out for a wedding when you can barely afford your monthly student loan payments?
But if you do get married, you should definitely consider how your and / or your spouse’s loans will affect the other. Take this question from Katherine:
If you are using an income-driven plan as part of a loan forgiveness, will your partner’s income count as your own income if you get married?
Here’s what you need to know.
Tax
Basically, the answer to your question, Catherine, is yes. If you or your spouse have student loans and are in the Revised Pay As You Earn plan, your monthly loan payment will increase because the plan bases your payment on your adjusted gross income combined.
For the other three income-driven repayment plans, this can be avoided by filing your tax return separately. But you will miss out on other tax benefits associated with joint filing. You will want to ask your tax officer what is best for your individual situation, but most likely they file together and accept a higher monthly payment.
This affects when and if people get married, according to Travis Hornsby, founder of Student Loan Planner . “Because of this, many people are getting married spiritually, but not getting legally married,” he says. “People hold ceremonies, but they don’t turn in their certificates for tax purposes.”
In addition, you may forfeit the student loan interest deduction , which allows student loan borrowers to deduct up to $ 2,500 in interest paid on their loans from their taxable income. You are not eligible for this if you and your spouse earn more than $ 160,000 together (you are not eligible for a deduction if you apply separately).
Other factors
But there are many other things to consider from a financial standpoint when you have loans and are getting married.
“These days, everyone who gets married needs to discuss money issues about loans, and this should happen before your engagement,” says Hornsby. “Honestly, tell me how much debt you have and what are your plans to pay it off.”
One example: credit. While your spouse’s loans do not affect your credit, unless you are a co-author, according to NerdWallet , “If your spouse takes out a student loan during your marriage and then defaults, lenders in some states may require both your wages and assets – or, if you are filing jointly, your tax refund. “
And if you’re looking to buy a new home, the top factors to consider are your debt-to-income ratio, down payment, salary, credit history, assets, etc., the biggest of which is your DTI, says Mike. Brown, managing director of Comet , a company that offers advice on refinancing student loans. If your only debt is student loans and you are making a decent income, you will probably be fine. However, if either of you is heavily indebted, the spouse with the lesser amount should apply for a mortgage, says Brown.
One rule that makes mortgage payments more manageable is: “Your home should not more than double your total income if you have debt,” Hornsby says. “You don’t need tons and tons of debt.”
Divorce
If you get a divorce, things get more complicated. You may have to split the debt with your spouse, no matter whose it is, depending on when it was acquired, says Kathleen Campbell, a registered investment consultant based in Fort Meyers, Florida.
If you took on a debt before marriage, it is your responsibility to pay back (and the same goes for your spouse). “So even if a couple was together for many years before marriage and expected spouse A’s income to cover spouse B’s loan payments, if spouse B took out loans before marriage, then spouse B’s responsibility will forever remain,” Campbell says. …
But if the debt was received after marriage, things get even darker. “It becomes more of a legal issue, depending on state law, how the money was used, the profitability of both parties, how long the degree was used during marriage, and other factors,” she says. “So this is an individual situation where it happened after marriage and still remains in the name of only one of the spouses.”
If you are a co-signer, you are most likely to be hooked, unless your spouse refinances. “A joint commitment is a contract between the signer and the creditor, not between the spouses, so it’s a solid contract,” Campbell says. “It would definitely be possible to refinance a loan in only one spouse’s name, provided that the spouse has income and a credit history to encourage the lender to refinance. All this could be part of the discussion on the settlement of the divorce proceedings. “
If you’re really worried, create a prenuptial agreement that outlines what happens to the debt. Then you have one less problem.