Developing a healthy marriage could be tough work for many people when you do not have financial stability. Debts could be one big source of struggles. No matter how much you think love could conquer, if your marriage is piled over by debt after debt, your marriage will be put under a lot of undesirable strain.
Statistics show that 44+ million people are in student debt as of June 2019. If you are among the struggling groups from the 44+ million people, you need to be informed about how your student loans could affect your marriage financially. In this article, we will talk in detail about the role your spouse plays or will be playing, with regards to your student loans, or vice versa. Student loans are also one of the main reasons for divorce, so we will be covering that issue too, with ways to avoid such undesirable outcomes.
List of Contents
Student Loan Debt in America
Postgraduate education and colleges use to be more affordable than it is now. It seems like the cost of education has skyrocketed. Research shows that the total student loan debt has reached a whopping $1.5 trillion from over 44 million Americans which includes both the federal loans and private loans. The average student debt is around $34,000.
It seems as though the higher the degree of the students, the higher their loan amounts to. Consumer Financial Protection Bureau shows that the number of borrowers who have owed more than $50,000 has been tripled over the past 10 years.
It is not only the principal of the loan that is burdensome. Interest accrues on a daily basis. On top of that, every unpaid interest gets capitalizes for many of the loans. The increase in the loan amount is exponential every time a borrower defaults.
Student Loans and Marriage
We will discuss the situation of debts incurred before and after marriage and the laws which govern them. These debts are debts in general and they also include student loan debts.
According to a survey which was conducted on marriage and debt by the National Foundation for Credit Counseling a 37% of people said that they won't marry someone until they completely pay off their debt.
46% of them said that they would marry someone in debt and work hard to pay it off togetherly
10% said that they would marry someone in debt and not help to pay their debt
Debt incurred before Marriage
According to the Common Law, if you or your spouse have any individual debts before marriage, only the debtor would be responsible for it even after marriage.
However, the responsibilities of a cosigner remain the same before and after marriage, i.e, if you have cosigned the student loan, or any kind of debt, of your spouse before marriage, you would still hold the same responsibilities after marriage.
Similarly, if you and your spouse opened a joint account before marriage, you are still equally responsible for any debt on that account after marriage, whether the debt is a loan, credit card debts, etc..
This law is followed by the majority of the states in America.
Debt incurred after Marriage
The situation gets a little complicated if debts are incurred after marriage. The nature of the debt and determination of who is liable will differ from state to state.
According to the Common Law, if you or your spouse has incurred individual debts even after marriage, only the debtor is liable for that debt. However, in special cases where the debt is used for the family or I equally benefited, such as food, children’s education, etc., liability may still be shared equally.
Similar to debts incurred before marriage, the responsibilities of a cosigner remains the same before and after marriage, i.e, if you have cosigned the student loan, or any kind of debt, of your spouse, you would hold the respective responsibilities.
However, there are 9 states in America who follow the Community Property Law. These states are known as Community Property States and include the following.
According to the Common Property Law, any debt, shared or of an individual, after marriage is considered as shared debt. This means that you and your spouse are equally liable for all debts incurred after marriage, regardless of the person who or how the debt was incurred.
All these laws can be modified and changed by the state and they may differ from state to state. Some states may add or remove parts of this common law. It is wise to be well informed about the laws in your concerned states before getting married.
How much debt is there in a relationship?
Marriage is a serious commitment. You must be willing to talk through everything including your individual financial statuses. It would not be fair for one spouse to be surprised by the other with a heavy student loan debt only after marriage.
Your spouse may not be capable of bearing your student loans financially and vice versa. The decisions on how many individual debts are to be shared as a couple and how much will be carried forward individually must be made before marriage in an open conversation.
Marriage comes with many financial milestones such as buying new cars, buying new houses, family vacations, etc.. Your financial situation as a married couple will be the factor that determines whether you achieve these milestones or not, and when.
This will help you avoid any unwanted friction in your marriage that can be caused by student debts.
Student Loans and Divorce
Dealing with student loans and divorce is more complicated and it needs a lot of knowledge in advance. If you are married with the student loan debt and looking for a divorce then these are some processes that will affect you. There are a lot of factors that are required to be considered so let's find out who will be liable for student loans after the divorce?
