When you get married, what was separate tends to become one. The same can be said of student debt, depending on your preference. Student loans and their impact on each of your credit scores remain separate on paper and credit reports, but each spouse’s debt involuntarily affects the other’s credit score. Many couples handle their student debt differently; for example, each spouse could handle their debt separately with their own income. Some couples choose different methods; for instance, some married couples choose to consolidate their student loans under one name. With that being said, is this a good idea?
One thing to note is that if you or your spouse has loans through the Federal Direct Loan program, you can’t consolidate your student loans with your spouse’s loans. If you want to merge federal loans, you will have to turn to other lenders for private student loan refinancing and consolidation. This means losing any benefits provided by the Direct Loan program, but the best case scenario offers a lower interest rate and significant savings during repayment.
Pros and Cons of Spousal Student Loan Consolidation
There are advantages to consolidating student loans with your spouse. Those advantages are:
- If one of you has a higher credit score than the other, the better score helps determine the interest rate, which could be lower than what you are currently paying. Lower interest rates often lead to savings. In this scenario, the spouse with the lower credit score tends to benefit the most.
- When one spouse earns more than the other does, the combined income may entice some lenders to qualify married applicants. Some lenders make a point to factor income in their underwriting process, but regardless, higher income will be helpful.
- Your student debt and your spouse’s student debt are paid off at the same time. This is a great way for the two of you to work together. You can then move on to other milestones such as buying a better vehicle or purchasing your first home.
Although there are plenty of advantages to consolidating your student loans with your spouse’s, there are some cons.
- Think hard about consolidating your student loans if your loans or your spouse’s loans are financed through the Federal Direct loan program. You will have to consolidate using a private lender. Private lenders don’t offer deferment or income-based repayment programs, and private loans aren’t eligible for loan forgiveness.
- If either one of you is a public service employee, keeping your federal student loans is the only way to be eligible for the Public Service Loan Forgiveness program. You can save a lot more money if you can have the remainder or a high percentage of your student loans forgiven.
- You have to make sure that both of you are in it for the long term. It can be difficult to separate student loans later, so make sure you both are truly in this until the end of the loan term.
If you have determined that consolidating your student loans with your spouse’s loans is the best idea, it is best to ensure that the two of you are on the same page with everything. Talk about how the payments will be made, what your goals are, and how consolidation fits into you meeting your financial goals. Whatever you do, it is best to do what you need for the sake of your finances and your future. If you find that consolidation is not the best thing for you and your spouse to do, then you don’t have to do it. It can be tempting to combine debts once you get married for the sake of combining debts, but everything you do should be done for the sake of your future.
Author: Jeff Gitlen
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