Spousal student loan consolidation is when you combine your student loans with that of your spouse. This consolidated loan carries both of your names. In other words, the multiple loans owned by the couple will be combined into one bearing the names of both.
Earlier this facility was offered by the Government for federal loans, which they no longer offer now. But there are some private banks coming up with consolidation of loans of married couples. The procedure is technically that of a refinancing.
You must keep in mind that refinancing federal loans into private loans will make you lose all the borrower benefits offered by the government like deferment, forbearance, repayment, and forgiveness advantages that federal loans offer.
However, there are several factors that you have to consider before making a decision of refinancing. Let us read more about it.
Table of contents
- Should you consolidate student loans with your spouse?
- Dealing with student debt after marriage
- Planning repayment together
Should you consolidate student loans with your spouse?
After planning out repayment together with your spouse you may still be in a dilemma of your decision. You can overcome this dilemma by acknowledging the benefits as well as the drawbacks that come along with consolidation.
Here are some of the advantages that you will receive upon consolidation -
- Easy monthly payment
In case you don’t want to begin your marriage life by burdening yourself and your partner with high repayment amounts you can reduce your monthly payments by lengthening your repayment period. If you have not been benefited by low rate this can be a good option for you. However, you must keep in mind that you may end up paying more interest over time.
- Simplified repayment
If you and your partner have multiple loans to take care of where you might end up making multiple payments to different loan servicers, it can be troublesome to both.
You can avoid this by refinancing your loans which will help you make a single loan payment to one loan servicer.
- Equal responsibility
By consolidating your debts you both become an owner of a single debt. That will avoid you two from blaming each other for non-payment of the loan.
You both become equally responsible for the debt. It will also encourage you to motivate each other in achieving your goal of becoming debt-free.
The drawbacks that come along with student loan consolidation are -
- Losing federal loan benefits
If one or both of you have a federal loan then you should think wisely before refinancing it through a private lender. You must be very careful before refinancing federal loan as it might lead you to lose out on federal loan benefits and it will essentially become a private loan.
These benefits include loan forgiveness, cancellation, income-driven repayment plans, forbearance, and deferment.
In case both or one of you work in public service that will enable you to take advantage of the Public Service Loan Forgiveness program hence you might decide to not refinance your federal loan.
- Dealing with divorce
It’s always good to be prepared for the worst to come. It may not be something you want to talk about but it won’t be harmful to ask your loan servicer how the loans are dealt with, in the case of a divorce. You may ask the lender what is the procedure or how it might be handled in the future.
- Unexpected burden
If one person has a lower debt than the other, yet he/she consolidates the loan with the spouse, the loan amount now will be higher. Consolidation combines the loans together, hence, it will combine the loan making you pay higher than what you did prior.
- Changing situation
The future is uncertain and so is your financial situation. You never know if you will be capable to make timely payments, or will be able to afford these payments alongside other expenses.
Hence, it is important to consider the future situations and financial circumstances.
Worried about your college tuition? Learn more about student loans
Dealing with student debt after marriage
Student debt has been a burden for individuals throughout their life. It gets carried forward even after you are married adding up to the responsibilities. But how you and your spouse decide to deal with them is up to you.
There are different circumstances to deal with student loan-
- Student loan before getting married-
If you have borrowed the student loans before getting married it means that you alone own the debt. In other words, you individually are responsible for the repayment of the entire debt that you hold
- Student loans borrowed while married-
In some states, after marriage, if one of the partners takes out student loans it would still be his sole responsibility to repay the loan. Legally the other partner is not obliged to repay the loan. However, there are some states that have community property laws for married couples as per which the student loans taken out during the marriage might be considered as shared property, for which the couple is equally responsible
- Student loans enrolled in income-driven repayment-
These repayment plans use your income as a base to decide how much you will pay monthly for your federal student loans. Once you get married your monthly repayment could change depending on how you choose to file your taxes.
After marriage, there are two ways by which you can file your tax that will affect your monthly repayments. If you file jointly, your joint incomes will be considered as base to decide your monthly joint repayments on the combined federal student loans. If you choose to file your tax separately your individual income and student loan will be considered to determine your monthly repayments.
- Student loan interest deduction-
It is applicable to only those couples that file taxes jointly and also pay debt jointly. The couple can claim the student loan interest deduction which will reduce the taxable income depending on the interest paid on student debt.
Before you make any legal and permanent changes to your student loan it is very important to have a conversation with your spouse as to how to manage the repayment of the loan such as how the payments will be done, who will do, when to do and other such factors must be discussed well in advance. In brief, the future payment must be well pre-planned to avoid any misunderstanding or conflicts in the future.
Planning repayment together with your spouse
Like mentioned above before taking any final decision it is important to figure out a repayment plan in order to avoid future complications in the marriage. You can plan it out by asking yourselves a few questions that will help you in constructing a future repayment plan-
What are the questions that you have to come up while plotting your repayment plan?
Repayment of your student loans is crucial, if managed the right way you can not only get a peace of mind but also build your credit score. Here are a few questions which you and your spouse need to consider while planning your repayment journey.
1)Which loans do we repay first?
It is important to prioritize your loans based on rate, the term of loan and other such related options available and so on. It is always better to begin with repaying the loans with high interest and/or variable rates.
2)What must be eliminated?
Prioritizing debt to pay off requires good planning focusing on reducing the unnecessary expenses and sometimes cutting down your savings so that you have enough to pay off the debt at your hand. Hence you may have to put on hold your desires and savings for the time being. You must have a detailed plan of how you must manage your expenses to avoid any shortage during the payment.
3)How to make monthly payments?
The most important question is how the monthly payments will be done. You can take out a separate account only for student loan payments in which a percentage of your monthly income will be transferred and used for student loan payment. You can also go for setting up automated payments to make this process smoother. You must have a detailed plan of how you must make your payments to avoid any inconvenience.
4) Who’s going to manage the payments?
The most sensitive question is who is going to manage the payments. If you are jointly paying the loan, then you will jointly have to pay off the debt. If you individual bear the burden then you may discuss with your spouse as to how the expenses may be split and managed. But you must be very clear about who is going to make the payments and how much.
5) Why do you want to refinance?
Of course, your only reason for refinancing is to get rid of the debt as soon as possible and be debt-free so that you can go ahead and make plans with your spouse, such as buying a house or starting a family or a business or going on a vacation and so on. After consolidating your loans you get a new loan which is called the refinanced loan. Refinancing your student loan is a great way to manage your debt, it is important to have an in-depth understanding of what you are getting into so you can take full advantage of what refinancing has to offer.
From the above information, it is clear that the consolidation of loans with your spouse comes along with advantages as well as disadvantages. If you both can manage your finances well dealing with pan payment shouldn’t be a problem. Hence you can plan out a repayment plan as per your convenience.
However, you must be careful before refinancing your federal student loans as refinancing it will make it a private loan eliminating the benefits available only to federal loans.