For many people, student loans are an expensive reality.
Over $30,000 in debt is assumed by the average college graduate. Graduate and professional students incur even greater student loan debt. If you’re getting married, you may be concerned about taking on your spouse’s debt.
You may find that student loans and marriage don’t go hand-in-hand – tying the knot may impact your loan payments, loan-related tax breaks, and, possibly, your ability to pursue other financial goals. Marriage, however, does not mean taking on another set of student loans. Both of you remain responsible for the loans you took out before getting married.
Student loans that were issued before marriage are typically not a spouse’s financial responsibility. Thus, if your spouse graduated from medical school before your wedding, you are not technically liable for their loan debt. Your budget and lifestyle can be affected by large monthly loan payments, however.
Although you are not responsible for the premarital loan debt, it is important to understand how marriage, student loans, taxes, and family law interact. You and your spouse may be able to minimize your loan and tax obligations with some careful planning.
Here’s how a wedding might affect your student loan debt if you’re recently married or planning to get married soon.
What If I Live in a Community Property State?
Community property states consider anything acquired during a marriage to be marital property (including debts). Community property states include:
- New Mexico,
- Washington, and
Student loans issued during a marriage are considered community property in these states. You may be liable for your spouse’s postnuptial student loan default.
How Much Financial Responsibility Do I Have if My Spouse and I Co-Sign a Loan?
Co-signing on a spouse’s or fiancé’s student loan makes you financially responsible for payments. Have an honest discussion with your spouse or fiancé about financial responsibility and loan repayment plans before co-signing a loan. Do not co-sign on your spouse’s loan if you have any concerns about their financial responsibility.
Co-signers may be released from student loans under certain conditions. Lenders may agree to release co-signers if your spouse has consistently paid their loan, is not in forbearance, and has the financial means to make payments.
Your Monthly Loan Bill May Increase if You Have an Income-Based Repayment Plan
A repayment plan based on your income may be available for some student loans. Most federal income-based plans charge between 10 and 20% of your discretionary income as a monthly payment. Before filing your taxes, you should consider how your filing status will affect your loan payments.
There are many benefits to filing a joint income tax return. When couples file jointly, they usually pay less in taxes. Additionally, a joint return allows you to deduct student loan interest, dependent care costs, and educational tax credits.
If you file jointly, your spouse’s income will be considered when calculating your income-based loan payment. Your monthly loan payments may increase significantly as a result.
Consult a tax lawyer or other professional if you have concerns about your income tax filing status. A lawyer can explain the potential benefits of each filing status.
Will I Qualify for the Student Loan Interest Deduction?
A student loan interest deduction is available to anyone earning less than $85,000 in modified adjusted gross income over the past year. A person earning less than $70,000 may deduct up to $2,500 for student loan interest, while a person earning between $70,000 and $85,000 may deduct a reduced amount.
When you get married, the rules change. The deduction will be lost if you and your spouse earn more than $160,000 together. If you file separately, you can’t claim it at all – there’s no way around it.
Will I Be Affected Financially by My Spouse’s Payments?
If you co-sign a private graduate school loan or refinancing loan, you’re legally responsible for repaying it if the other person cannot. It will also appear on both of your credit reports, which could affect your capability to take on additional credit or debt, such as a mortgage.
In some states, creditors can take both your wages and assets – or, if you file jointly, your tax refund – if your spouse takes out a student loan during your marriage and defaults. The federal government will also take your tax refund for defaulted loans taken out after marriage.
Is it Possible to Chip in on Each Other’s Payments?
Think about forming a written agreement outlining the terms of helping each other repay your loans. In the event of a divorce, it may help you avoid arguments in the future, especially if one spouse depends on the other for financial support.
The other spouse may agree to repay their spouse’s loans, but the federal government doesn’t care because the loans remain in only the borrower’s name. It is important to consult with a student loan lawyer in these cases.
In the Event That My Spouse Passes Away, What Happens?
A “death discharge” clause applies to all federal student loans. The lender will stop collecting on the loan if the borrower dies. Some private loan companies allow death discharges (but not all).
Understand the terms and conditions of your private student loans and those of your spouse. Widows and widowers may be responsible for their spouse’s student loan debt depending on the private loan company.
Do I Have the Option of Refinancing or Consolidating My Loans With My Spouse?
Refinancing or consolidating loans into a single account was possible for married couples before 2006. Due to collection problems arising when couples divorce, federal law prohibits joint consolidations and refinancing. You must do so individually if you want to consolidate or refinance your loans.
After Divorce, Will I Be Responsible for Debts?
When you divorce, a state property rule may apply to loans you took out while married, as well as debt you brought into the marriage. Unless the lender releases the co-signer from the loan, a spouse who co-signs a private student loan is legally bound to the loan.
A prenuptial or postnuptial agreement can help couples avoid legal squabbles over student debt after divorce. There are, however, limitations to these agreements.
Plenty of people think they can avoid paying their debt by doing this, but it doesn’t work that way. If the couple is worried about a worst-case scenario and has agreed in private to do something different from the student loan agreement, then putting that in writing may be crucial later on.
Can a Nuptial Agreement Help?
Both debts and assets are excluded from marital property under nuptial agreements.
Consider entering a prenuptial or postnuptial agreement if you or your spouse owe a large amount in student loans. (A prenuptial agreement is signed before a marriage. A postnuptial agreement is entered afterward.) Prenups and postnups may protect you from student loan debt.
Should I Speak with a Lawyer?
If you don’t understand how your student loans, tax filing status, and your state’s marital property laws interact, you might end up with a large student loan (or income tax) bill.
A financial lawyer can evaluate your financial situation and help you navigate these systems. Contact a family law specialist if you need help with a prenuptial or postnuptial agreement.