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Student Loans Within a Marriage Can Complicate Finances

Oct 16, 2012

When a couple, each with student loan gets married, how are the student loans of each spouse treated. The good news is these loans have more repayment options and possible breaks than most other loans. There is some confusion about how to handle student loans in a family , I will try to answer a few here.

Whose loan should get paid off first?

There may be a point of contention in the family about whose loan should be paid of first. Should it be the one with the smallest balance or the one with the high interest?

There are two sets of answers to this question. The communal method suggests looking at you and your spouse’s loans as belonging to you jointly. In this scenario, you pay off any private student loans first, since these loans can change in interest over time – similar to a credit card – and have fewer hardship repayment options. If neither of you have private student loans, then you should pay off your highest interest rate loans first – unless one of you qualifies for income-based repayment. (We’ll go deeper into income-based repayment later in the article).

The other answer applies to couples who are newly married or will keep finances relatively separate. Since your spouse isn’t legally responsible for your student loans, you may not want to work together to pay off your honey’s loans before your own – no matter what the interest rate difference is. Thus, you have several options under the individual theory. Each of you pays your student loans out of your own paychecks. To pay off your student loans together (but not one person’s debt before the other), you can try the equal amounts system. Set an amount above your minimum payments that goes towards each of your debts. For example, if you have $200 total between the two of you for speeding up debt repayment, add $100 to your individual loan payments.

While it may seem unromantic to think of your loans as individual property, there are long term benefits should you ever get divorced. There are circumstances where you would qualify for a temporary break from loan payments, reduced payments, or loan forgiveness personally, but not if listing your partner’s income.

Will Marital Income Affect Income-Based Repayment Options?

Yes. If you file a joint tax return, you’re combined adjusted gross income (AGI) determines your eligibility for income-based repayment. For example, let’s say your AGI is $10,000 this year while your spouse’s is $60,000. Each of you has $50,000 of federal student loan debt at 6.8%. If you filed individually, you’d pay $0 on income-based repayment. Your spouse pays $475. If you filed a joint return, you’d each pay $300. This reason alone isn’t a good reason to file separately, but it’s a reason to compare filing options at tax time. If you utilize TurboTax or other tax software, fill out both individual and joint returns and then file whichever option works out better for you each year.

Is My Spouse Legally Responsible for My Loans?

No. Student loans do not go on each other’s credit reports when you get hitched. Your loans stay with the individual that borrowed the money, and remain that way through single life, marriage, and divorce.

Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.comWant to be heard? Leave a reader comment below.

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