When you get married, you have $30,000 in federal student loans and $40,000 in private student loans. Although your spouse may assist you in repaying your debt, you are the only one who is legally liable.
This situation also applies if you marry someone who has taken out federal PLUS loans, which are available to parents, graduate students, and professionals.
Yes. The debt is deemed community debt if you live in a community property state and your spouse gets a student loan while you’re married. Both spouses share the debt, whether it’s through federal or private loans.
Do I inherit my spouse’s student loan debt?
You may be concerned about how marriage will affect your finances if you’re getting married, especially if your future spouse has large student loan debt. If that’s the case, here are some questions to consider before you tie the knot:
Does Marriage Impact My Payments If I’m on an Income-driven Repayment Plan?
Getting married can alter your payments if you have federal student loans and are enrolled in an income-driven repayment (IDR) plan.
Your payments under an IDR plan are based on a proportion of your discretionary income. If you and your spouse both work, your income may rise, and your payments may rise as well.
If you file your taxes jointly, all IDR plans will calculate your payments based on your combined income. Most of the plans—income-contingent repayment, income-based repayment, and Pay As You Earn (PAYE)—will only use your income to compute your payment amounts if you file your tax returns separately.
Revised Pay As You Earn is the only exception (REPAYE). Even if you file separate returns, REPAYE takes your spouse’s income into account when calculating your taxes.
How Does My Spouse’s Student Loan Debt Affect My Credit?
Unless you co-signed a loan with your spouse, your credit will be unaffected by their debt. Your credit score will be affected if you co-sign a student loan and your spouse defaults on payments.
Even if you didn’t co-sign your partner’s loans, marriage can hinder your ability to obtain other forms of credit. When you apply for credit as a couple, for example, to secure a mortgage, the lender will look at your combined income and debt-to-income (DTI) ratio. You might not be able to get a loan if your DTI is too high.
Is a Spouse Responsible for Student Loans Incurred After Marriage?
Depending on where you live, you may or may not be liable for student loans taken out by your husband after you married. In most places, debt incurred during a marriage is the sole responsibility of the spouse who signed the loan arrangement. If you live in one of the following states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you are jointly liable for the debt.
Can Married People Jointly Refinance Their Student Loans?
Refinancing your student loans can help you simplify your payments, cut your interest rate, and lower your monthly payments. If you and your spouse both have student loan debt, you might ask if you can refinance and combine your loans to take advantage of your spouse’s better credit or income.
Refinancing for married couples is difficult to come by. Most private refinancing lenders, on the other hand, enable spouses to sign their partner’s loan applications as co-signers. You’ll share liability for the debt as a co-signer. You can help your spouse qualify for a better rate than they could receive on their own if you have good credit and a consistent salary. However, as a co-signer, you will be accountable for the payments if your spouse is unable to make them.
Am I Still Eligible for the Student Loan Interest Tax Deduction?
You can deduct the smaller of the interest you paid on your student loans for the year or $2,500 if you use the student loan interest deduction.
There are, however, income restrictions. If you or your spouse earns a lot of money, your combined wages may be too high to qualify for the student loan interest tax deduction.
If your modified adjusted gross income (MAGI) is between $70,000 and $85,000 ($140,000 and $170,000 if you’re married and file a joint return), the deduction is gradually phased away. If your MAGI is $85,000 or more ($170,000 or more if you file a combined return), you aren’t eligible for the deduction.
Will Getting Married Affect My Financial Aid?
If you intend to return to school, your marital status may have an impact on your financial aid eligibility.
You can still apply for federal Pell Grants and student loans, but your dependent status on the Free Application for Federal Student Aid will change as a result of your marriage (FAFSA).
Even if you live with your parents and rely on them for financial support, you will be deemed independent for federal financial aid reasons if you marry.
As an independent student, the government considers your total household income when determining how much aid you are eligible for. You may not be eligible for financial aid programs meant for low-income students, like as Pell Grants or subsidized loans, if you have a greater income as a couple. Independent students, on the other hand, can benefit from larger student loan borrowing limitations.
Will I Have to Pay My Spouse’s Loans If We Get Divorced?
Divorce is the last thing on your mind as a wedded couple. But, just in case, it’s a good idea to know how debt is handled in both good and bad times.
Loans taken after you married are usually considered marital debt and will be shared fairly in the event of a divorce. If you live in a community property state, your debt will be divided in half, and you’ll be responsible for repaying the loans jointly.
