Student loan debt may be the biggest financial issue facing young adults today. Nearly 70% of recent college graduates have student debt, and as tuition and other costs continue to rise, having to borrow money to earn a degree is often unavoidable.
Although taking out student loans for undergraduate or graduate school typically involves just the person earning the degree and possibly their parents, figuring out how to pay off those loans once you're married is another story.
Here's advice to help engaged couples plan ahead for managing their student debt.
- Assess what you each owe and how you plan to handle your finances.
- Develop a debt-management strategy.
- Before you consolidate student loans, compare the implications of doing this while still single vs. after marriage.
- Consider a prenup or postnup to clarify responsibility for debts incurred once you are married.
Figure Out Where You (Both) Stand
Many grads with student debt don’t know exactly how much they owe, what their loans' interest rates are, or which repayment plans are available to them. So the first step for the two of you is to size up your debt. Make a list of what you owe and to whom you owe it, and familiarize yourself with the interest rates and repayment terms of each loan.
Talk About Your Plan
While some couples simply merge their finances when they marry, others may decide to keep some parts separate. Either approach can have a variety of consequences. If you file a joint federal tax return listing your combined income, for example, your monthly payment in an income-based repayment plan for a federal loan could increase. However, filing your taxes jointly has other financial benefits that might still make it your best option.
Spouses generally aren't responsible for any student debt the other spouse incurred before their marriage.
No matter how you and your spouse intend to manage your finances, it's important that both of you are on the same page with regard to your overall saving, spending, and debt-management strategies. Owing or earning more or less than your partner; planning to take time off, go back to school, or switch careers; and/or providing for children can complicate matters further. So talk through these issues and try to arrive at a plan you're both comfortable with.
If you’re struggling to sort things out, consider consulting a certified financial planner (CFP) for some dispassionate advice. Your bank may also offer free financial planning assistance, although it might try to steer you toward its own financial products. And, of course, lots of advice is available for free on Investopedia and other reputable websites.
Strategies for Paying Off Student Debt
Whether it's student loans or other kinds of debt, such as credit cards, the following moves can help you prioritize and pay them down efficiently.
- 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 amount due, will keep you in good standing with your loan company and may 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 lender 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. Note that there are special options for federal student loan repayment or even having a loan forgiven.
Taking on Student Debt After Marriage
Neither you nor your spouse is liable for any student loan debt the other one accrued before you got married, unless you happened to co-sign for it. If one of you takes out a new loan, however, you could be.
Consolidating loans could make spouses liable for each other’s debts, even if the original loans were taken out before marriage.
For that reason it's important to know all the terms in any loan agreement either of you might consider in the future. While the law varies from state to state, there is a chance that you may be liable for your spouse’s student loan debt. This could happen if the loans were granted during the marriage (and depending on whether any of the money was used for living expenses) and you divorce or your spouse dies. In a common law state, you may not be liable for a loan if only your spouse's name is on it; in a community property state, you may be.
Generally speaking, federal loans are not passed onto a spouse in case of death, but private loan debt often is if it was incurred during the marriage and/or if the surviving 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 understand any federal protections that you or your spouse may lose as a result.
What's more, even if you aren't responsible for your partner's debt, it can come into play any time you apply for credit together, such as a shared credit card or a home mortgage in both your names.
Couples planning to marry may want to consider a prenuptial agreement that stipulates which person is responsible for which debts incurred during the marriage, should you later divorce. While a prenup may not be considered romantic, it is a legal tool that can help protect you and your spouse from unexpected financial fallout. Already married? Postnuptial agreements exist, too, and can be just as legally binding. Just be sure to get a local family law attorney who can help negotiate an agreement that holds up in court.
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 other important financial decisions, it's essential that you and your future spouse communicate honestly and try to agree on a course of action. This could also be a good preview for how you'll tackle other financial challenges together once you've made this important transition in your lives.