Should Married Couples Consolidate Student Loans?

While combining your student loans into one manageable payment as a married couple may seem logical, doing so can get complicated, especially if you get divorced. Plus, you may lose your federal student loan benefits.

Because of these factors, we typically recommend not consolidating student loans as a married couple, but it does depend on your situation. In this article, we’ll explore the consolidation options you could consider and offer tips on how to make informed decisions. 

Can married couples consolidate student loans?

Married couples can’t consolidate their federal student loans into a federal consolidation loan. While married couples could consolidate their loans into a private student loan (a.k.a. refinance), they’ll lose all federal student loan benefits (e.g., loan forgiveness, income-driven repayment plans). 

Since spouses can’t consolidate their federal student loans into a new federal student loan, any references to consolidation or refinancing options discussed in the remainder of this article only relate to private student loans (unless otherwise noted). 

What is spouse student loan consolidation?

Spousal student loan consolidation is when a married couple combines multiple individual student loans into one joint student loan. When you complete a spousal loan consolidation, both parties will be listed as primary borrowers on the loan.

Until 2006, borrowers with federal student loans could consolidate their loans into a special joint or spousal consolidation loan. The federal government no longer offers this program, so the only option for those interested in spousal loan consolidation is to refinance with a private lender. 

If you refinance your federal loans with a private lender, the result is it converts your federal loans into a private one, removing all federal benefits and protections. You shouldn’t do this unless you’re willing to give up these benefits (e.g.,income-driven repayment plans or loan forgiveness). 

Alternatively, married couples with federal loans can each individually consolidate their federal loans into an individual Direct Consolidation Loan. Doing so may provide more access to repayment and loan forgiveness programs, but the loans will remain separate.

Does combining student loans with your spouse make sense?

Consolidating student loans with a spouse to save on total interest or pay off your debt faster may be smart. Read below to see when it makes sense to do so.

Scenario	Does it make sense to consolidate spouses’ student loans?
Lowering your interest rate	Maybe. Consolidating may result in lower interest rates, especially if one spouse has a higher credit score. This could lead to significant savings over the life of the loan.
Lowering your monthly payment	It depends. Consolidating to lower monthly payments may be suitable if facing financial challenges, but it could lead to higher total loan costs over time. Consider the trade-offs carefully.
Simplifying your repayment	Maybe. Consolidating can simplify repayment by combining multiple loans into one, reducing the number of monthly payments to manage. Individual consolidation is also an option for federal loans to retain benefits.
Preserving federal protections	No, consolidating federal loans with a private loan will result in losing federal benefits, like income-driven repayment plans, loan forgiveness programs, and longer deferment/forbearance options.
Large loan balance discrepancy	No. It may be wiser to keep loans separate if one spouse has significantly larger debt or is close to paying off their loans to avoid legal ties to the larger outstanding balance.
Divorce considerations	No, joint consolidation loans remain in both borrowers’ names after a divorce, adding potential complications to the divorce. Consider refinancing separately if possible.
Inability to get lower interest rate	No, consolidating makes sense if a lower interest rate can be secured. If facing rejection, work on improving credit scores and address any issues on the credit report.
Loan forgiveness at death	It depends. Federal student loans are discharged upon the borrower’s death, which may be preferable. Private loans may not offer the same benefits, so checking the terms with the lender is crucial.

Ask the expert

Kyle Ryan

CFP®

Consolidating payments may make life simpler, but consider: 1) Are you in a position where cash flow is tight? If so, then the decision to consolidate may depend on which offers lower monthly payments. 2) How quickly do you want to pay the loans off? The interest rates you currently have vs. what you are being offered can significantly affect the amount of money spent on the loan. 3) Is it worth giving up the protections of a federal loan? I typically would only recommend consolidating to a private loan if the interest rates were much lower.

You can lower your interest rate

Refinancing to a lower interest rate can result in paying less interest over the life of the loan. However, as with all of these options, make sure the lowered interest costs are worth losing any federal student loan benefits if you consolidate federal student loans into a private one.  