Unless you co-signed the loan, you are usually not responsible for the debt if your husband took out the loans before you married. Even after your divorce is official, if you co-signed your spouse’s loan, you share liability for the debt.
Can student loan debt be passed down?
Yes, if you have loans from the federal government. This means that your heirs will not be responsible for repaying those school loans. Survivors can file a death discharge request to have a borrower’s federal student loans discharged.
If the student for whom the parent obtained the loan dies, the parent PLUS loan may be discharged.
Additionally, the “death discharge” applies to both parents with a PLUS loan (assuming both took out the loan). A PLUS loan is not cancelled if one of the two obligated parents dies.
If you die, your private student loans will not be discharged administratively. Debts from private loans will be treated in the same way as other debts. That means they’ll be included in your will. The procedure of settling an estate (also known as probate) differs by state. When a borrower or co-borrower dies, some private lenders will use their discretion and agree to discharge loans.
Is family responsible for student loan debt?
Is it necessary for me to continue paying my student loan if my parent or spouse passes away? Yes, you will still be responsible for repaying your student loans if your parent or spouse passes away. You are still legally obligated to return the loans, even if your parent or spouse assisted you with payments.
What happens if your spouse dies with student loans?
Federal student loans are not carried down through the generations or even via your estate. If you die, your federal student loan is canceled in full and no one owns or owes you anything. To get the debt dismissed after death, someone will need to show documentation of death to the student loan servicer in charge of the debt.
Is spouse responsible for student loan debt incurred before marriage?
Marriage does not make you liable for your spouse’s student loan debt from before you married. Each spouse is still liable for the loans they took out to pay for education. Premarital debt is considered separate property even if you live in a common property state.
If you cosigned your partner’s private school loans when you were dating, that changes. Because of your role as a cosigner, you’re responsible for their debt in that situation.
Do student loans go away after 7 years?
After seven years, student loans are not forgiven. After seven years, there is no program for loan remission or cancellation. If you fail on your student loan debt after more than 7.5 years without making a payment, the debt and missed payments can be deleted off your credit report. Your credit score may improve as a result of this, which is a good thing. However, you will be liable for repaying your loans.
What happens if you never pay your student loans?
- You might be able to take advantage of federal student loan aid programs to help you pay off your debt before it defaults.
- If you don’t pay your student loan within 90 days, it’s considered late, and your credit score will suffer.
- After 270 days, the student loan is considered delinquent and may be turned over to a collection agency for collection.
Can student loans be forgiven after 25 years?
Income-based repayment is similar to income-contingent repayment in that it is based on your income. The monthly payments are both capped at a percentage of your discretionary income, albeit the percentages and definitions of discretionary income differ. Monthly payments under income-based repayment are capped at 15% of your monthly discretionary income, which is the difference between your adjusted gross income (AGI) and 150 percent of the federal poverty threshold for your family size and state of residence. There is no monthly payment minimum. Unlike income-contingent repayment, which is exclusively available through the Direct Loan program, income-based repayment is available through both the Direct Loan and the federally insured student loan programs, with no need for loan consolidation.
The adjusted gross income from the previous tax year is used to calculate income-based repayment. In some cases, the revenue data from the previous year may not accurately reflect your current financial situation. For example, you may have a smaller income this year as a result of a job loss or a wage drop. In this case, you can request an adjustment to your monthly payment by filling out an alternative documentation of income form.
The loan can be repaid over a period of up to 25 years. Any leftover debt will be forgiven after 25 years (forgiven). Because the amount of debt released is classified as taxable income under present law, you will have to pay income taxes on the amount discharged that year 25 years from now. However, for those who want to work in government, the savings can be enormous. The net present value of the tax you will have to pay is little because you will be paying it for a long time.
After ten years of full-time public service employment, a new public service loan forgiveness scheme will forgive the remaining debt. Due to a 2008 IRS judgement, the 10-year forgiveness is tax-free, unlike the 25-year forgiveness. To be eligible for this benefit, the borrower must have completed 120 payments through the Direct Loan program.
The IBR scheme gives a limited subsidized interest benefit in addition to discharging the remaining debt after 25 years (10 years for public service). For the first three years of income-based repayment, the government pays or waives unpaid interest (the difference between your monthly payment and the interest that accrued) on subsidized Stafford loans if your payments don’t cover the interest that accrues.
