If you’re thinking about getting married, but worried about the implications of bringing big student loan debt into a relationship, 2016 brings some good news.
Tying the knot won't disqualify you from enrolling in the government's newest income-driven repayment plan, a program that aims to make your federal student loan debt more manageable by limiting your monthly payments to 10 percent of income.
Unlike previous income-driven repayment plans, the new program, REPAYE, has no income requirements — so you can participate even if you and your spouse's combined incomes would disqualify you from joining other plans.
But if getting hitched boosts your income, it could also boost your monthly student loan payment under REPAYE or other plans. Under REPAYE, you and your spouse's combined income will determine your monthly payment amount, regardless of whether you file a joint tax return or separate returns.
If you’re already enrolled in one of the older income-driven repayment plans — IBR, ICR and PAYE — you can’t be kicked out because you’ve married and your income increases.
But you’ll have an important decision to make once you’re married — whether to file your taxes as "married filing jointly" or "married filing separately.” If you file jointly, both your and your partner’s income is used to determine your monthly payment (10, 15 or 20 percent of income, depending on the plan).
Is my spouse legally responsible for my student loans?
This is the good news: your student loans do not automatically go on your partner’s credit reports after your get married. In a way you’re already married to your loans — if you borrowed the money, they stay with you through single life, marriage, and divorce.
If you live in either Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin — what are known as community property states — any money you or your partner borrows during marriage may become joint debt.
If you and your spouse decide to buy a house together using your combined earning power, your mortgage lender will factor your combined incomes and debt load, including student loans, into your debt-to-income ratio (DTI).
Lenders use your DTI (among other things, like your credit score), to evaluate your ability to repay debt and handle new lines of credit. If you’ve got a lot of student loan debt, you may have to set your sights on a more modest home — or bring a bigger down payment to the closing table — in order to qualify for a mortgage loan using both of your incomes.
What if we both have loans — whose loans do we pay off first?
If you think of you and your partner’s finances jointly, then your loans belong to you jointly as well. If this is the case, the first thing you and your partner should do is determine which of your loans have the highest interest rates, and develop a plan to pay these off first.
While government student loans issued today are often subsidized and carry low rates, rates on older government loans, particularly those taken out to attend grad school, can be higher than what a well-qualified borrower could obtain from a private lender.
Private lenders — including those compete to refinance student loans on the Credible platform — offer rates that can be considerably lower to borrowers with good credit.
Keep in mind that while borrowers with good credit can save thousands refinancing their student loan debt, they typically lose access to some of the benefits and protections provided with federal student loans, including the right to participate in an income-driven repayment plan.
Further, federal student loans are usually discharged after the death of the original borrower, so the widowed partner doesn’t have to worry about lenders knocking on their door. Some private loans also include this clause — be sure to read the fine print on your loan or talk to your lender, as loans that are not discharged after death can be a big risk for the family you leave behind.
Ariha Setalvad is a member of the DailyWorth Connect program. Read more about the program here.