Did you recently tie the knot?
Getting married is one of the largest steps people can take in life, and it comes with its share of difficulties and confusion, especially when it comes to debt and finances. With student loan debt for graduates increasing every year, many will begin to get married and wonder if they should consolidate their own student loans with their spouse’s. As marriage is the combination of two people’s lives into one, this may seem like an inevitable step, but there are some drawbacks that you may want to consider when deciding to consolidate your student loans with your spouse’s.
What is Consolidation and How Does It Affect Our Payment Plan?
Consolidation of loans is the refinancing of multiple other loans to combine them into a single larger loan. Many times, student loan borrowers have multiple different loans, so consolidation may be an option for any borrower. However, through the Federal Student Loan program, there is no ability to consolidate loans that are not under the same name, which stops couples from combining their existing public loans. The only option is to find a private refinancing company who will allow consolidation of loans of different people, which will remove the benefits of having a public lender.
Additionally, the payment plans for current student loans must be reconsidered. Borrowers on Income-Based Repayment Plans who combine their income with their spouse’s will be subject to much larger monthly payments because their income has increased. However, if you choose to be ‘Married Filing Separately’, which will keep your monthly payment down, you may be at risk of being disqualified from certain tax benefits that come from marriage.
How Does Consolidation Benefit Us?
The benefits of consolidation mirror those of refinancing because the consolidation of multiple loans into one can allow the ability to have lower payments and an easier overall ability to pay over the life of the loan. Refinancing can extend the loan by using smaller monthly payments over a longer time, and it can allow for a lower fixed interest rate instead of multiple variable interest rates on multiple loans. This can be less of a burden on newly-married couples because they do not have to worry about larger payments every month, even if the loan will be paid over a longer period of time.
What Are Some of the Drawbacks?
Apart from the loss of some federal tax and loan benefits, many of the disadvantages of consolidation only come into play if there is a major change for the couple. The largest drawback happens when couples divorce and often must split the debt evenly, even if the original proportion of the debt was not even. A similar drawback occurs when one person passes away because some private lenders will still hold their spouse accountable, even though some private lenders and all public lenders will have a death discharge for the loan.
Additionally, if you try to take out additional student loans after marriage, there will be no debt deferral, which federal loans permit. This can create a large burden on the couple because payments still must be made on time, which can be difficult for a spouse because it can force them to take other actions to make money that would not be necessary with federal loans and forbearance.
Should We Consolidate Our Loans?
Consolidation of loans can be a risky move for a couple because it requires changing from a federal to a private lender and removes many of the benefits a federal lender provides. Consider how your payment plan will work and how you envision your educational and financial future before making any decision on consolidation. If you are struggling to decide what option is best for you and your spouse, you can get help from one of our certified counselors, who will look at your entire portfolio and consider all your options to help you decide which path is best for you and your family.