What’s mine is yours, what’s yours is mine!
This phrase may seem romantic, but in reality, it gives you a sneak peek of the financial implication of tying the knot. Well, this means that, together, we have double the money right? Yes, and double the debts.
The outstanding student loan debt in America sits at a staggering $1.762 trillion as of Q1 of 2022.1 With so many students graduating with debt, even if you don't personally have any debt, the chances of finding a life partner with some student debt of their own are high. Whether it’s a couple thousand or six figures, student loan debt can be a life-altering obligation that affects individuals and couples for decades after graduation. In a recent survey, 12 percent of individuals with student loan debt even delayed getting married because of it.2
Whether you’re one of those people who have considered putting off your nuptials or you’re soon marrying into debt, below are a few facts you should know before saying “I do.”
If you’re paying back federal student loans using an income-driven student loan repayment plan, how you file your taxes (jointly or separately) could have a major impact on how much you’re obligated to pay back monthly.
There are four types of income-driven federal repayment plans:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
Depending on the type of repayment plan you’ve opted for, your tax filing status could determine how much you’ll be paying per month. For example, some repayment plans look at the combined adjusted gross income (AGI) of both you and your spouse only if you are filing jointly, while others may look at your combined AGI whether you file jointly or separately. With a combined AGI, your payments could be higher than when you were filing as a single individual.
For some plans, filing separately could mean your repayment plan is only looking at your individual income, not a combined AGI of you and your spouse. This would mean your monthly payments would be lower. Alternatively, if you and your spouse both have student loan debt and file together, in some cases your monthly payments would be lower to accommodate the additional debt.
When it comes to deciding the most efficient filing option for you, your spouse, and your student loan debt, you may want to consider working with a tax professional. In some cases, the tax credits or deductions you may miss out on by choosing to file separately could have outweighed the higher monthly debt payments.
If you’re already out of school and thus, ineligible for student loan tax credit, your next best shot at minimizing your financial burden is the student loan interest deduction. With it, you can claim a deduction of up to $2,500 on your tax bill for each year of loan payment.
However, to qualify, you must have an income of less than $85,000 in gross adjusted income, and less than $170,000, jointly with your spouse, if you’re married.
For a married person, this threshold applies, regardless, whether you’re filing your taxes separately or jointly. Thus, if your spouse is making way more than $85,000, you may no longer qualify for the deduction.
While there’s nothing romantic about it, it’s important to understand your legal obligation and responsibility toward your partner’s student loan debt. If your partner took out federal student loans before you were married, you, as the spouse, are (in most cases) not responsible for those loans. If your partner took out private loans, it could depend on the policies of the loan provider.
However, if you co-signed for the loan before you were married, you likely will be held responsible for those loans should your partner default. In addition, if your partner took out the loans after you were married, in some states you could be liable as these are considered jointly owned community property. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.4 The law can be complicated when it comes to who’s responsible for what, especially if a divorce is involved. Should you need to look further into your obligation as a spouse, you may want to seek professional legal counsel or speak with a financial advisor.
From 1993 until 2006, the Department of Education granted joint consolidation loans to married couples, allowing these couples to combine their student loan debt into one joint loan, making both parties liable for the amount - even in the event of a divorce.5 While there was some benefit to the ability to organize both spouses student loan debt into one tidy sum, it was found to have multiple downsides such as:
- Leaving a spouse responsible for the other’s debt in the case of a divorce or separation
- Spouses losing the ability to defer payments (such as in the event of unemployment) unless both spouses qualified
- One partner is unresponsive or unwilling to pay, leaving the other responsible
- Limiting eligibility for utilizing income-driven repayment plans
While as of November 2019 it has yet to be passed, a bill was introduced on May 14, 2019 called the “Joint Consolidation Loan Separation Act,” which proposes the ability for couples who had previously consolidated their loan debt to once again legally separate their debt.
Some people may worry about their credit score when marrying into student loan debt. The good news is, your spouse’s student loan debt will not necessarily impact your credit standing, unless you co-signed the loan and your spouse defaults on payment.
Getting married is an exciting milestone for all families, and it’s one that should bring about joy and celebration. But as you transition into married life with your partner, the debt you’re bringing into the marriage shouldn’t be ignored. Be honest with your partner about how much student loan debt you’re facing, and research your options together to build a plan of action moving forward.
MBE Wealth’s financial advisors and planners can help you and your partner work towards your financial goals so you can enjoy your “happy ever after,” even with student loans. As part of the MBE CPAs family of companies, collaborating with us will also give you access to accounting and tax experts, and to resources and services that extend beyond your typical financial firm’s offerings.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your financial advisor, attorney, or tax advisor. For additional information and disclosures, please visit our website at www.mbewealth.com. MBE Wealth Management, LLC is a registered investment advisor.
MBE Wealth Management, LLC (“MBE”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where MBE and its representatives are properly licensed or exempt from licensure. MBE Wealth Management, LLC and MBE CPAs, LLP are affiliated entities.
- Student Loan Debt Statistics
- Degrees of Debt and Regret
- Apply for Public Service Loan Forgiveness (PSLF)
- Publication 555
- David E Price
- Joint Consolidation Loan Separation Act
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.