When I graduated college in 2012, 71% of all the people who graduated with me that year had student debt. That means there’s a really high probability you need to talk with your spouse about student loans. Financial stresses are a major minefield in marriage. To help relieve this stress, here are three conversations that will help you both become debt free faster.
1. Decide What Payment Plan is Best for Both of You
Marriage changes the analysis of what plan is best to use for repayment. For example, if you use the Income Based Repayment plan and took out loans prior to 2014, your monthly payment is based on 15% of your discretionary income. However, if you’re married, you have to decide whether or not to file taxes separately or jointly. If you keep your tax filing separate, the government only considers your income in payment calculation. If you file jointly, the monthly payment is based on both of your incomes.
If you wanted to work towards Public Service Loan Forgiveness, obviously you would want your payments as low as possible. If you wanted to pay more towards your debt, then maybe a higher monthly payment wouldn’t be so bad. Another wrinkle is the REPAYE program counts your income jointly in payment calculation regardless of how you file taxes.
So clearly, the choice of income based repayment plan when married affects both partners. Look at the benefits and drawbacks of each plan and agree on one that helps you both as much as possible.
2. Figure Out How Much Risk You Want to Take
When repaying student loans, there are a bunch of options depending on your risk level. For example, if you work in the private sector you might check to see if you can obtain a lower interest rate with lenders like SoFi or Credible. Private lenders offer the option of variable rate and fixed rate loans. The variable rate offers usually have a lower interest rate.
For example, when my girlfriend and I looked at her options for refinancing with Sofi, we had to choose between a 2.22% 5 year variable rate loan and a 3.5% 5 year fixed rate loan. Having debt with an interest rate that could go higher is a little scary. It could cause our monthly payments to rise, and leave us less money for other things. Even so, the lower rate allowed us savings upfront and might end up helping us if we pay it off fast.
You could also decide to take risk on future legislation that might provide student loan relief. Right now, any for profit workers seeking loan forgiveness will pay taxes on the forgiven balance. That law could change and make for profit loan forgiveness tax-free. If you wanted to take the risk, you could pay less towards your loans and save for other goals. If you wanted to be conservative, you would pay down your student debt without anticipating any help will be coming in the future.
So when talking with your spouse about student loans, it helps to know how each of you likes to manage finances. Decide on how much risk you are willing to take with payback and things will be much easier because you’ve made the decision together.
3. Decide How Much to Budget Towards Being Debt-Free
The best way to pay off student loans is to devote as much money as possible to extinguishing them. That said, spending too much of your budget towards loan payments could delay other life goals such as buying a house or starting a family. That’s why having a conversation with your spouse about budget priorities is so important.
When you both agree to a set amount of spending each month, conflict over finances is much lower. Regardless whether you want to prioritize other goals or aggressively pay down debt, it helps to have an agreement in place where you’re both on the same page.
If You Need Help With Your Student Loans, Hire Me!
I founded Student Loan Planner in September 2016 after uncovering a huge need for objective student loan advice. If you need expert help with your student loans, I’m here to help. For a one time flat fee, I will devote my full energy to saving you as much money as possible. So far, my average client has saved thousands of dollars.