Divorce Your Student Loan Debt, Not Your Partner

October 08, 2014

Connect Member

Entrepreneur and co-founder of SoFi, specializes in student loan refinancing

sofi.com

Did you recently tie the knot? Congratulations! You’ve found your partner in crime and - increasingly in this day and age - your partner in student loan debt.

Sorry, did that just kill the mood?

Finances are a common source of stress for any couple, but if you’re newly married, it can be particularly shocking to return from your honeymoon to the reality of student loan payments. Given the fact that more and more students are graduating with increasingly high student loan debt, it’s a problem that many newlyweds have to face. The successful couples will tackle it head on and devise a clear strategy, vowing to put student loans behind them instead of between them.

So how can the two of you effectively handle student loans - whether yours, your partner’s or both? Here are some steps you can take to manage your debt as a team:

1. Look ahead
You can start by working together to determine your short-term (e.g. 6 months), mid-term (e.g. 5 years) and long-term (e.g. 10-20 years) financial goals. This part should actually be kind of fun - imagining your future together is a bonding exercise (and might remember why you got married in the first place). It will also paint a clearer picture of your financial identity as a couple, and allow for you to make a plan that aligns with your values, dreams and priorities.

2. Make a budget
When you’ve determined your current priorities and future goals, it’s time to make sure your budget reflects them. There are plenty of free apps and calculators out there that can walk you through the steps and get you thinking about the right questions. Make sure your budget takes everything into account – from monthly student loan payments, to retirement savings, to recreational expenses like eating out and travel.

Once your budget is in place, figure out who’s going to pay what and when. Many couples determine this based on income – for example, if you make 40% of your total household income and your partner makes 60%, you would pay 40% of the bills, while your partner would pay 60%. You may also want to divide up specific financial tasks, like paying the student loan or cable bill each month, in order to avoid misunderstandings (and potential missed payments).

3. Revisit your debt
Next, take a moment to review all of your debt – student loans, credit cards, etc. - and make sure your repayment plan is optimized. For example, a common approach is to tackle high interest rate debt more aggressively than lower interest rate debt, to try to minimize the amount of money you’ll end up spending on interest.

You can also look for opportunities to lower interest rates where possible. If your or your partner’s financial situation has improved since you first took out student loans, you may be eligible to refinance those loans at a lower interest rate. Refinancing is a great way to lower monthly payments and save money on interest – giving you more money to spend on your other goals. Similarly, you might consider a low-interest personal loan to refinance high interest credit card debt.

4. Be informed
At some point, April 15th will roll around – so you may as well figure out now whether you’re going to file taxes jointly or separately. When it comes to student loans, there are a few factors that should affect this decision. For example, if you choose the file jointly, you may be eligible for a potential student loan interest deduction on your return (those who use the “married filing separately” approach are not eligible). By filing jointly, you also become eligible for the Earned Income Tax Credit, Child and Dependent Care Credit and the Lifetime Learning Credit, as they apply to your situation.

As with all tax questions, you’ll want to consult an expert to determine what’s best for you. This also applies to same-sex couples whose marriage is legally recognized.

5. Work together
Once you have a plan in place for tackling student loan debt and growing your financial future together, it’s up to the two of you to stay on track and check in periodically about your debt, budget, goals, etc. It may sound unromantic, but scheduling regular meetings to address the “State of Your Financial Union” will keep the lines of communication open, which is helpful for the overall health of your marriage – not to mention your bottom line.

Dan Macklin is a member of the DailyWorth Connect program. Read more about the program here.

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