If you and/or your future spouse have student debt, you need to discuss how you’ll repay it once you’re married.
Student debt is one of the hallmarks of young adult finances. Almost 70% of college graduates have student-loan debt, and as tuition continue to rise, debt in exchange for higher education seems like it is here to stay. (For more, see 10 Tips for Managing Your Student Loan Debt.)
While taking out student loans for undergrad or grad school typically only concerns the person earning the degree, figuring out how to pay off loans while entering a marriage is another story. However, it’s worth noting that if either spouse accrued student debt prior to getting married, the other spouse will most likely never be responsible for those loans.
Here is some advice to help engaged couples navigate the tricky road of deciding how they will manage their student debt after they get married.
Figure Out Where You (Both) Stand
It seemed so easy to sign up for loans at the time, but now years of monthly bills loom ahead. Many holders of student debt don’t know exactly how much they owe, what their interest rates are or what repayment plans are available. The first step for the two of you is to assess your debt: Make a list of how much you owe and to whom you owe it, and familiarize yourself with the interest rates and repayment terms.
Talk About Your Plan
While some couples choose to combine incomes, others may choose to keep finances separate. If you do combine incomes and file a joint federal tax return, your monthly payment for income-based repayment plans for federal loans can increase.
No matter how you and your spouse plan to manage your finances, it is critical that both of you are in agreement about your incomes and debts, savings plans and retirement goals. There is no one way to manage debt, and valid arguments can be made for a number of different family financial plans.
Owing or earning more or less than your partner, planning to take time off or to switch careers, and/or providing for children can make the shared tackling of student debt a complicated matter. Talking through these issues and ensuring that everyone’s needs and goals are being met is critical for the health of the marriage. (For more, see Relationship Money Matters.)
If you’re struggling to come up with plans that feel fair, check out the personal finance section of the library or meet with a financial advisor for advice. Your bank may also offer free financial planning assistance.
Regardless of how you decide to combine or split up your debt repayment, a few strategies will always leave you in a better-off position:
Pay off the highest interest loans first. No matter who owes what, targeting your efforts to the loans with the highest interest rates will reduce your overall payments as a family.
Make regular payments, no matter how small. These regular payments, even if they’re just the minimum, will keep you in good standing with your loan company and can give you leverage if you want to negotiate your payments. While the amount you pay matters, showing that you are a consistent and reliable customer matters, too.
If you can’t afford the payments, pick up the phone. There are often many repayment options available beyond the traditional 10-year payment plan. Again, communicating with your loan company will get you much further than dropping off the map. You will not be the first couple to struggle with debt, nor will you be the last. (For more, see Student Loans: What to Do When You Can’t Repay Them.)
Debt Liability for Married Couples
When you get married, your spouse will not be liable for student loans you took out before you were wed. However, he or she may become liable for any student loans you take out after you are married. It is critical to read the fine print on any loans either of you takes out after your marriage. While the law varies from state to state, there is a chance that you may be liable for your spouse’s student loan debt – again, only if the loans were granted during the marriage and depending on whether any of the money was used for living expenses – if you divorce or if your spouse dies. (For more, see What Happens To Your Student Debt If You Die?)
Couples planning to marry may want to consider a prenuptial agreement that includes a determination of which person is responsible for which debts incurred while you were married, should you later divorce. While a prenup may not be considered romantic, it is a legal tool to protect yourself and your spouse from unexpected financial after-effects of divorce. Already married? Postnuptial agreements exist, too, and are just as legally binding. (For more, see Benefits of Prenuptial and Postnuptial Agreements.)
Before you get married, read the fine print on your loan documents. Federal loans are not passed onto a spouse in case of death, but private loan debt often is if incurred during the marriage and/or if a spouse served as a co-signer on the loan. If you’re considering refinancing student loans with a private lender to get a lower interest rate, make sure you review any protections your spouse may lose at the lower rate. (For more, see Student Loan Refinancing: The Pros and Cons.)
The Bottom Line
Just as no two marriages are the same, there is no one-size-fits-all marital debt strategy. When dealing with student debt, as with all important financial decisions, it is critical that you and your future spouse communicate honestly and agree on a plan. Resolving what you will do is a good preview of how you will settle other important issues in your marriage – and a chance to test how well you work together before you make this important transition in your lives.
Several financial decisions, from adding a spouse to a credit card to refinancing a mortgage in both spouses’ names, can link credit histories and make pre-marriage student loan debt a truly shared burden. Ultimately, student debt is unpleasant for everyone, but with a proper plan, it doesn’t have to cause conflict in a marriage.
Read more: What to Do Before Marrying: Student Debt | Investopedia http://www.investopedia.com/articles/personal-finance/030116/what-do-marrying-student-debt.asp#ixzz49DNbPsc8
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