Student loans are an expensive reality for many people. The average college graduate assumed $33,000 in debt in 2014. Students in graduate or professional school assume even more student loan debt. If you are getting married, you may be legitimately concerned about taking on your spouse’s loan debt.
In most circumstances, a spouse is not financially responsible for student loans that were issued before marriage. In other words, if your spouse graduated from medical school before your wedding, you are not technically on the hook for his or her loan debt. (However, large monthly loan payments can impact your budget and lifestyle.)
Even though you are not responsible for premarital loan debt, you should understand how marriage, student loans, taxes and family law interact. With some careful planning, you and your spouse may be able to minimize your loan and tax obligations.
What If I Live in a Community Property State?
In a community property state, anything acquired during a marriage is considered marital property (including debts). The following states are community property states:
- New Mexico,
- Washington, and
In these states, student loans that are issued during a marriage are considered community property. If your spouse defaults on his or her postnuptial student loan, you may be financially responsible for the debt.
Am I Financially Responsible If I Co-Sign a Loan With My Spouse?
When you co-sign on a spouse or fiancé’s student loans, you become financially responsible for payments. Before you agree to co-sign a loan, have an honest conversation with your spouse or fiancé about financial responsibility and loan repayment plans. If you have any concerns about your spouse’s financial responsibility, do not co-sign on his or her loan.
Some student loan programs will release a co-signer from the loan under certain conditions. If your spouse has consistently paid his or her loan, is not in forbearance, and has the financial means to make payments, the lender may agree to release a co-signer.
If You Have an Income-Based Repayment Plan, Your Monthly Loan Bill May Increase.
Some student loans offer repayment plans that are based on your income. Federal income-based plans typically charge a monthly payment between 10 and 20% of your discretionary income. Before you file your taxes, you must consider how your filing status impacts your loan payments.
A joint income tax return has many benefits. Most couples pay less in taxes when they file jointly. A joint return also allows you to deduct student loan interest, dependent care costs, and claim educational tax credits. However, if you file jointly, your spouse’s income will be considered when calculating you income-based loan payment. This may result in a significant increase to your monthly loan payments.
If you have concerns about your income tax filing status, speak with a tax lawyer or other professional. A lawyer can help you understand the potential benefits of each filing status.
What Happens If My Spouse Passes Away?
All federal student loans have a “death discharge” clause. In other words, if the borrower dies, the lender will stop collecting on the loan. Some (but not all) private loan companies allow for a death discharge. Make sure you understand the terms and conditions of you and your spouse’s private student loans. Depending on the private loan company, a widow or widower may be responsible for their spouse’s student loan debt.
Can I Refinance or Consolidate My Loans With My Spouse?
Before 2006, married couples could refinance or consolidate their loans into a single account. However, federal law now prohibits joint consolidation and refinancing—due to collection problems when couples divorced. You must consolidate or refinance your loans individually.
Can a Nuptial Agreement Help?
Nuptial agreements are used to exclude both debts and assets from your marital property. If you or your spouse has a large student loan obligation, consider entering a prenuptial or postnuptial agreement. (A prenuptial agreement is signed before a marriage. A postnuptial agreement is entered afterward.) A well-drafted prenup or postnup may protect you from student loan obligations.
Should I Speak with a Lawyer?
You may be surprised with a large student loan (or income tax) bill unless you understand how your student loans, tax filing status, your state’s marital property laws interact. A tax lawyer or consumer debt lawyer can evaluate your financial situation and help you navigate these systems. If you need help with a prenuptial or postnuptial agreement, you should contact a family law specialist.