How Marriage Affects Student Loans
Marriage is a life event that can impact the couple’s finances, including their student loans. If one or both of the spouses have student loan debt, it can influence things like their monthly payments and tax deductions. Continue reading to learn more about student loans and marriage!
Income-driven repayment plans
Income-driven repayment plans are offered by the government on student loans. They base monthly payments on a borrower’s annual income. Marriage has the potential to change your annual income. Therefore, marriage can affect your payments on an income-driven repayment plan.
On the Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) plans, monthly payments are only impacted by your spouse’s income if you file taxes jointly. If spouses file their taxes separately, monthly payments will be based on their individual incomes.
The exception to this is the Revised Pay As You Earn (REPAYE) plan. On REPAYE, monthly payments are based on spouses’ combined income regardless of how they file taxes.
See also: All About Income-Driven Repayment Plans
Be sure to consult a tax professional before deciding to file taxes together or separate. There are tax benefits that are available to couples who file jointly.
Student loan interest deduction
The student loan interest deduction allows qualifying people to deduct up to $2,500 of student loan interest from their annual tax return. One qualification is a minimum annual income. Individuals can use the student loan interest deduction if their annual income is $70,000 or less.
However, student loan borrowers who file their taxes jointly with their spouse must have a combined annual income of no more than $170,000. Some student loan borrowers may lose their eligibility to use the student loan interest deduction if they file taxes jointly.
Spouses can co-sign student loans for one another. Both spouses will be legally responsible to ensure the loan is repaid, and the loan will show up on both of their credit reports. This is true for new private student loans and refinanced loans.
If the spouses get divorced, both will still be responsible for the co-signed loan. The only way to remove a co-signer from a student loan is through co-signer release. The process for co-signer release depends on the lender.
In general, any student loan debt that a person brings into marriage will remain their own. If the couple divorce, each person would be responsible only for their own student loan debt.
If you live in one of the 9 community property states, you and your spouse could end up splitting any debt acquired in the marriage. The states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
If one spouse dies, the other will likely not inherit their student loans debt. For federal student loans, the widow will have to present proof of their spouse’s death to have their debt discharged.
Discharge due to death isn’t guaranteed by all private student loan lenders, but most do have it.
Even if spouses aren’t legally responsible for each other’s student loan debt, it can affect their future plans. For example, if your spouse regularly misses their student loan payments, it will be reflected on their credit report. This can become a challenge if you want to buy a house together.
See also: How Do Student Loans Affect Credit?
Communication is key
It’s important that spouses discuss their student loan debt openly. This can allow the couple to make the best financial decisions. Good luck!