‘Til Debt Do Us Part? When Student Loans and Marriage Meet
In romantic comedies, the meeting between two fated romantic partners is called a “meet-cute.” In “When Harry Met Sally…,” two college grads drive together to New York City and find they disagree about everything but have undeniable chemistry. In “Bridesmaids,” a police officer pulls a woman over for her erratic driving and falls for her sense of humor and silly dance moves. But when student loans and marriage meet, it’s anything but cute.
Student loan debt can be a harmful force for a newly married couple. In fact, 13 percent of divorcees cited student loan debt as the reason for ending their marriages.
But that doesn’t have to be the case for you. Being prepared for the college debt bumps in your marital journey starts with knowing what happens when student loan debt mixes into marriage.
Filing Jointly: Where Student Loans and Marriage Can Impact Repayment
You could see an increase in your monthly payment
An income-based repayment plan is exactly what it sounds like – one where your payments are based on your income. When you get married, your servicer might base your payments on your combined adjusted gross income (or AGI). This all depends on how you file and which income-driven repayment plan you’re enrolled in.
Enrolled in a Pay As You Earn (PAYE), Income-Based Repayment (IBR), or Income-Contingent Repayment (ICR) plan? Your payments will only change if you and your new spouse file your taxes jointly. Choosing to file jointly will allow the servicer to base your payments on both your and your spouse’s income. So, should your income increase when combined, your monthly payment will raise on these plans.
But if you choose to file separately, you can stay on these plans. This should maintain your current monthly payment amount (so long as your income stays the same). The drawback to filing separately to keep your monthly payment the same is that you may miss out on the tax credits and deductions available to joint filers.
One big exception? The Revised Pay As You Earn (REPAYE) plan. If you’re enrolled in this plan, your payments will be based on your combined AGI and loan debt even if you don’t file jointly. Since that could mean more income coming in overall, your payment will be higher.
Your student loan interest deduction won’t increase if you file jointly
You should already be taking advantage of the student loan interest deduction when filing your taxes individually. If so, you’re getting a great tax break based on your student loan interest.
That student loan interest deduction caps at $2,500 and doesn’t increase if you file together. So even if you have to pay more student loan interest after you’re married, you won’t be able to deduct any more than that.
Another important note: If you and your spouse earn more than $160,000 together, you won’t be able to claim the student loan interest deduction.
You may no longer qualify for certain repayment plans
Planning on switching to an IBR or PAYE plan after marriage? Unfortunately, the monthly payment for these plans is capped at the amount for the Standard plan.
If you file jointly and have a higher joint income, this payment may be enough to reach the Standard plan. This would make you ineligible for IBR and PAYE.
However, you will still be eligible for the ICR plan, which doesn’t have a set income requirement. While these payments will likely still be higher than those on an IBR and PAYE plan, it’s good to know all your options.
If student loan default is in the past, you could lose out on your tax refund
With 5.2 million student loan borrowers in default on their federal student loans, it’s not unusual if you or your spouse slipped into default before marriage.
If you or your spouse defaulted on federal student loans in the past, filing jointly can put your tax refund at risk. The IRS may be able to garnish your refund to repay the defaulted student loan debt.
The Side Effects of Only One Spouse Having Student Loan Debt
You may struggle to reach some life goals together
Of the people who took out college loans:
- 37 percent delayed saving for retirement.
- 28 percent delayed buying a house.
- 12 percent delayed marriage.
If you’re marrying someone with student loan debt, these big life goals may be a little harder for you to reach.
The best way to combat these struggles is to create a plan for your debt together. Setting realistic goals and plans to achieve those goals will help you and your spouse feel like you’re working towards your futures together, despite the student loan repayment.
Even if you don’t have student loan debt, you may be responsible for your spouse’s
Legally, the debt each spouse brings into a marriage should remain theirs. However, if your spouse is entering your marriage with student loan debt, you may become responsible for it.
This will ring especially true if you consolidate your spouse’s loans under both of your names. If you apply as a co-applicant for a personal loan with your spouse to consolidate their loans, you will now be fully responsible for that debt. This means that your credit score can dip if something goes wrong in repayment, which will make it harder for you to qualify for a future credit card or mortgage.
Also, if your spouse takes out student loans while you’re married, you’ll be affected if those loans go into default. Creditors will be able to garnish your wages and assets if the loans continue to go unpaid. And, if your marriage takes a turn towards divorce, any student loans taken out while married may be subject to state property rules.
Resentment could bubble up
This is one of the worst things that could happen to a married couple, student loan debt or not. When one person is debt-free, they may feel resentful for having to help pay off the other’s student loans. An imbalance in salaries between you and your spouse can worsen this resentment.
If you’re going to help pay off your spouse’s loans, your best bet may be to draw up a written contract covering the student loan payments ahead. It doesn’t have to be official (no need to involve a lawyer), but it’ll help you both set expectations for the future.
The Best Way to Deal with Student Loans and Marriage
Marriage is a big life change. And when your marriage meets student loan debt, it’s an even bigger shift.
Make it easier on yourself and your spouse. Bring in some professional help to nip the problem in the bud. Student loan professionals like ours can ensure you’ve got a solution in place to tackle your student debt. And tax experts like the ones at Tax Defense Network can ensure that you and your new partner are filing your taxes in the most beneficial and efficient way possible.