When you are advancing for a divorce you need to divide all of your assets and debts based on the laws of the state you are residing in.
Anything which was owned jointly will be considered as marital property and will be divided based on how your state administers these divisions. It will be different under community property law and equitable distribution.
Under Community Property Law, all properties will be split into equal halves since both of the spouses are equally considered as the owner of every single property.
Under Equitable Distribution, the division of properties is more complicated. One party of the marriage can make legal claims for a property for a fair and even-handed portion of the assets. This means that the division of the assets will not be in equal halves.
Most of the states implement Equitable Distribution. The court will make the final decision on what constitutes a fair and equitable distribution of properties
Important things to look for
If you are going through a divorce and going to divide your student loan debt, Here are 3 pointers that can help you in coming up with a determined and a fair outcome.
What was the money utilized for?
In most of the cases, the funds from student loans are used for the payment of tuition, school books, other fees, and educational supplies.
However, a portion of the money which was borrowed as a student loan may unavoidably go to living expenses and other costs that benefit the entire family. This needs to be taken into consideration for the purpose of repaying the debt and in the calculation of how each of the spouses can benefit from the money.
What is the earning potential of each spouse?
When looking into the calculation of the equitable distribution of assets and debt, take into consideration each of the spouse's abilities to support repayment by themselves and how it may affect any dependent individuals.
If one of the spouses has no significant income or the negligible potential to earn on their own, then it would be less likely for the court to incur to the individual, a part of the student loan taken by the other spouse.
Did the borrower earn a degree after getting married?
If the student loan was used to earn a degree after getting married, then the degree could be considered as marital property and the debt will be distributed accordingly. This will depend on the law of the state you live in.
Certain states such as in New York, the professional degree achieved within the marriage can be considered as marital property. The debt incurred in the process of obtaining the loan is also considered as marital property and almost always categorized as a marital debt. This means that both spouses are equally responsible for the portion of student loan debt repayment.
Part of assets and student loan debt
Under some cases, the student loan debt is under the responsibility of the person who acquired it. These are exceptions based on the personal situation and what the court decided to be a fair and equitable division for both of the parties.
Make sure to consider all the possibilities and consult with a lawyer in advance to divorcing so that you don't get any unfair responsibility from your spouse’s debts. Divorce is never an easy process so do not make it any more difficult for you with unfair distribution of assets and debts.
Servicer Role in Debt
The student loan responsibilities after the divorce specifically for the federal loans will be based on the name that is on the loan.
If you and your ex-spouse have a parallel agreement on the payment arrangement which requires one on you to help pay it off, you may do so as per your will. If that is not the case, the servicer will be enforcing every later activity on the loan to the person whose name is on the loan.
It is fairly simple to understand. The servicer will only follow the protocol and do what they are meant to do.
Spouses could be held accountable
Under unfortunate circumstances, the spouse responsible for the student loan may pass away. All federal student loans and most of the private student loans provide a death discharge if the borrower dies. There are some private lenders who do not provide death discharge. Our best advice is to go through all the terms and conditions of the loan and be thorough with every feature of the loan before signing yourself into any form of legal bindings.
If you are going to school again after marriage, your spouse may co-sign for your loan. In such cases, they will be legally responsible for the debts if you fail to make any of the payments. Getting a student loan after marriage without your spouse as a cosigner could also still state your spouse as liable depending on the law of the state you reside in.
If you are looking to refinance or consolidation of your student loans with those of your spouse into one single payment then you might be disappointed by your choices. Not all refinancing or consolidation programs favor debtor in couples but consider just one party to have the sole responsibility of repayment. You may end up being responsible for a huge part of your spouse’s debts even after the divorce which could have been avoided otherwise.
Repayment amount and plans
As the divorce is done, your family size changes. This will have an impact on the household income and family size which will change the monthly payments. These changes will only take place if you are on an income-based repayment plan.
If you find trouble in making the payments then look for different repayment options such as IBR plans so you can be on the current loan payments and not fall behind. If you can try to avoid deferment and forbearance, please do so.