Here’s how it works:

• You owe $50,000 with an 8% interest rate and a 10-year term.
• Your spouse owes $60,000 with a 9% interest rate and a 10-year term. 
• If you consolidate and refinance those loans into one loan with a 5% interest rate and a 10-year term, you’ll pay $24,033 less in total interest over the life of the loan. 
• Your monthly payment will also be $200.28 less.

While individuals can refinance student loans separately, refinancing together can occasionally lead to greater savings. For example, if one partner has an excellent credit score and the other has a low credit score, consolidating may help the latter qualify for a better interest rate.

If one spouse is a stay-at-home parent with no earned income, their only chance of qualifying for private student loan refinancing may be to add a cosigner or to consolidate loans. 

You need to lower your monthly payment

Many borrowers consolidate their loans to lower their monthly payments, which can be done if you qualify for a lower interest rate and keep your current repayment term. However, if you want to decrease your monthly payments drastically, you must choose a longer repayment term.

Choosing a longer repayment term to lower your monthly payment can make achieving other goals like buying a house, investing for retirement, or starting a family easier. However, you may end up paying more interest over the life of the loan because it takes longer to repay the loan. 

Despite the increased total loan costs, it may be worth switching to a longer-term loan if you’re at risk of missing payments, unable to pay for necessities, or can’t afford to save for retirement. However, before doing so, weigh the benefits versus the costs. 

For instance, if refinancing increases your ability to pay your bills and avoid a financial disaster, the higher loan costs may be well worth it. Before refinancing your loans, talk to your lender to see if it offers any temporary debt relief options (e.g., loan forbearance or deferment). 

You want to simplify repayment

The most noticeable benefit of refinancing and consolidating student loans with a spouse is decreasing the number of loans you have. When you have multiple loans to keep track of, it can be easy to forget about one and miss a payment.

Let’s say you have two separate student loans, and your spouse has three separate student loans. Instead of managing five different monthly payments, you could focus on one loan and one payment with consolidation.

Remember that you could also simplify this process by individually consolidating your student loans. So, rather than having five loans, you would only have two loans. This is a good option if you have federal student loans because you would simplify repayment and retain your federal loan benefits. 

You’ll lose federal protections you need

As noted, federal student loans come with various benefits that borrowers will lose when these loans are refinanced with a private student loan. Here are some federal benefits you could lose:

Income-driven repayment

Borrowers with federal loans looking to lower their monthly payments may be able to switch to income-driven repayment (IDR) plans. IDR plans use your income, family size, and place of residence to calculate your monthly payment.

After 20 or 25 years on an IDR plan, depending on your loan type and repayment plan, the remaining loan balance will be forgiven. As such, switching to an IDR plan may be better than refinancing or consolidating your student loans with a spouse into a new private student loan.

Loan forgiveness programs

Only federal loans qualify for loan forgiveness programs, like Public Service Loan Forgiveness (PSLF). Under PSLF, you must work 10 years at a qualifying nonprofit or government organization before the remaining loan balance is forgiven.

You have to be on an IDR plan while working toward PSLF, usually resulting in a lower monthly payment. You’ll no longer qualify for PSLF if you refinance and consolidate student loans with a spouse using a private student loan.

Long deferment and forbearance options

Federal loans have much longer deferment and forbearance options than private lenders. Most private lenders only allow forbearance periods of up to one year, while federal loans have a cumulative three-year limit for forbearance programs (granted one year at a time).

Also, borrowers with subsidized federal loans may have interest paused during the forbearance period. If you lose your job, have a medical emergency, or are a victim of a natural disaster, a longer forbearance period could help you stay current on your loans and give your budget some breathing room.

One spouse has a much larger loan

When student loans are taken out separately, they are only legally attached to the primary borrower (and cosigner if one is added). But once you refinance loans together, they become the property of both borrowers.

If one spouse has a much larger loan balance than the other or if one spouse is close to paying off their loans, it may be a wise decision to keep the loans separate. This prevents the spouse with much less debt from being legally tied to that larger outstanding balance.

You want to avoid a messy situation if you get divorced

If you get divorced, the joint consolidation loan will remain in both borrowers’ names unless you each refinance the loan into separate loans. If you don’t qualify for refinancing separately, the joint consolidation loan will stay on both borrowers’ credit reports until the loan is paid off.

