The euphoria of your wedding day is like nothing else. After months of planning, venue walkthroughs, cake and catering tastings, saying “I do” and committing to your new life is thrilling.
But after the photos have been taken, the reception dies down, and the thank you notes have been sent, you’ll probably have to make some adjustments to your new life.
And that includes your personal finances, especially if you or your partner have student loans.
Your marital status can affect everything from loan payments to potential tax breaks. Understanding how your marriage impacts the student loans you or your partner might be bringing into the marriage will help you craft a repayment plan and get ahead of your other financial goals—so you can focus on enjoying your recently married bliss.
How Marriage and Student Loans Can Affect Your Taxes
There are a number of student loan deductions you can file for on your taxes. Your eligibility for these deductions could change depending on if you are filing jointly or separately.
According to the IRS , as of the 2018 tax year, a single (or head of household, or qualifying widow/er) person with a modified adjusted gross income (MAGI) of $80,000 or lower may be able to deduct up to $2,500 of qualified student loan interest paid in a given year. (Eligible MAGI for married filing jointly for this deduction is $165,000.)
Helping One Another with Repayments
If you want to help your spouse with their student loan repayment, whether they have federal or private student loans, you can. If your spouse took out a loan before the marriage, typically that loan still belongs to the original borrower. If you’d prefer that both your names are on the loan, and you want to be equally responsible for the debt, you could consider refinancing.
This gets you a brand-new loan under both of your names. You may even be able to qualify for a lower interest rate or a better term when you refinance. However, you will forfeit your federal student loan benefits if you refinance federal loans with a private lender.
Marriage Could Complicate Your Income-Driven Repayment Plan
If you or your newly betrothed are enrolled in the Revised Pay As You Earn (REPAYE) plan—which is one of four income-driven repayment plans—you could see your monthly payments increase. REPAYE’s scheduled payments are based on income, and when you get married it is then based on your combined adjusted gross income if you now file taxes jointly with your spouse.
For the three other income-driven repayment plans—Pay As You Earn (PAYE), Income-Based Repayment and Income-Contingent Repayment —you could potentially avoid the higher payments by filing separately.
However, remember, when you do this you lose the ability to use the student loan interest deduction.
And filing separately also means you’ll no longer be able to qualify for the Earned Income Tax Credit, the American Opportunity Credit, and Lifetime Learning Credit. There is no one blanket answer for every married couple. Given the complexity of tax law, and that we are not accountants or tax attorneys, you’ll likely want to ask a tax professional to determine which option is best for you both.
Tips for Tackling Student Loan Debt Together
So what’s the best strategy for taking down student loans without letting them clobber your marriage? Here are five tips for proactively – and collaboratively – running a play that could help lead to the big pay-off: a debt-free happily ever after.
Tip #1: Create Your Big Financial Picture
Preparing to take on a big financial goal usually requires some conversation and preparation upfront. Before making any decisions, sit down and talk about your short- and long-term financial objectives, and make sure you’re both on the same page (or as close to it as possible). This can be an overwhelming topic, so see if you can break it down into chunks.
Have you established a household budget? How do student loans (and paying them off) fit into your long-term and short-term goals? Should you start aggressively paying off debt, or might it be better for you to ramp up over time? What other factors (e.g., buying a home, changing careers, having children, etc.) could affect your decisions?
Not only can this exercise help give you more clarity to create an action plan, it can also actually be kind of fun – after all, planning a life together is part of the reason you got married in the first place. The key is to listen to each other and remember that you’re both on the same team.
Tip #2: Take Advantage of Technology
Once you’re clear on the big picture, it’s time to get into the weeds. Many people have more than one student loan, often with multiple lenders, so a good place to start can be to gather all of your loan info in one place. You can use an online student loan management tool to collect this information, compare student loan repayment options, and even analyze prepayment strategies.
After crunching the numbers, your debt payoff strategy may include putting extra money toward your loans each month, which means creating and sticking to a budget that supports that goal. Using a debt payoff planner can help you keep track of your debt payments, maintain spending within a budget, and show how close you are to paying off your debt in full.
Note: tracking your spending so precisely may feel like ripping off a bandage at first, but over time, this kind of discipline can help you better see where your money goes and help you make conscious choices about your spending. And once you have your budget in place, these apps can be set up to alert you both when spending is getting off track.
Tip #3: Define The Who, What, When
Whether your finances are separate or combined, you’ll probably want to come to an agreement on how to collectively pay all of your financial obligations. Many couples address this based on each person’s share of the total household income.
For example, if one person makes 40% and the other makes 60%, the former might pay 40% of the shared bills and the latter might pay 60%. Others find it simpler and more cohesive to have one household checking account and pay all bills from there.
However you decide to split things up, it could make things much easier to agree upon a plan that accounts for everything, because missed student loan payments can potentially impact your credit (and/or your spouse’s), making your future financial objectives that much tougher to achieve.
Tip #4: Look For Opportunities to Optimize
Okay, so now you’ve established a plan and a budget, and you know who’s on point for each bill. You’re on the path to getting student loan debt off your plate. Is there anything else you can do to speed up the process?
Short of winning the lottery, the most common ways to accelerate student loan payoff are prepayment (meaning, paying more than the minimum) or lowering the interest rate, the latter of which is most commonly accomplished through refinancing.
If you qualify to refinance your student loans, you have a few possibilities: you can lower your monthly payments (by choosing a longer term) or lower your interest rate (which could also lower your monthly payments) – or you could shorten the payment term, and that means you could save money on interest over the life of the loan – money that could come in handy for those other financial goals you’ve both agreed to pursue.
Tip #5: Be on the Same Team
Living with debt is stressful for any couple, but being part of a relationship has its advantages, too. There’s a reason that weight loss experts often recommend finding a “buddy” to help cheer you on and keep you honest in your diet and exercise journey – and the same applies for achieving a big goal like paying off student loan debt.
Keep it positive and keep the lines of communication open, and you may even find that the journey to being debt-free makes your marriage even stronger – so you can take the hits that come your way as easily as your favorite team does.
How You Both Could Potentially Save on Student Loans
If you and your new spouse decide you want to do more things with your money—like have a child, buy a home, or invest more into your retirement savings—it may be time to look into student loan refinancing.
When you apply to refinance your student loans, lenders typically evaluate your credit score and financial fitness to determine your eligibility for a new interest rate and terms—which could be lower than the interest rate on your existing loans.
With a lower interest rate, you could reduce the amount of money you and your partner spend over the life of the loan. And with only one monthly student loan payment to worry about, your payments could be easier to manage.
If you are enrolled in an income-based repayment plan or are taking advantage of any of the federal repayment protections, refinancing with a private lender may not be the best solution for you since you will lose eligibility for these federal programs.
But for others, a lower interest rate can mean more flexibility and a more manageable repayment plan. To see how refinancing could impact your (or your partner’s) student loans, take a look at SoFi’s student loan refinance calculator.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.