By CATHERINE NEW
Amid the excitement of planning a wedding and starting a new life together as a married couple, there are some very real conversations that should happen as well, especially regarding money.
This year, more than two-thirds of college graduates graduated with debt, which means there could be a chance you or your beloved will have some debt when it comes time to say "I do."
So before you get hitched, make sure you understand how student loans could affect your marital finances.
1. In nine states, you may be held responsible for your spouse's loans.
If you took out your student loans before tying the knot, not much changes when you get married. They're still your loans, and they only affect your own credit report and history, unless you used a cosigner (in which case, your loans could also affect your cosigner's credit).
However, if you take out loans during your marriage -- whether that's a student loan or another type of loan -- where you live could determine how those loans may affect your spouse.
The majority of states are common law states, which means that only the borrower is usually responsible for the debt in the event of a split.
In the nine states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) that use community-property laws, debts that are incurred during the marriage are considered shared property. If the marriage ends in divorce, these loans may be divided just like property or assets.
In the event of the death of the borrower, policies about liability vary from lender to lender. Federal loans are discharged in the event of the death of a borrower. With private loans, though, the spouse may be held liable. However, some private lenders do discharge loans in this tragic event.
To help minimize unpleasant surprises, if you're taking out loans, you may want to read the fine print first or ask about the company's policy in the event of death or disability.
2. Your income-based repayment plan could change.
If you're using one of the government's income-based repayment plans, your payment could change after you get married depending on which plan you're using.
Under the Revised Pay As You Earn plan, your income as well as your spouse's income can be considered to calculate your monthly payment, which could increase your monthly payment amount.
With the Pay as You Earn, Income-Based Repayment and Income-Contingent Repayment plans, your monthly payment will depend on how you file your income tax return. If you and your spouse file separately, then only your income will be considered. If you file a joint return, then both of your incomes will be used to determine your monthly payment.
3. Your joint ability to borrow for a mortgage could be affected.
For many couples, the increased likelihood of being able to buy a house is one of the perks of being together, as you can join forces for a down payment and housing costs.
However, if you're planning to get a mortgage together, the lender could look at both your credit histories. This means that if either you or your partner have missed student loan payments, it could affect your ability to get a mortgage, as payment history is often one of the leading factors used to calculate your credit score.
In addition, lenders will typically consider your debt-to-income (DTI) ratio when deciding the size of mortgage you may qualify to obtain. And yes, your student loans will likely be included as debt in that formula.
While you can improve your DTI ratio by making make more income (hello side gig?), you may also be able to help your situation by refinancing, which could lower your monthly payments on your loan. Remember, though -- if you do refinance and use your spouse as a cosigner after you get married, you could be jointly responsible for the debt no matter where you live.
If you're walking down the aisle soon, congratulations! While talking about student loans is not nearly as fun as planning your reception and honeymoon, it's a simple conversation that could help you avoid surprises down the road.
Prior to that, Catherine spent a decade in journalism with jobs at Associated Press, Wall Street Journal, and Huffington Post. She graduated from Stanford University and studied journalism at the Columbia University Graduate School of Journalism. Her passion is for consumer advocacy and empowerment through better information and technology. You can read more of Catherine's work on Earnest's blog.
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