Making a commitment to love and cherish someone until “death do you part” is intimidating enough, but with each person bringing their financial history into the marriage, it can add an extra level of complexity.
LOVE ME, LOVE MY DEBT.
With roughly 44 million Americans owing $1.48 trillion in student debt, the chances of at least one spouse having loans are high. And with the average recent graduate estimated to owe more than $39,000, the amount of debt that enters a marriage can end up being substantial.
Just having debt can impact at couple’s borrowing capacity. But, the bigger issue is how well that debt has been managed. If a future spouse has been lax about repayment, it’ll be reflected in their credit score. While credit scores are specific to each partner in a marriage, any future financing for joint purchases—from cars to homes—will be more expensive if one of the scores is substantially lower. A low credit score can also lower job prospects, which can put a strain on household income, making debt repayment even harder.
This is why it’s important to review one another’s financial history before walking down the aisle—it allows time for preventive action.
WHAT TO REVIEW BEFORE EXCHANGING “I DOS.”
Because every dollar counts when you are repaying debt, make sure you make the best use of yours by reviewing:
- Repayment program selections. Make sure the student loan repayment you selected while single is still the most advantageous now that your marital status is changing. This is especially true if you are using an income-based plan.
- Tax-filing status. Under some conditions, student debt can make filing separately instead of jointly more advantageous once you are married. It’s something you will want to explore with your tax advisor.
- Responsibility for the debt. In most states, liability for a debt incurred while single does not transfer when you get married. And if the debt is incurred after marriage—by a spouse who goes to graduate school, for instance—it’s usually that individual’s responsibility to repay. However, how liabilities are handled and who can be held liable for them is a matter of state law. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) the responsibility is substantially more nuanced.
- Potential consequences. Refinancing your spouse’s student debt under both your names—or cosigning their student loan—may lead to a lower interest rate, but it’ll turn the debt into your liability. This can be an issue should your marriage not last as long as the debt commitment.
After sharing personal financial histories, it can help to talk to someone familiar with the various student loan repayment programs. This is especially the case given the complexities of state law.
Our NFCC Certified Consumer Credit Counselors are always ready to help you determine the best ways to minimize the impact of student debt on your financial future.