I thought I’d start a thread separate from the wedding thread.
My kid has paid off his loans. His fiancé has some student loan debt. I don’t know how much but I think it’s a decent amount. I don’t understand it totally but I think she pays a reduced payment based on her income. His fiancé mentioned she thought it would be better for them to file taxes separately as she doesn’t want her student loan payment amount to go up based on the combined earnings. I have no clue if her knowledge is correct.
Would love to get some insight into how marriage will change the student loan payment situation.
Is your son aware of how much she owes? If they aren't actually married, is it imminent?
It depends on the repayment plan.
[ul][li]REPAYE Plan: Joint income is used to determine repayment amount, regardless of tax filing status.[/li][li]PAYE Plan, IBR Plan, and ICR Plan: Joint tax filing causes joint income to be considered in repayment amount. Separate tax filing causes only the borrower’s income to be considered.[/li][/ul]
Reference: https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf
Not all IBR plans are based on both incomes. Married filing separate can result in a lot of lost credits and benefits. I have no idea how the new tax laws deal with MFS because of the new standard deduction rules.
BUT, even if someone is on IBR and paying a reduced amount, the loan might not be in a reduction status so the balance is growing every month. For years and years. Are they going to file separately when they buy a house, when they have children, when those children go to college? Sometimes you just have to bite the bullet and start making larger payments.
There are two separate considerations – one is the reduced payment amount. That’s an important consideration, but as noted can be a problem if loan principal is not being paid down.
The other is how they want to handle the debt payments along with other finances-- are they pooling all income and sharing all debt? or will they keep finances generally separate with both contributing to shared espenses like rent? Best to figure this out before marriage.
And it’s almost always better to pay off debt faster if possible – so if the couple does plan to pool and share everything after marriage, an increase in the monthly debt payment might be a good thing even though it puts a dent in their budget for now.
If there are non-Stafford loans in the mix, priority #1 is to pay those off, ASAP. They typically have higher interest rates, and the private loans will never stop chasing you down.
We both had loans from UG and then DH took on a bunch more for grad school. I was not a co-signer on his grad school loans, even though some were PLUS loans. We had been married three years when he went back to school. We have always combined finances, so we paid off several of our smaller loans before he went back, and then threw joint funds at the loans after he graduated.
A mortgage, child care expenses (or loss of a parent’s income to be at home) and massive student loans are not a good combination. You need a very good salary to manage all three. I’m in the camp of paying off the loans as fast as possible, whether it’s out of just her income or combined. Her loans will affect THEIR life choices. They need to acknowledge that and deal with it in a way that respects them both. These are the decisions that married adults (or those who are planning to be) need to make.
One of my kids qualifies for income-based loan payments for his Stafford loans and he looked at the numbers and realized he’d never pay it off without making full monthly payments. If the fiancee has loan forgiveness based on her job or a special program, the strategy may be different.
I have clients opting for filing separately and basing the repayment from just their own salary. In these cases, they don’t look at it as never paying down much debt; they view it as making as little of payment as possible and getting it forgiven after the required amount of years.
I don’t happen to agree with this theory. However, from a pure numbers stance, it can make sense, especially for very high student debt. Another skewed outcome of our tax code 
Thank you for all the information. It’s a hard subject to approach as the one with the debt is not my child. I don’t know what kind of loans they are nor how the repayment is set up. I have the feeling my S doesn’t know the details either.
As of now I know they keep finances separate and each pay a portion of each bill. They are getting married later this year. My S’s only debt is a car loan. He rarely uses his credit card and I know she uses hers. I’m assuming she might also have card debt. They rent and live in a high housing cost area so I don’t see a home purchase happening anytime soon. He has significant savings and she does not.
I think my H and I will have to sit down with our S and ask if they have thought of how they are going to approach the loans. The tricky thing is to do it in a manor that respects her privacy.
It might be worthwhile to gift them enrollment in Dave Ramsey’s Financial Peace University classes. They could be on track for resentment or financial arguments that could destroy their marriage. With the classes, outsiders will provide the questions and a plan.
