Overall, we know that children from low-income families still have the most difficulty obtaining a college diploma. Even before student debt becomes a concern, unstable home life, lower-quality high schools, and other common corollaries of low-income communities create a slew of challenges.
The path to a degree appears to be easier for kids from middle-class households. Their families frequently have money set aside, and their schools and support systems have a strong track record of preparing them for the next step. Nonetheless, we’ve seen in the last year that middle-class kids graduate with the highest student loan debt of any group. According to a study conducted by Dartmouth sociology professor Jason Houle,
“‘Children from middle-income households earn too much money to qualify for student assistance packages, yet they lack the financial wherewithal to afford college prices’… Students from households earning $40,000 to $59,000 per year racked up 60 percent more debt than lower-income students and 280 percent more debt than their classmates from families earning $100,000 to $149,000 per year, according to the report. For more wealthy middle-income households earning up to $99,000 each year, the pattern was similar.”
Loan Debt Is an Economic Drag
The negative impact on the economy is significant when graduates looking for their first post-college job are already $30,000 in debt.
Despite their degrees, recent graduates are frequently forced to accept lower-paying, lower-skill employment in order to begin repaying their student loans as soon as possible. As a result, graduates who are in debt typically miss out on the advantages of having a degree. Students with outstanding loan payments were 36% less likely to buy a home, according to ProgressNow, and other data suggests that “those with student loan debt are also less likely to have taken out car loans.” They have a worse credit rating. It appears that they are more likely to live with their parents.”
Student loan debt has the highest rate of defaults and delinquencies of any type of debt. While credit card default rates have fallen below 10% as a result of tighter lending restrictions, the rate of student loans in “severe delinquent” has increased to 11.5 percent. Worse, many of these borrowers aren’t even graduating, according to Rohit Chopra of the Consumer Financial Protection Bureau. “This shows that defaulting borrowers are overwhelmingly noncompleters… These borrowers incur debt but do not benefit from the pay gain associated with a degree.”
Last but not least, the possibility of such massive debt is driving an increasing number of students, particularly low-income kids, reconsider going to college – a decision that will exacerbate the already-looming scarcity of educated workers in the United States.
How do student loans affect parents?
Nearly one-third of the parents polled (27%) said they had taken money out of their retirement accounts to satisfy student loan payments.
A comparable percentage of parents (24%) said they have contemplated using retirement funds to pay off school loans.
As a result, parent student debts have a negative impact on retirement planning. Furthermore, early withdrawals are frequently subject to steep penalties, which can wipe out a portion of a parent’s retirement funds.
Even if a parent is able to restore those money, they will miss out on the time during which those savings may have grown and compounded.
How to boost a retirement fund’s recovery from parent student loans
Borrowers who took money out of their retirement accounts to pay off college debts for their parents must play catch-up in order to get back on track.
First and foremost, take care of your parent student loans so you don’t have to use your retirement money in the future:
- Consider applying for an income-driven repayment (IDR) plan to minimize your monthly payments if you’re having trouble repaying your Parent PLUS Loans.
- If you have student debt in your name, you should consider refinancing it. Refinancing your Parent PLUS Loans or private student loans for parents could result in a cheaper interest rate. You’ll also have more influence over the length and amount of your monthly payments if you refinance.
- Increase your retirement contributions, particularly in the last ten years before retirement. Parent student debt refinancing can result in savings, which you can then use toward retirement.
Taking out student loans for parents can set back retirement — but parents don’t regret it
Despite the possible negative consequences of student debt, the majority of parents (66%) do not regret it. In fact, only 18 percent of parents say they regret cosigning or taking out student loans to cover their children’s college expenses.
How does student loan debt affect relationships?
Borrowers’ financial lives can be ruined if they graduate with a large student loan debt. Student loans have an impact on more than just financial objectives and aspirations. Marriages, families, and relationships have all been affected.
- Student loans, according to 51% of borrowers, are hurting their intentions to have children in some way.
- Because of their college loans, one out of every three borrowers has put off having children.
- Student loans are a substantial source of stress in 57 percent of student loan borrowers’ relationships with their spouses or significant others.
- Because of school loans, one out of every four borrowers postpones marriage.
- One out of every five student loan holders would contemplate a strategic divorce if it meant reduced monthly payments.
