What is the relationship between your loans and marriage in the United States?
'15.06.2021'
Source: Consumer Reports
Planning a wedding, few people talk about student loans. But if you or your spouse have a duty to college, it makes sense to start such a conversation before you go to the altar. Marriage can trigger changes in tuition fees and affect your right to receive some valuable tax breaks.
Betsy Mayotte, president of the Student Credit Counseling Institute, says that having a substantial student debt can also affect your family financial goals. That is why it is so important to speak frankly, writes Consumer Reports.
“You can be caught off guard, unaware that your husband has big loans, and without discussing how they will be paid,” - said Mayotte.
Of course, if your household income is higher than income alone, you can pay back your loans faster. But everything is not so linear. Here are three basic things you need to know about how marriage can affect your student debts.
Your payments may decrease or increase.
If you have federal student loans and the payout plan is adjusted based on earnings, monthly bills may change depending on how much you and your spouse earn and how you file your tax documents.
If you are married and file taxes together, as the vast majority of couples do, your payment will be based on Adjusted Total Gross Income. After marriage, you will have a higher income, so your loan payments will likely increase.
Income is not the only factor used to calculate the payment. If your spouse also has student loans and you file taxes together, your monthly payment may drop even if the two of you earn more.
Depending on what your income-based payment plan is (there are four types of plans), you can take your spouse's income out of the equation by filing separate federal tax returns. If your plan is Pay As You Earn (PAYE), Income-Based Repayment (IBR), or Income-Contingent Repayment (ICR) and you are filing your taxes separately from your husband, payment will be based on your individual income only.
There is one exception: for married (married) borrowers in the Revised Pay As You Earn (REPAYE) program, payments are based on the total adjusted gross income of the couple and the total loan debt, regardless of whether you submit your tax data together.
You may lose valuable tax benefits.
Even if the filing of a separate document allows you to pay less, the game may not be worth the candle. If you decide to file your taxes individually, then miss out on the many tax credits and deductions that those who file taxes get together. These include income tax benefits, American Opportunity Credit and Lifetime Learning Credit, student loan interest deduction, adoption tax credit and tax credit for children and dependent persons.
If you are married and file documents separately, the flexibility of tax strategies is reduced. Both of you should use a standard itemized deduction scheme or a detailed deduction scheme. If one of the partners uses the standard scheme, the second one cannot use the detailed one, and vice versa.
There is not a single correct answer to the question of whether to file separately or together. You should think about and balance the pros and cons to make the right decision for your family.
Start by finding out how your monthly payments can change after marriage. Use the Department of Education student loan repayment evaluation system to calculate your payments under different income scenarios. And talk to a professional tax advisor to find out what tax breaks you may lose.
You may have a harder time reaching your financial goals.
Starting living together with debts can add tension to relationships and change your plans for long-term financial goals. Americans have a record $ 1,4 trillion in student loan debt, and most struggle with difficulties in trying to pay it off.
According to the national Consumer Reports 2016 survey, 44% of people receiving college loans reduce their daily living expenses to pay off the debt. 37% cannot start saving for retirement in any way, 28% postponed the purchase of a house, and 12% even postponed the wedding indefinitely.
Before you run into problems, talk to your partner. When you know where your starting point is, it’s easier to look for ways to alleviate financial pressure. If you or your spouse have not started paying the loan yet, it may be easier to do as an official couple.
If you can increase payments by sharing income, make sure you apply to a loan officer for additional money for your largest loan. Use a sample letter from the Consumer Protection Bureau to instruct your manager about what to do with the extra charge.
It is important to know: the spouse is not legally responsible for the student’s debt of the other, unless it has been documented. But in some states, loans that you take after marriage are considered jointly acquired property. In this case, the lenders may contact you if the spouse stops paying.
