These days, it’s not uncommon to graduate from college or grad school with student loan debt. Over 50% of students take on debt to pay for higher education and it may come as a surprise to learn that the average amount of student loan debt rang in at $37,500 in 2020. Maybe you aren’t surprised because you went to medical school and you owe in excess of $200K to student loan creditors. Yikes!
Fortunately, if you went to medical school or law school, your six-figure student loan debt can be offset by your earning potential. Of course, some lawyers and doctors switch gears and become creative writers in their 30’s, so, no matter who you are or what you do, student loan debt can be a huge deal.
There are a variety of student loan types, but they all fall under two broad categories: federal and private. Federal student loans are funded by the federal government and offer fixed interest rates and income-driven repayment plans. You don’t have to start making payments until after you graduate and, except for PLUS loans, federal student loans don’t require a credit check.
Private loans, on the other hand, often require repayment while you’re still in school. You’ll also need a qualifying credit score, or a co-signer, in most cases. The interest rates on private student loans could be variable, and higher than federal student loans. It’s best to take out federal student loans, if you’re able.
Whether you have federal or private student loans, one thing is true—you owe money. It can feel like an overwhelming burden, but don’t be discouraged! There are some steps you can take to ensure that your spouse is protected from your student loan debt while you hit the ground running with savvy repayment strategies.
Does Your Spouse Have to Pay Your Student Loans?
So, what happens if you get married and you have a lot of student loan debt? Is your spouse responsible for this debt now that you two have tied the knot and committed to each other for richer or for poorer? The answer is that it depends.
If you took out your student loans before you got married, then you may or may not be obligated to pay that loan back by yourself. Of course, anyone who may have co-signed for your loans would also be responsible for them. Just because you took loans out before you were married doesn’t mean that it won’t become shared debt in a divorce.
The other scenario happens when you get married and then take out student loans. If your spouse co-signs for the loan or not, they may be responsible for paying that debt. Typically, property and debt acquired during the marriage would be considered marital or community property and subject to division, but that’s not always the case. Sometimes even debt incurred during the marriage will be assigned to one person.
In most cases, a spouse that doesn’t co-sign for student loans won’t be responsible for the payments. As with most things, though, there are exceptions. If you took out private loans, and you live in a state that considers all debts acquired during the course of the marriage to be jointly held, then the lender could argue that your spouse needs to pay up if you default.
Prenups Protect Your Spouse From Your Student Loans
If you’re worried about your partner being forced to foot the bill because you’re unable to make payments on your student loans, then there is an extra precaution you could take to add protection. A prenuptial agreement!
Sure, prenups are often associated with divorce. It’s not their fault, that’s just how the movies have portrayed them. The fact is, prenups can help a married couple define ownership of their assets in a manner that protects one spouse from another spouse’s financial obligations. For example, a prenup can stipulate who is responsible for various personal debts, even if you haven’t incurred them yet. A prenup can also be amended to account for new debts. You could also consider a postnup if you said “I do” without a prenup.
If you do make the wise decision to prepare a prenup, then you and your spouse need to make sure that you operate in accordance with the agreement. That means, if you say that certain accounts are intended to be separate, then you should keep them separate. If you use your student loan funds to pay for home improvements on your jointly owned home, then things could get messy!
Talking about a prenup or a postnup with your significant other can feel awkward or even selfish. It’s understandably hard to ask the love of your life if they mind sitting down over coffee to share all of their money concerns with you. Or vice versa. If you do take this step, though, you’ll find peace of mind and an action plan on the other side of the discussion.
Ways to Pay off Your Student Loans Faster
Even if you’re confident that the student loan debt you own won’t later become a burden to your spouse (shout out to your prenup!), making the monthly payments can still affect both of your lives. Every dime that goes towards paying off student loan debt is money that doesn’t go towards a down payment for a house or date night.
There are some ways to be smart about paying your student loans so that you can minimize the literal costs they have on your marriage. While it may be tempting to flee the country and assume a new identity, you’d be smarter to make a budget. You can pay down student loans while still allocating income for necessities and even fun things!
If you have federal student loans, then in many cases, your loan could be forgiven. Unfortunately, this option isn’t often available with private student loans, but you should contact your lender to make sure you aren’t missing out on their brand of loan forgiveness. The federal government provides the following:
- Public Service Loan Forgiveness
- Teacher Loan Forgiveness
To receive public service loan forgiveness, you have to make 120 qualified payments and be employed full-time by a qualified employer during that time. Teachers who teach full-time for five consecutive years in an underserved community may be eligible for $17,500 of loan forgiveness.
Receiving loan forgiveness is a time-consuming process that involves a lot of red tape, so be sure you do your research and make sure you’re crossing your T’s and dotting your I’s along the way. It’s worth it in the end, plus you’ll have done some good in the world!
What Happens if You Can’t Pay?
For now, the federal government has said that payments on federal student loans are paused until October 2021. This comes as a relief to over 40 million student loan borrowers, but what happens if your student loans are private or when the government says it’s time to start paying on your federal loans again? Well, there are options!
While it might seem easiest to just go MIA on your loans, that is the worst option. Your loans are considered delinquent after 90 days and they are in default after 270 days of nonpayment. If they are delinquent, your credit score will be negatively affected and if they are in default the loans are sent to a debt collector where fees and interest will pile up. Even private student loans are often backed by the federal government, so nonpayment of either type of loans can result in the Feds getting involved.
Before it gets to that point, or even if you’ve already missed a few payments, you should contact your lender and see if there are any arrangements that may help you keep payments manageable. For private student loans, your options will depend on the lender, but don’t hesitate to make that call. Most lenders would rather receive some of the payment than go through the hassle of chasing it down or sending the debt to collections.
If you have federal student loans, then there are more options available to you. You could enter into an income-based repayment plan that allows payments as low as 10% to 15% of your discretionary income. Or, under the income-contingent repayment plan, you’ll pay a little more, but your loan may be forgiven after 25 years.
You could also consider forbearance or deferment, which allows you to put off payments altogether for the short-term, but be aware that interest may still accrue even while you’re not making payments.
Seek Help, Ask Questions, and Take Control!
Whatever situation you find yourself in with your student loans (or future student loans), you should know that there are always ways to protect your spouse from this type of debt obligation, just as there are ways to help you bear the burden of paying the loans back.
When in doubt seek out legal help and call your loan provider to see what your options are. The more questions you ask the better! As the esteemed wealth guru Dave Ramsey once coined, “You must gain control over your money or the lack of it will forever control you.”
Julia Rodgers is HelloPrenup’s CEO and Co-Founder. She is a Massachusetts family law attorney and true believer in the value of prenuptial agreements. HelloPrenup was created with the goal of automating the prenup process, making it more collaborative, time efficient and cost effective. Julia believes that a healthy marriage is one in which couples can openly communicate about finances and life goals. You can read more about us here Questions? Reach out to Julia directly at [email protected].