The tricky thing is to do it in a manor that respects her privacy<<<<<<<
He is marrying her debt, he owes it to himself to have complete clarity. She isn’t owed privacy if she is going to obligate him that way. They should both have a clear picture now, not in the future, all you can do is advise him of his obligations should they marry their finances. If he isn’t telling you, fair enough, but if she isn’t telling him? That is a massive problem. Maybe they should talk prenup.
When you marry, you are marrying the partner’s assets AND debt. If they’re serious enough to be planning marriage, it’s time for full disclosure between them on all finances.
They may be better off keeping their finances separate. Definitely better and easier if your getting remarried (not this case) and get child support.
If it can be done with public service debt forgiveness in 10 years, that’s one thing (and still very difficult). If it is under the general program, that takes 25 years, is taxable as ordinary income, and just can’t be viewed as a reasonable plan. Of course no one has done it under the current program as no one has been paying for 25.
Say a person has $30k in loans, but doesn’t pay enough each month to cover the interest or even dent the principle. After 25 years that loan may be $75k. That’s $75k in ordinary income, which may produce a $30k tax bill. Seems to me it would have been better to just pay the original $30k.
it is a real quandary when you as parents have made sure he is financially well set, no student loans (possibly at great parental expense) and has savings, for him to marry someone who might be the complete opposite, whose student loans were an indulgence without a thought to ROI, who doesn’t understand money, who lives off CC debt. This stuff kills romance dead. Financial incompatibility is not something a young starry eyed couple will consider unless they sit down and look at ugly numbers.
Some time ago, we had a thread asking whether we would be distressed if our debt free child were to marry someone with student loan debt. I said it wouldn’t necessarily distess me, but I would probably want to pay down the debt rather than contribute to a fancy wedding. We are very open about sharing financial information in our family.
eta: My child marrying someone carrying a balance on credit cards would really freak me out. If I could afford to do so, I would pay off the balance. However, I would also want to understand if there is an underlying spending problem. That would be a very serious red flag in my mind.
That loan forgiveness (at least for folks in the non-profit sector) was on the chopping block with the tax bill. I believe it survived, but that’s not to say it won’t be a future target. One of S2’s friends is five years into repayment and was frantic about it; she loves her job and doesn’t want to give it up for something less interesting and fulfilling.
Totally agree that spouses need full disclosure on finances to each other. I’m not saying they need to approve each other’s coffee purchases, but there needs to be disclosure and agreements about how they will handle their finances, both now and into the future.
Catholics have an engaged encounter retreat where topics including this and others are raised in a group setting for the couples to ponder and discuss both in a group and one-on-one so they have a better idea of how compatible they are on finances and other issues that may be back burner but become hot bottom issues after marriage. Does your son’s faith have such a service for their engaged couples? Sometimes an impartial outsider or group is an easier way to broach touchy issues. Pre-marital counseling can be invaluable.
Finances is a HUGE issue for many so it is important for your S to have a clear-eyed picture on how compatible they are in that area. If one is a saver and budgeter while the other lives on tomorrow’s money, it will be rocky.
I second what @HImom said. Premarital counseling is hugely important, especially at sorting out possible financial issues. Money is a big source of conflict throughout the life of most marriages, even healthy ones. The difference is that in healthy marriages, the partners have learned some tools for resolving financial conflict .
My daughter and future SIL are starting their Catholic premarital stuff next week. They opted for 6 months of counseling vs the retreat so that they can deal with issues as they unfold. A weekend retreat is a short time to fit all of this stuff in. They don’t think money will be a problem, because they’re both very frugal and budget conscious, but I know from experience that this isn’t enough. Financial struggles and even accruing wealth can bring up childhood attitudes toward money you never knew you had. It’s better to try to head these off before they sour the marriage.
While i am all for premarital transparency, you do not marry the other person’s debt. You do not usually become liable for premarital debt just from marriage. If you co-mingle assets, that could get tricky though. And you should each know so you can agree common financial goals upfront.
@HRSMom, but you do marry their financial habits, which can amount to the same thing. I would strongly discourage my child from marrying anyone who thought it was okay to carry credit card debt and just pay the minimum balance for months, for example.