Quick Answer: Marrying someone with debt doesn’t automatically make their debt your responsibility, but it affects tax filing status and federal student loan repayment options. The $200k student loan debt (90% private) may be easier to manage through income-driven repayment plans while filing separately rather than jointly.
Question:
Dear Steve,
I am a 32 y/o man that makes around 70k a year from the businesses that I own and run. That number should go to 100k+ over the next 5 years and plateau around there. I bought a place 2 years ago for 300k and have 200k left. 30 year fixed at 4.6%. I just bought a new truck for work and owe 18k over the next 5 years.
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My girlfriend is 27 and has $200k student loan debt, 90% of which is private. This is from her BS. She makes 50k a year at a nonprofit. The pay isn’t great but it is an entry-level job and she absolutely loves the work.
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While I wish she made more I can not say that there is a better job out there for her. She is about to move in with me and will reduce living costs so that she can continue minimum payments.
I want to marry this woman. I am concerned that doing so will end up costing her a lot more in the end.
What should I be aware of as far as the financial implications of marrying this woman? Will forgiving portions of her debt be easier if we are not married? Is it better for her to default on some of these loans knowing that I can probably just pay them off in the future if necessary?
Will
Answer:
Dear Will,
What a great question you sent in.
One of the constants I’ve observed over all my decades of helping people is that savers typically attract spenders. Opposites do attract.
When it comes to repaying the student loan debt your tax filing status has a bigger impact on federal student loan options. The current options of Income-Driven Repayment programs for federal student loan debt have different options if you are filing your tax returns as married or married filing separately.
As the Department of Education says:
- Filing taxes jointly with your spouse always means we’ll use your joint income when calculating payments under an income-driven repayment plan.
- Filing taxes separately from your spouse usually means we’ll use just your income when calculating payments under an income-driven repayment plan.
- If we are using a joint income to calculate your payment and your spouse has federal student loans, your payments will be reduced to account for your spouse’s loan debt.
- Filing taxes separately can make some income-driven repayment plans more affordable, but you might take a tax hit.
When it comes to private student loan debt there are no such friendly repayment options or tax filing considerations. Private student loan debt is the least friendly to owe.
If your girlfriend wanted to try and reduce her private student loans she might consider settling them. There are a lot of pros and cons to know about doing this and what it might cost in pain and stress. A great person to talk to and get an independent consultation about this is my friend Damon Day.
Until you come up with a plan if you will try to strategically default on the private student loan debt I would keep her name off your deed for your residence or any other asset.
Your girlfriend might want to deal with this student debt now, take the financial pain and get her private student loan debt potentially cut in half now.
The biggest implication of her student loan debt is not if you will be responsible for it, you won’t be. She will be responsible for the debt she brings into the marriage.
However, it will significantly impact you because as a married couple, her debt will reduce what you will jointly be able to afford. Her debt robs you of your potential combined purchasing power for things like a future larger mortgage.
And here is the big point many miss. If you decide in the future to have children and she stops working, you will have to absorb making her debt payments out of your income.
So while you have no liability for her debt it will significantly impact your joint life together, including your ability to jointly save towards retirement.
I’d love to know what you decide to do. Please post an update in the comments below.
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