- One out of every eight student loan borrowers believes that their debt has prevented them from dating.
Personal connections are being harmed by student loans. And the harmful impact of student loans on mental health is likely to exacerbate these concerns.
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.
Who is most affected by student debt?
People with relatively high earnings are responsible for the majority of student loan debt.
Although low-income households have less debt overall, a large number of their debtors have associate’s degrees or less, restricting their earning potential.
A college diploma has been found to increase one’s earning potential, but the gain is not distributed uniformly across races and genders. These data points demonstrate some of the ways in which student loan debt is a contributing factor.
- In comparison to White college graduates, Black and African American college graduates incur an average of $25,000 more in student debt3.
- After four years, 48 percent of Black students owe an average of 12.5 percent more than they borrowed4.
Does parent PLUS loan affect debt to income ratio?
Your credit report will be checked when you apply for a Direct PLUS Loan for your child, but not your income or debt-to-income ratio. It doesn’t even take into account any other debts you may have. The only thing it looks for in the negative column is a bad credit history.
How much do parents pay for student loans?
What is the total amount of PLUS debt that parents are taking on? According to a 2020 analysis by the private student lender Sallie Mae, parents cover the majority of a student’s college bill, with 44 percent of the cost covered by parents’ income and savings and 8% coming from money borrowed by parents.
Should I marry someone with a lot of student debt?
Debt repayment necessitates frugality and saving. Marrying someone who has a lot of school debt will need you to make a lot of compromises over the course of your lives together.
It’s likely that you won’t be able to take expensive holidays until the debt is paid off, and you’ll have less money for fun things like evenings out, concerts, and even cable TV. You’ll have to watch how you spend money on simple purchases like food, gas, personal expenses, and apparel.
It will also necessitate major sacrifices. You’ll probably have to compromise and acquire a cheaper automobile and a smaller house or apartment if you have that much debt. It’s possible that you’ll have to wait to own a home or have children.
And the consequences of six-figure loans are felt even after you’ve paid them off. Debt can have a long-term influence on your life. Because you likely utilized a large portion of your combined marital income to pay off debt when you were younger, you’ll have to play catch-up when it comes to things like retirement or college savings for your children.
That may necessitate readjusting your vision for your lifestyle or retirement. It’s also possible that you’ll need to have a second job or work past the age of 65.
Does my student loan affect my husband?
This is the simplest question to ask and the most straightforward answer.
If you cosigned on your spouse’s student loans at any point in time, whether they were federal, private, or refinanced, you are legally liable for those loans.
Because you signed your name to the contract as a cosigner, you agreed to pay back those student loans if your spouse couldn’t for any reason.
If your spouse dies or becomes unable to repay their loans, the lender will turn to you for repayment. It’s a good reason to think twice before signing on the signed line about what it means to be a cosigner.
Cosigners are not required for most federal student loans. If you’re looking for a PLUS Loan and have a terrible credit history, you’ll simply need a cosigner. Because most people take out federal student loans initially, if you simply have federal loans, you’re generally safe.
However, the world of private student loans is a little different. Private lenders frequently require a cosigner, especially because most students don’t yet have a lot of credit history. There’s a significant probability you’ll need a cosigner for the student loan in this scenario. If it’s your spouse, they’re equally responsible for repaying the loan if you can’t.
Will my partner’s debt affect me?
Does my credit score suffer as a result of my partner’s debts? Your credit score is unaffected by your partner’s debts. Their personal debts cannot harm your personal credit score unless you are borrowing money through a joint account, which is equally your obligation as theirs.
Do spouses inherit 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.
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 you inherit debt?
Losing a loved one is a particularly tough experience. While money is likely the last thing on your mind as you grieve, it’s critical to understand how the assets and obligations left behind will affect you and others.
The majority of the time, a person’s debt is not passed on to their spouse or family members. Instead, the estate of the deceased person is usually responsible for paying off any remaining obligations. In other words, the assets they had at the time of their death will be used to pay off the debts they had at the time of their death.
It is conceivable to inherit debt if their estate is unable to satisfy it or if you jointly held the loan. State laws on inheriting debt differ, but assets can be protected from creditors if certain precautions are followed, such as establishing a living trust.