The IBR program is appropriate for students who want to work in government and debtors who have a lot of debt and a low income. It also helps to have a large family. Borrowers with a temporary income shortfall may be better suited applying for an economic hardship deferral.
The monthly payment under IBR will be zero if the borrower’s income is near or below 150 percent of the poverty level. In effect, IBR will act as an economic hardship deferment for the first three years and then as a forbearance after that.
The prospect of a 25-year payback period may scare students who are not interested in public service jobs. It is, nevertheless, worth serious thought, particularly for students choosing an extended or graduated payback plan. For many low-income borrowers, IBR will likely provide the lowest monthly payment, and it is undoubtedly a viable option to defaulting on the loans.
Because the monthly payment and financial benefits vary depending on the borrower’s family size and income trajectory, it’s preferable to utilize a specialized calculator to assess the benefits on an individual basis.
Because of the requirement to make assumptions about future income and inflation rises, calculating the cost of a loan in the IBR program can be complicated. Finaid offers an Income-Based Repayment Calculator that allows you to compare the IBR program to conventional and extended repayment options. You may evaluate the prices in a variety of scenarios, including starting with a lower pay and then switching to a job with a greater compensation.
The Health Care and Education Reconciliation Act of 2010 reduces the monthly payment under the IBR by a third, from 15% to 10% of discretionary income, and shortens the loan forgiveness period from 25 to 20 years. It is, however, only applicable to new borrowers who take out new loans on or after July 1, 2014. Borrowers with federal loans taken out before that date are not eligible for the new income-based repayment plan. In the new IBR scheme, public service loan forgiveness is still accessible.
Borrowers who qualify for the improved income-based repayment plan can use a special 10% version of the income-based repayment plan calculator.
Borrowers who do not qualify for income-based repayment may choose to seek delay, forbearance, or extended payback for their federal loans if they are experiencing financial hardship. The Department of Education has provided information on Forbearance for students, parents, and all borrowers due to difficulties relating to the Coronovirus. Private student loans have fewer options for debt relief.
Can my student loans be forgiven if my spouse is disabled?
When borrowers of federal student loans become disabled, they have three options for loan forgiveness:
- Certification from a physician: Your primary care physician or a specialist can certify that you are unable to work owing to your medical concerns.
- Notice of Award from Social Security: If two things are true, you qualify. To begin, you must be receiving benefits from Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI). Second, according to your Social Security Administration notice of award letter, your next scheduled disability review will take place within 5 to 7 years of your most recent SSA disability determination.
- Veterans with a service-connected ailment that has rendered them unemployed are eligible for this loan discharge without having to provide documentation from a doctor. Veterans who have a letter from the VA declaring that they have a 100% debilitating service-connected disability or are entirely handicapped based on an individual unemployability rating are eligible.
If my spouse is disabled, may my student loans be forgiven? If your spouse is disabled, you will not be eligible to get your federal student debts canceled. Your spouse, on the other hand, may be qualified for the Total and Permanent Disability Discharge Program, which may forgive their student loan debt.
If my husband is a 100 percent disabled veteran, are I eligible for student debt forgiveness? There are no student loan forgiveness options available for spouses of soldiers who are 100 percent disabled. Even if you’re the primary caregiver, there are no ways for you to get rid of some or even a fraction of your debt, unlike your crippled spouse.
Is it possible to get my college loans erased if my child is disabled? The Department of Education will forgive the Parent PLUS Loans you took out on your child’s behalf if they become permanently disabled. It will not forgive the personal loans you took out. Similarly, if your child is disabled, several private lenders will forgive their loan debt. However, if you were a cosigner on those loans, you will be required to repay the lender. Negotiating a student loan settlement may be your only option for relief because most student loan debt never goes away.
What happens when the cosigner of a student loan dies?
My mother signed a school loan for my daughter as a cosigner. She has been dead for the past two years. Due to financial difficulties, my daughter has not paid her student loans. My mom’s name was on a debt collection notice I received in the mail from the court. What are our options for dealing with this? — Karen B. from Medford, Massachusetts
Andrew Pentis, personal finance expert and certified student loan counselor at Student Loan Hero, responds…
When a borrower’s cosigner died before 2016, major banks promptly put the borrower’s student loan in default. That “automatic default” technique is mostly defunct thanks to the Consumer Financial Protection Bureau’s efforts.
