Numerous studies have shown that student debt can cause borrowers to delay marriage. For some borrowers, however, marriage could actually be a gateway to paying less.
You can save money by refinancing student loans, but not everyone qualifies. If your other half has a better financial profile, there are two ways you can share the benefits of refinancing:
- Refinance together. You combine your student loans with those of your partner into one spousal loan with a lower interest rate.
- Cosign for you. Your spouse co-signs a loan to refinance your debt, giving you a lower rate on the back of his finances.
If you are considering partnering with your partner’s loans, here’s how to decide if you should.
Refinance “for the better”
Refinancing makes the most sense for saving money on higher interest rate loans for private schools and graduate studies.
For example, by refinancing a $ 60,000 loan from 7% interest to 5%, you would save about $ 7,200 over 10 years.
Generally, you will need strong finances and a good credit rating to qualify and get the best rate.
Spouses can “increase [their] chances of getting a better rate together, ”says Andrew Zoeller, digital program director for Purefy, which refinances loans from the Pentagon Federal Credit Union, or PenFed.
For joint loans and loans that spouses co-sign, PenFed assesses the couple based on their combined income and only counts shared debts, such as mortgages, once. This allows more people, such as stay-at-home parents with good credit, to meet PenFed’s loan criteria.
Other lenders can assess spouses separately. Check with a lender about their policy before you apply.
In 2019, 67% of co-signed PenFed student loan refinances were spousal loans, according to Zoeller.
“It’s something our program is known for,” he says.
Refinance “for the worse”
If you co-sign a refinance loan or combine debt with your spouse, you are also responsible for paying off the balance, even after a divorce.
“There is no exit ramp,” says Joshua RI Cohen, a lawyer in West Dover, Vermont, who operates TheStudentLoanLawyer.com.
Also see: Turn the marriage contract into a financial planning tool
For example, Cohen says a divorce decree might state who is responsible for the repayment, but both names legally remain on the debt. This means that if one spouse does not pay, the other still suffers the consequences of missed payments, such as damaged credit and collection calls.
Divorced women could refinance the loan or part of it in their individual name to get around this problem, but only by meeting a lender’s income and credit conditions on their own.
Should you say “yes”?
Still cold-eyed about refinancing with your spouse? These steps can help protect yourself:
- Try co-signing first. Co-signing can have a valuable option that spousal loans lack: programs that end up removing your spouse from the loan. Co-signatory release policies vary by lender; PenFed, for example, does not release joint co-signers.
- Get additional life insurance. Protect yourself if your partner dies and you have to pay off a hefty spouse loan on your own. You may also owe the balance of a co-signed loan, depending on the lender’s policies.
- Know what you are giving up. Once you refinance your loans, you cannot get your original loans back. If you want or need federal loan benefits, like alternative repayment plans and rebate programs, don’t refinance them.
Cohen also says to make sure the savings are worth it.
“I’d rather pay 2% more interest and know that I won’t be tied to this idiot for the rest of my life,” he says.
Don’t get stuck
Kathy Snell, 55, of Eugene, Oregon, would like to cancel her spousal loan. But that has nothing to do with her marriage.
“We have been able, even through all the financial difficulties, to remain happily married,” Snell says.
This “tip” includes a joint student loan that has reached almost $ 420,000.
Snell and her husband combined their loans through a federal program that ended in 2006. Their loan is not eligible for the Public Service Loan Forgiveness, which cancels federal loans from borrowers working for eligible employers – such as the University of Oregon, where Snell is an attending veterinarian.
See: Trump’s attempt to end public service loan forgiveness could mean ‘major life changes’ for some student loan borrowers
Other federal borrowers may consolidate existing loans to eventually qualify for this program. But federal spousal loans cannot be reconsolidated. Legislation allowing spouses to unbundle these loans is part of the College Affordability Act, which is under consideration by Congress.
While Snell’s circumstances do not apply to private loans, she still cautions couples about the flexibility they lose when combining loans.
“Knowing now what I know, I would recommend not to do it,” Snell said. “Keep those student loans in your individual fundraiser. “
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