Look at student loan debt isn’t on the typical wedding to-do list, but it should be. Student loans will impact your financial future as a couple and you need to be prepared for it. Do these 5 steps before getting married, so you can walk down the aisle and be confident about your student loan game plan.
Understand your student loans.
It’s important to start on the same financial page before getting married. You should know exactly how much student loan debt you each have. For each of you, you should know how much you owe to each student loan lender, what the interest rate is, what is the minimum payment and what type of loan is it (federal or private).
If you don’t already know, find out how much you owe in federal student loans by logging into the National Student Loan Data System (NSLDS). Here you will have a record of your loan status, interest rate and loan servicer. Private student loans can be found by pulling your free annual credit report.
Discuss the impact of student loans on future financial goals
Once you know the total student loan debt each person is bringing to the table, it’s time to discuss future financial goals. A portion of income will be going towards student debt every month. Student loans often cause people to delay other financial goals, such as buying a home, starting a family and saving for retirement.
Your monthly student loan payments impact your overall debt-to-income ratio, a common metric used when getting qualified for a mortgage. Understand that financial goals like saving more for retirement or buying a home may be further in your future than anticipated.
Keep in mind that if you or your spouse is currently enrolled in an income-driven repayment plan for federal student loans, your payment can change. Once married, the monthly payment calculated by your joint income, if you file federal income tax returns jointly, as well as your family size.
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Consider refinancing and student loan forgiveness
Check to see if you or your spouse qualify for student loan forgiveness. There are a variety of student loan forgiveness programs, including for the following professions:
If you have private student loans, then you could look into refinancing for a lower interest rate, which will save you money. Refinancing student loans could also make managing your student loans easier, since it streamlines multiple loans from multiple lenders into one new loan. Be cautious about choosing the lowest possible payment. This can prolong debt pay off and cost you more money due to interest.
Keep in mind refinancing federal student loans means a loss in many irreplaceable benefits, including possible forgiveness, potential widespread cancellation, an option to pay based on your income, and generous options to pause payments if you lose your job or are going through an economic hardship.
If you or your spouse decide to refinance student loans, weigh the pros and cons of cosigning for the new loan. If you cosign your spouse’s new loan while he or she refinances, it could mean a better interest rate and increase the chances of approval. But it also means you’re equally responsible for the loan, even in divorce.
Federal student loans that don’t qualify for forgiveness can remain on the standard 10-year repayment plan or an income-based repayment plan. Refinancing federal student loans can be risky. You give up flexibility and borrower protections.
Unless you’re pursuing forgiveness, be as aggressive as possible to pay off your student loans early in your marriage, while still saving for retirement and having an emergency fund.
Create a budget together
It’s important to remember you’re a team that can work together to tackle student loan debt. A budget will be your game plan so you can pay off student loan debt and never miss a payment. It’s a way of using your combined income with a purpose.
A basic budget looks at the total income you both bring in, deducts expenses, and then uses the remaining money to pay off debt or save for the future. You should always budget for at least the minimum student loan payment to avoid default. Keep the budget balanced and leave room for living expenses and retirement savings while prioritizing student loan payments.
Know who is responsible for student loan debt in a divorce
What happens to student loan debt in the case of divorce? Generally, student loan debt incurred before getting married is considered separate property and remains so after divorce. There is an exception to this rule. If a prenuptial agreement is made that specifies how debt is divided this will be the governing document in the divorce. However, if you cosign a loan, you are completely responsible for it.
Student loans follow you until they are paid off, even into marriage. Learning to manage your student loans as a couple will be one of the most important items to check off your wedding to-do list.
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