Getting Married? Consider a Student Loan Prenup
We’ve written before about the pain of a spousal student loan consolidation if the couple gets divorced. But even if your happily ever after sticks for good – student loans can still be a minefield if you don’t handle them right from the get-go. So while you’re planning your nuptials, look beyond flower selection and the perfect wedding singer and consider whether you also need a student loan prenuptial agreement!
If you and your beloved are both college graduates, odds are you both have student loans. With grads owing an average of $24,000 in college loans – that’s a big hunk of combined debt you’re starting your new married life with. But there are some steps you can take to optimize this debt and prevent yourself from losing certain benefits…
#1 Vow to Take On Your Debt Together!
As we’ve written before, private loan spousal consolidation is possible, but NOT recommended. Don’t even think about that, but here’s what you should consider: tackle your debts together. In marriage, it’s share and share alike, so you should assess your student loans and figure out a strategy to eliminate your educational debt as soon as possible.
To do this, we recommend embracing Dave Ramsey’s debt avalanche method that we’ve discussed before and devote some of your disposable income to the highest interest loan first (on top of the usual monthly payment). This will accelerate the payoff of that loan. You then take all the funds that were paying the first loan and apply it to the second highest interest rate loan.
This will allow you to get out of debt and get on with your lives as fast as possible. One caveat… If one partner has the higher interest rate loans and gets their loans paid off and then the marriage goes from happy to crappy before the other partner gets to benefit, they may feel taken advantage of. And who can blame them? That’s a matter for your divorce lawyer…
#2 Saying I Do Can Leave You with an IOU
If you live in a community property state – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin – here’s what you need to know. If you had student loans from before the marriage, those are your responsibility and your spouse’s are theirs. But (and this is a big but) if you live in one of the listed states, any student loans taken out after you marry belong to you both!
Even if just one spouse takes out the loan, collectors can go after either of you. In case of a split, you may end up with custody of part of a student loan that you did not benefit from. Not only can your ex’s student loans haunt you, but also any other debts your former spouse signed for during your marriage!
#3 Taxes After Wedding Day Can Increase What You Pay
When you find the love of your life, you can’t wait to share your everything with them. But you may want to hit pause and rethink this approach when it comes to your taxes. Depending on how much you earn, you may qualify for income based repayment that will lower your monthly payments and can lead to loan forgiveness after 20-25 years.
Filing your taxes as “married filing separate” will enable you to count just your income toward your IBR schedule. But “married filing joint” will cause both spouses’ incomes to be considered and you’ll likely be ineligible for this more affordable payment plan.
That being said, that’s not the only consideration when it comes to tax filing status. There are certain credits and deductions only available to couples filing jointly. This may require a professional assessment by a tax pro to figure out which filing status will be of the most financial benefit!
#4 Til Death You Don’t Part
There’s a saying that nothing is certain in life but death and taxes – they need to amend that phrase to include student loans… If your spouse has private student loans and dies while you’re still married, the lender will not let the untimely loss of your spouse – or your grief – slow their collection efforts.
They will have first shot at your spouse’s estate before you get your inheritance and if you live in a community property state, they may continue collection efforts to try and get the money out of you as the surviving spouse. Federal student loans expire with the borrower.
#5 Prenup In Case You Split Up
The mention of a prenuptial agreement can feel like a damper on romance because it implies Mr. (or Ms.) Right may be only Mr. Right Now. But it’s best to be practical because close to half of all marriages in America will break down at some point. If your marriage stays solid, it’s just a meaningless piece of paper, but if you split, it can keep you out of deep s&%*…
A prenup can cover just student loans or wrap up all premarital debt in the document. Here’s why: if you ever made payments on your student loans from your joint account, a lender can come after the other spouse by saying payment from the joint account was implied acceptance of responsibility for the debt. If your ex can’t (or won’t) make their student loan payments after you break-up, the collectors may come calling on you if you don’t have this document as a defense.
If you’re engaged, newlywed or never wed, Tuition.io’s award winning and totally free student loan tool can help you view and manage all your loans in one easy interface, check out repayment plan options and easily contact your lenders.
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