Marrying Someone Who Has Student Loan Debts: When Do You Have to Pay?
Types Of Student Loans
Student loans come in the form of private education loans from banks and financial institutions such as credit loans. Such loans are usually based on credit history and income. They can also be federal loans from the US government that are typically based on financial need or merit. Some loans lent by the US government have interest that is subsidized while the student is in school while other loans are unsubsidized. For both loans, students are required to pay back the loan balance in addition to the interest payments beginning six months after graduation. For unsubsidized loans, students are also required to pay the loan interest while they were in school.
Spousal Debt and State Laws
Marrying someone who has student loan debts can be a concern, however, the spouse will generally not be responsible for repayment of loans unless they co-signed the loan paperwork. In most cases where the student loan was obtained before marriage, the loan debt belongs solely to the student who signs for it. Some states have community property laws that involve splitting of assets and liabilities concurred during marriage; education student loans usually do not fall under these property laws unless a judge deems that they do.
In July of 2009, Congress enacted the College Cost Reduction and Access Act of 2007, which allows students to repay loans based on up to 15% of their discretionary income. The Federal Income-based Repayment program (IBR) also forgives the debt after 25 years of repayment. In 2010, President Obama proposed an improvement on IBR in that beginning in the year 2014, only 10% of discretionary income can be used and loan forgiveness is possible after 20 years.
Under IBR, borrowers who file joint income tax returns with their spouses have payments generally determined by the income of the two spouses. This marriage penalty has been corrected to allow for borrowers to now repay student loans based on the borrowing spouse’s income, thus lowering payments. To qualify for this benefit, spouses must file income taxes under Married filing Separately.
Loan Factors That Influence Spousal Repayment
One factor that affects repayment of a loan is the signature on the loan documents. If a spouse has not signed a student loan document, he/she would not be responsible. Generally, if you are marrying someone who has student loan debts before the marriage, then you would not be obligated to repay the loan. On the other hand, if the loan is obtained during the marriage and the state of residence is a community property state, then the student loan debt could be deemed common debt by a divorce judge. In most cases, if the loan is obtained before the marriage, the spouse that took out the loan must repay it.
Other factors that can influence spousal repayment of student loan debts are – (for the person who doesn’t have the debt)
- Adding your name to your spouse’s credit cards or loans - this links your credit history meaning that creditors may go after you for the loan.
- Refinancing a mortgage in both spouses’ names
- Consolidating a student loan with your spouse
- If the borrowing spouse defaults on the loan and you have signed on other loans - Because your credit is linked, creditors may come after you for the loan.
- If the spouse who borrows dies - In this case, the spouse’s estate owes and will pay debts based on what monies are available such as life insurance. This affects how much you would receive from your spouse’s estate.
- If you and your spouse divorce - If a couple divorces, in a community property state where assets and liabilities (debts) are split down the middle, student loan debt of one spouse could be considered by a divorce judge to be marital debt owed by both.
Points to Remember
Student loans - like any other debt - are the responsibility of the person taking the loan. Marrying someone who has student loans may influence your lifestyle in terms of huge monthly payments that cut into joint household spending. Spouse A’s credit history will only be affected by the loans of his/her spouse if spouse A co-signed on the student loan. Spouse A, who did not co-sign a student loan, could be affected by non-repayment only if he/she files joint tax returns. In the case of student loans given by the US government, the joint tax returns may be seized to payoff the delinquent loans. If a divorce occurs, the student loan debt could be determined as a common debt to be shared if the couple lives in a common property state.
References
FinAid.org – Income Based Repayment for Student Loans (marriage penalty correction)
https://www.finaid.org/loans/ibr.phtml
Krantrowitz (2010), “Obama Proposes Capping Student Loan Payments at 10% Discretionary Income”, Retrieved from https://www.fastweb.com/financial-aid/articles/2057-president-obama-proposes-capping-student-loan-payments-at-10-of-discretionary-income
Marital Law by State
https://family.findlaw.com/marriage/marriage-laws/state-marriage-laws.html
Divorce Law
https://www.divorcelawfirms.com/resources/divorce/credit-debt/divorce-who-responsible-student-loans
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