The outstanding student loan debt in America sits at a staggering $1.48 trillion as of August 2019.1 Whether you are a nurse, physician, or any other healthcare professional, it is likely you are dealing with this burden firsthand. If you are fortunate enough to not 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.”
Fact #1: Your Marriage Status Can Affect Your Monthly Payments
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)3
Depending on the type of repayment plan you’ve opted for, your tax filing status could have a drastic impact on how much you’ll be paying per month. For example, PAYE and REPAYE are the most common income driven plans for healthcare professionals. PAYE only looks at the combined adjusted gross income (AGI) of both you and your spouse if you are filing jointly. This means that if you are in the PAYE plan and are getting married to another high earning healthcare professional, you can explore using a strategy that involves filing your taxes married separately so that the plan only looks at your income, regardless of what your spouse makes. With REPAYE it looks at your combined AGI whether you file jointly or separately. With a combined AGI, your payments could be much higher than when you were filing as a single individual.When it comes to deciding the most efficient filing option for you, your spouse and your student loan debt, its important to work with a professional who is able to look at your situation holistically. For example you may think that PAYE makes the most sense if you are getting married to a high income partner, since you could file your taxes separately so that the marriage doesn't impact your payments. But REPAYE offers interest subsidies that PAYE does not and depending on the size of your debt, these subsidies could add up to thousands of dollars. It's also important to be be aware of the tax benefits you may lose out on by filing your taxes married separately. For example filing separately basically eliminates the ability to make Roth IRA contributions without using a backdoor Roth IRA.
Fact #2: You May Not Be Legally Liable For Your Spouses Debt
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 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.
Fact #3: You & Your Spouse Cannot Consolidate Your Student Loan Debt Jointly
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.6
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.
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.