If you have student loans, either federal or private, getting married to someone could have a big effect on your financial circumstances as well as your future spouse's financial situation.
When you have a wedding to plan, it can certainly feel like there's more than a million things to plan out beforehand, and bringing up the uncomfortable topic of personal debt is probably not something either of you are excited to do, especially if it concerns individual student loans. However, if your potential spouse or you have any form of student loans, it's better to have this sensitive conversation sooner rather than later.
When you get married to someone and you begin jointly reporting income, this can affect any income-based repayment or distress benefits you can gain from federal student loans. Material changes to your tax status can in turn affect whether or not you can qualify for certain tax breaks.
Additionally, if you or your potential spouse have a good amount of student loan debt, it's important to sit down and have a conversation as to how this can affect spending habits and budgets and get an understanding as to whether or not taking out that new mortgage for your dream home is feasible. You don't want to be caught off guard if you didn't know that your spouse has a good amount of student loan debt.
You could also benefit from being married to someone with better credit and income history than you, as you could potentially bring up the conversation of having them added as a co-signer in the future if you decide to refinance your student loans.
If your joint household income also goes up, and is likely that it in fact does, this could put you in a favorable spot to start repaying your student loans faster. Being able to afford higher payments due to that stronger income can really help out in the long run.
We've outlined several key things that could change after you get married if you or your potential spouse have student loans.
You could both miss out on helpful tax breaks
If you and your spouse opt-in to file your taxes individually, there's a good chance you can both lose out on a wide amount of deductions and valuable tax credits that joint filers are eligible for. Even if you can file separately and you have a lower payment, it may possibly not be worth to not file jointly. Key benefits that you and your spouse could miss out on include the American Opportunity Credit and Lifetime Learning Credit for higher education expenses, earned income tax credit, student loan interest deduction, the child and dependent care tax credit and even the adoption tax credit.
It's important to understand that whether to file jointly or separately is a decision you will have to make with your spouse, since it will depend on your unique financial situation. You will both need to find a solid balance between possibly having to pay higher student loan payments and any benefits you can qualify for from valuable tax breaks and credits you receive by filing together.
It's a good idea to sit down with your potential spouse and to gather all relevant student loan data to see how your monthly payments could change, and under a wide variety of different income situations.
Getting married could cause your payments to increase or even decrease
If you or your potential spouse have federal student loans which offer income-based repayment benefits, your monthly student loan payments will be adjusted to reflect your new income for the upcoming tax year after you tie the knot.
If you decide to file your taxes jointly after getting married, your monthly student loan payments will be now measured off of your adjusted gross income (AGI). This means if your AGI increases, your monthly student loan payments will typically increase in tandem.
In certain situations, if your new spouse also has student debt and decides to file your taxes jointly, it's possible that both of you could see your monthly student loan payments drop in order to reflect the new household student loan debt, even if your aggregate income is higher.
Another key piece of information to understand is that based on your specific income-based repayment plan, you can file separate federal income tax returns or joint returns. For federal Revised Pay As You Earn (REPAYE) programs, your payments are based on your AGI and aggregate student loan debt, even if you file separately. For Income-Based Repayment (IBR), Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE), your payment is based only on your individual income if you plan to file your taxes separately and not jointly.
If you are considering getting married while in graduate school, and still haven't exhausted all your federal student loan options, you could consider taking out a subsidized direct federal loan so the government can help you and your spouse not have to pay interest when in school or during your grace period.
Budgeting could become more difficult
Getting married to someone can be a challenge since you'll both have to adapt to a different lifestyle. Having debt to worry about can make your new relationship even more challenging to maintain, especially if you may have setbacks that could prevent you from knocking out financial goals that you've been dreaming about for a long time.
Your emergency fund doesn't have to be bigger
Most personal finance experts agree that saving 6 months worth of your expenses is ideal for emergency situations. Ideally, the more you have in savings for emergency situations, the better.
If you're married and your spouse has a steady source of income, the probability that both you and your spouse get laid off is much smaller than the chances of each of you independently being forced to look for a new job, so you don't have the need for a larger emergency fund. If your spouse loses their source of income, you'll still be able to provide for them while they are interviewing for other jobs, and vice versa.
So even if you or your spouse have sizable student loan balances, you can both maintain a smaller emergency fund, but should still be able to cover expenses for at least half a year in a worst-case scenario.
In the case of a divorce, student loan ownership could be affected
The situation can get tricky if one of you decides to file for divorce, as divorce rules vary by state. For example, divorce law in California will be different than divorce law in Missouri.
Lenders won't really care how the student loans are handled during the divorce case. It could be the case that after the terms of the divorce have been settled, the husband could keep the car while he is also responsible for paying off one of the wife's student loans. The wife is still obligated from a contractual standpoint to pay off her student loan, so if the husband doesn't make a payment, the wife's credit score could potentially take a hit due to the missed payments, in which case the wife could sue the husband.
If a couple goes through a divorce, the student loan responsibilities could be swapped around but none of the debt obligations would be forgiven.