Getting married can change many aspects of your life, including your personal finances. For many couples, student debt is a big part of it. It might not sound romantic, but it’s worth understanding before the big day how marriage can affect student loan repayment.
If you haven’t had a conversation with your future spouse about your financial obligations, now is the time to do so. It is essential to be transparent to each other about any debt you have before you say “yes”, including student loans.
When you get married, you agree to live with the financial repercussions of your spouse’s debt, which can affect your ability to finance future purchases like a car or a house. Here are three areas that often come to mind when considering how marriage can impact student loans:
- Legal responsibility
- Repayment strategy
- Tax reductions available
One of the most common questions couples have is whether they will become legally responsible for their partner’s student debt when they get married. This is often a big concern when a partner in a marriage has a lot of student debt.
The good news is that legal responsibility for paying off pre-marriage student loan debt is unlikely to pass to a spouse. The vast majority of student loans are held by the federal government, and these federal student loans can be canceled upon death or upon total and permanent disability where the borrower is unable to repay.
Likewise, you will not be responsible for repaying a federal student loan if your partner does not repay that loan and it is in default, or vice versa. You cannot be the subject of wage garnishment or compensation from the Consolidated Revenue Fund for your spouse’s debt. However, defaulting on a student loan will damage that person’s credit rating. So it’s important to know that this might affect you in other ways, for example if you want to buy a house together.
If either of you has private student loans, you should check the terms and conditions to be sure the debt could be transferred to the spouse. Private student loans can frequently be canceled in the event of death and multiple times in the event of total and permanent disability. However, some private student loan promissory notes may not have this clause and the responsibility for these loans may be transferred to a spouse or other family member, so it is important to read the fine print on these contracts to understand your obligations.
If either of you has student loan debt that is not dischargeable, each should consider protecting the other partner by purchasing life insurance for the borrower that covers your student loan debt.
Depending on how you file your taxes, marriage can affect your student loan repayment strategy, particularly if at least one of the spouses has federal student loans that are repaid on an income-based repayment plan.
When you get married, you have the option of filing federal income tax jointly or separately. While joint filing can lower your tax bill, it combines the income of both partners.
Joint filing can impact student loan repayment as your annual income and family size are used to determine eligibility for income-based repayment plans and to calculate your monthly payment amount. If either of you is on an income-based repayment plan, the combination of your income on your federal income tax return can significantly increase the amount owed each month, as you will have to report this higher combined income to your manager. student loans when you recertify your repayment plan.
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Filing taxes as a “married separately filer” may exclude you from some tax benefits, but it could save you money in the long run as a student loan borrower because it does not combine your benefits. income.
Tax breaks available
Getting married can also affect the tax relief you receive for paying off your student loans. When you file your federal income tax return, you can claim a tax deduction for interest paid on federal or private student loans. For all eligible tax filers, this deduction is capped at $ 2,500 per year.
The interest deduction on student loans is claimed as an income adjustment. This means that you can claim this deduction to reduce your taxable income even if you do not itemize the deductions. Filers who repay student loan debt can claim this tax benefit based on their modified adjusted gross income.
If you are filing jointly as a married couple, you can still only deduct up to $ 2,500 in total in student loan interest paid. However, if you and your partner file your taxes separately and you both get the maximum deduction, it could represent a significant change on your income taxes.
That said, there are other advantages and tax deductions that come with joint filing, so it’s worth considering whether you will be maximizing tax deductions and saving money by filing jointly or separately.
It can be difficult to navigate tax returns as a newly married couple, especially when it comes to determining which option is best for you. If possible, consult a tax expert and discuss the repayment of the student loan. Understanding how marriage can affect your student loans and being transparent with your partner about your debt is a good step towards a financially healthy marriage.