Considering marriage? Student loans could impact your future!
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When contemplating marriage, you usually think about the compatibility of lifestyle, preferences, perhaps religion, and, of course, chemical attraction. But one thing that doesn’t often make the roster of top considerations (but should) is student loan debt. The realities of skyrocketing school debt are that it impacts not only the future of the borrower but anyone to whom they hitch their wagon. Here’s what you need to know.
Student debt affects income taxes
If either you or your spouse has student loans, it can affect how you file your income taxes. Most married couples choose married filing jointly (MFJ) to take advantage of deductions not available to those wed but who choose to file separately (MFS). You might have issues with:
- Itemized deductions – if one spouse itemizes, the other becomes ineligible for the standard deduction.
- Standard deduction – if first to file takes the standard deduction, so must the other spouse that later files.
- Cannot claim student loan interest if you choose MFS status.
Plus, if either of you is enrolled in an income-driven repayment plan like Income-Based Repayment (IBR) or Pay As You Earn (PAYE), you can choose MFS to lower the Adjusted Gross Income (AGI) that determines your loan payment amount.
If you are in Revised Pay As You Earn (REPAYE), your income and that of your spouse will be considered for your AGI and payment determination whether you opt for MFS or MFJ. This combined calculation causes your monthly payments under the plan to increase.
However, this is a balancing act. With IBR and PAYE under MFS, you lose the ability to deduct student loan interest. With REPAYE, your payments will be higher, but you get that deduction. These are all things to consider before choosing a repayment plan (and getting married).
Tax refund garnishment
Generally, you’re not responsible for your spouse’s student loans unless you co-sign the loan or refinance into a loan for which you’re jointly responsible. If you do co-sign, the lender can come after the both of you equally, so you’re as legally liable for the debt as your spouse.
If your spouse goes into default on their student loans and you file a joint tax return, those that are counting on a refund should be wary. Uncle Sam can snatch tax refunds to cover the defaulted student debt even if only one of you is delinquent on student loans! It’s something to consider when choosing MFJ versus MFS.
Mortgage and loan impact
Obtaining credit for a vehicle loan or mortgage is all about the credit score. If either of you is in default on student debt, your credit score will be lower. Trying to borrow together to buy a car or home means your lower score can press you into a subprime loan with a higher interest rate.
However, if you seek a loan with just the one spouse on the application, you might not have the income to be approved. This can be a Catch-22 and shows how student loans can complicate your life well beyond college.
Many Millennials postponing marriage
It’s no wonder that marriage rates are down significantly among Millennials. When putting a ring on it means saddling someone else with your school debt, choosing cohabitation over marriage is understandable.
Not only is that generation increasingly opting out of marriage, but also delaying the purchase of a home and starting a family, often due to the oppressive nature of debt incurred to attend college. If your student loans are unaffordable, it pays to examine the alternatives.
First, look at income-driven repayment plans to lower your monthly payments, but be sure to consider, even if you’re single now, how a future marriage might impact your payments and choose your plan wisely. Second, think about bankruptcy to alleviate debt.
Depending on your circumstances, you may be able to lower or discharge student debt in bankruptcy. If not, you can unload other debt to make it easier to afford your college loans. Talk to one of the student loan debt experts at our office.
Read reviews from satisfied clients, then contact the Law Offices of John T. Orcutt. Call [skcompany-phone] now to schedule a free student loan bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.