Ten private student loan lenders have agreed to discontinue the practice of auto-defaulting, including:
Of course, not all lenders have agreed to follow this strategy on their own volition. Auto-default may still be included into your loan deal, depending on your lender.
Aside from that, it appears that your daughter’s debt was already on the verge of default before your mother died.
Although it should be simple to remove your mother from the loan — and stop the debt collectors from sending letters to her — your daughter will still need to come up with a repayment plan.
Removing a cosigner from a student loan if they pass away
Your mother, as a cosigner, was just as legally accountable for the loan repayment as your daughter, the actual borrower. Private lenders, on the other hand, are increasingly removing cosigners from loan agreements when they pass away. Since her grandmother passed away, your daughter should have been exclusively responsible for repayment. In all likelihood, she won’t need to find a new cosigner.
However, if your daughter’s lender and collection agency were unaware of your mother’s death, it would explain why a debt collection notice was sent in her name.
Your daughter should check her student loan arrangement before taking any more steps. There could be language in her promissory note that refers to the death of a cosigner.
A cosigner’s death could still result in an auto-default in rare circumstances with smaller, less-scrupulous lenders. That implies the remaining sum is due in full, and the lending bank may bring a lawsuit to collect it. You could seek the help of a student loan counselor or lawyer if the legalese confuses your daughter and her lender is unhelpful.
Your daughter could inform her lender that her cosigner has died after analyzing her loan data. Your mother’s name will be removed from the loan as a result of this. To stop future debt collection notices, your daughter may need to show a death certificate or other documentation.
Handling loan repayment when a cosigner dies
Your daughter will be responsible for payments even if her grandmother does not act as a cosigner. She’ll want to act quickly because defaulting on a private student loan can have substantial implications, including damaged credit and, in some cases, wage garnishment.
Work out a repayment plan with the lender
Your daughter’s options may be limited if the debt has already been assigned to a collection agency. Still, it’s worth conveying her wish to get back on track to her bank, credit union, or online lender.
In rare circumstances, private lenders provide relief to borrowers who are facing financial difficulties. SoFi, for example, has an income-based repayment option for distressed borrowers that sets monthly payments at a proportion of the borrower’s income. It’s identical to the federal loan’s income-based repayment schedule. The trade-off is that a longer repayment period results in a higher repayment cost due to interest accrual.
Refinance the student loan with a new lender
If your daughter’s current lender is no longer willing to help, she may want to refinance the loan with a new private lender. Your daughter may be able to reduce her monthly payment to a more bearable amount by refinancing her student loans. She’d also be able to choose a lender with better repayment protections, such as forbearance, if her financial problems persisted.
Your daughter, on the other hand, would almost certainly need a new cosigner to qualify for refinancing. Her credit score has very certainly been impacted as a result of her defaulted loan, which is crucial for refinancing eligibility.
Negotiate a settlement with the collection agency
If your daughter has some cash on hand despite her financial problems, she could negotiate a settlement with her lender’s collection agency. It may be possible to arrange an early payout or a reduced repayment schedule. Just make sure to maintain track of every correspondence, as the paper trail may come in handy down the line to safeguard your family.
There is no perfect answer to a defaulted obligation, especially in the instance of a deceased cosigner.
Aside from the emotional toll, losing a loved one can also result in financial difficulties. Fortunately, your daughter has options for the future.
What happens if the loan borrower dies?
According to Kumar, most lenders and card issuers now ensure that personal loans are covered by insurance. Lenders would make a claim with their partner insurer if the borrower died.
“In some situations, out of respect and compassion for the deceased, the family may be prepared to repay the personal loan. The lender may be willing to waive fees and penalties (if any) and even accept a haircut if necessary “Adheer Dhar, a banker who previously worked for Citi, agreed.
The vehicle is mortgaged with the lender when a borrower takes out a loan for a car or a two-wheeler. The lender will contact the borrower’s relatives to settle the loan after the borrower’s death. “If the family is unable to repay, the lender has the right to seize the vehicle, which it would auction to recoup the debt,” Kumar explained.
If the legal heir is willing to settle the EMI, the financial institution may register a new loan in his or her name and ask the family member to take possession of the car through a transfer, according to him.
Most lenders will not provide an education loan without a guarantor. If the loan amount exceeds a certain threshold, parents of students must additionally provide collateral. If the borrower dies, the bank will seek repayment from the guarantor (usually the borrower’s parents). If the guarantor fails to repay the debt, the financial institution might auction the property supplied as security.