Even if the divorce agreement dictates that one party is responsible for payments, the loan will still list both parties as primary borrowers. If one person is in charge of making payments and makes late payments or defaults on the loan, it will impact the other person’s credit score.

Also, if spouses previously consolidated their federal student loans under the rule that ended in 2006, they’ve been unable to take advantage of benefits like income-driven repayment plans and the PSLF program. 

Importantly, if you’re in this situation, help is coming. The Joint Consolidation Loan Separation Act (JCLSA), signed into law in October 2022, will allow these borrowers to separate their loans and reconsolidate them into new individual loans. This new law may go into effect as soon as late 2024.

You can’t get a lower interest rate

In most cases, refinancing only makes sense if you can get a lower interest rate and pay less interest over the life of the loan. This is especially true if you have federal loans because you give up many protections by refinancing.

If you’ve tried to refinance your loans together and can’t get approved for a better interest rate, see if anything changes when you refinance separately. If you still don’t qualify, ask the lender why they declined your application.

You may need to work on increasing your credit score. Review your credit report for free with annualcreditreport.com and see what’s holding you back. 

For example: Do you have late payments? Is there an old bankruptcy or default on your credit report? Sometimes, all it takes is waiting for a negative event to fall off your report for your credit score to improve.

You want the loan forgiven at death

Federal student loans are discharged upon the borrower’s death. That isn’t necessarily the case for private loans. When evaluating lenders, see if this is an included benefit.

If you consolidate your student loans and one spouse passes away, there’s a good chance the surviving spouse will be responsible for all the remaining debt. This is avoidable with federal student loans.

Is it worth it to consolidate spouse student loans?

Before consolidating loans with your spouse, you should understand the pros and cons. If you have federal loans, ensure you won’t give up any protections that could be useful later.

If you have private loans, see if you can get a similar or better rate without your spouse. You may be surprised at what you qualify for on your own.

Remember, if you have private and federal loans, you’re not required to refinance both of them. You can always refinance your private loans while keeping federal loans as they are. This allows the best of both worlds—access to lower interest rates and continued federal protections.

It’s usually best to avoid consolidating with a spouse, but you can still use both sources of income to pay off student loans as a married couple. You never know what will happen in your relationship, and maintaining separate student loans is a safer option for both parties.

Ask the expert

Kyle Ryan

CFP®

There are two common repayment strategies to consider. The debt avalanche method focuses most of your debt payments toward the debt with the highest interest rate to reduce the amount of interest you pay. The debt snowball method caters to the psychology of paying down debt by recommending you pay off the debt with the lowest balance first. Which method you choose depends on your personal situation and preferences. I prefer to pay the least amount of interest possible, so I typically recommend the avalanche method. 

Questions to ask if you’re considering refinancing student loans after marriage

Before you decide to refinance and consolidate loans with a spouse, consider your answers to the following questions:

• Do we need the benefits and protections that come with federal loans? If federal loan benefits, like income-driven repayment plans and loan forgiveness programs, are essential to your financial strategy, consolidating with a private loan may not be the best option.
• Could we refinance loans separately and still save money? Explore the possibility of refinancing your individual loans. Sometimes, separate refinancing can lead to savings, especially if spouses have significantly different credit scores.
• How much can we afford to pay toward our loans each month? How does this compare to our current monthly payments? Evaluate your budget and consider your financial goals. If lower monthly payments are crucial, consolidation may be an option but be mindful of potential long-term costs.
• Do we want to pay off our loans faster, at the same pace, or slower? Determine your preferred repayment timeline. Consolidation may allow for flexibility, but aligning your choice with your financial objectives is essential.
• What would we put the money toward if we paid less each month? Consider the broader financial picture. If lower monthly payments free up funds, consider how you plan to utilize that extra money—whether for saving, investing, or other financial goals.
• Would our credit score and income be enough to qualify for consolidation? Assess your creditworthiness and income levels. If consolidation is contingent on eligibility factors, such as credit scores, taking steps to improve credit or exploring alternatives may be necessary.

Answering these questions can provide valuable insights into your financial situation, helping you decide whether consolidating loans with a spouse is the most suitable option for your needs.