Deferment can help you avoid falling behind on payments in case you come across any trouble. But this may increase the loan amount if you do not pay off the interest, which may even be capitalized.
Under the Income-driven repayment plan for federal student loans, if you are getting married then it could affect your payments. If you are filing taxes jointly then your income-based repayment bill can go high. Additionally, if there is any joint income then you might be eligible for some income-driven plans.
To qualify for income-based repayment or Pay As You Earn then your monthly payment must be lesser than what it would be under the standard repayment plan. So, marriage might reduce your tax bills and you could lose some benefits of the student loan.
You can either file your taxes as married filing separately which typically reduces the student loan bill on an income-driven plan related to jointly filing. Another option is to consider income-contingent repayment (ICR) where it doesn't have income eligibility requirements. Despite that, it's important to see the big picture whether it makes sense financially or not.
According to the Federal Student Aid website, the ICR plans your payments to always depended on the income of yours and the family size which usually has a higher payment plan under the IBR and Pay As You Earn plans in certain cases this could be higher than the amount you usually pay in the 10-year standard repayment plan.
If you are under the pressure of the financial implications on the student loans and marriage, it is better to consult a tax specialist or financial expert to help you figure out the best solution for you and your spouse.
Some think that just filing for divorce will negatively affect the credit score but that is not necessarily true. What can really affect credit score is the process of changing your bill. Making big mistakes like selling a house, refinancing or restructuring debt can have effects on the credit score. Where some can increase your score while the other will decrease it.
If you are in the process of reassessing your financial situation on yourself, then you need to get all important documents such as credit reports and scores. If you have not seen your credit score in a while this could help you out. Be aware of your credit score and try to avoid any errors on the credit review.
How will getting married affect my financial aid?
The students who are married and are recognized independent of their parents regardless of their age. The couples income and the assets of the spouse will affect a student's financial aid. Despite it, the rules apply to both the members of the couples as a student.
Will getting married affects my taxes?
It causes some married jointly and filing as a couple to owe more federal income tax than it had remained as single. If one of the spouses earns more in taxable income then its highly likely that filing jointly will help you get down the tax. For a higher income couple, it can be a bonus of several thousand.
Can you get a pell grant if you are married?
It's available for all the undergraduate students for married students it will be determined based on the combined income and assets of the applying student and their spouse. The award amount will be based on the financial need, cost of attendance and the applicants. The Max allowed is $5,500.
Is spouse responsible for student loans after death?
Federal student loans automatically get canceled once the borrower dies, in the case of private loans it doesn't have protection. Where some lenders discharge their loan in this event. In the case of community property states, private lenders are more likely to hold responsible.
What happens to student loans when you divorce?
If you or your spouse student loans are taken into consideration of marital debt it doesn't mean that the other person will liable for them in the place of divorce under community property states the debt will be made into 50-50 among the two when they go for divorce.
Can my wife's student loans affect my credit?
Your spouse student loan debt will not affect your personal credit or in case of your spouses died you are not required to pay off the loan. Despite it, married partners surely finances become intertwined. Even the student loan debt is not on yours. Part of your mixed-income will go towards it on paying off.
Do married couples get a tax break?
The married couple who jointly file and get a claim two personal exemptions on the tax return instead of getting one exemption allowed when you filed it as an individual. The standard deduction which allowed on the tax return is higher for married couples who filling in a joint return.
Is it better to file jointly or separately?
Married who filling as separate taxpayers can only receive a standard deduction of $6,350 whereas you can get to the filing jointly you can get $12,700. By filling in separate return from your spouse you are automatically disqualified from many of the tax deductions and credit mentioned earlier.
Do married couples pay less taxes?
The couples provoke a marriage penalty if the two people pay more income tax filing as a married couple than they would pay if they were single and filed as an individual. A couple could receive a marriage bonus if they pay less tax filing as a couple than they do it as single.
Do Student loans get divided in a divorce?
Legitimately any of the student loan debt you incurred earlier before you get married then it's considered as separate property and it remains so after the divorce. If you have borrowed $70,000 to attend a law school before getting married your spouse then it's yours.