When you get married, “yours and mine” becomes “ours” — for almost everything except student loan debt. But even here, it’s worth considering the move to combine or consolidate student loans with your spouse so that you can share repayment responsibilities and get out of debt faster.
Then again, although consolidating your private student loan debt with your spouse’s is sometimes possible, it can be tricky.
When you can consolidate student loans with your spouse
In 2005, Congress did away with the Department of Education’s so-called joint consolidation loans. So if you and your partner borrowed using the federal direct loan program, you can’t use a direct consolidation loan to merge your debt. You would only be able to consolidate your own loans, not your husband’s or wife’s.
To combine student loans with a spouse, you must now use a private refinancing company, like PenFed Credit Union.
Fortunately, PenFed can simplify the refinancing process. You could even take over your spouse’s debt as a sole borrower (with their permission, of course), although that would leave you on the hook by yourself.
But just because it’s possible to consolidate as a couple doesn’t mean it’s prudent.
Why you might consolidate student loans with your spouse
Consolidating student loans with your spouse can yield several advantages. The main potential benefits could include these:
Score a lower rate
To receive the kind of low fixed or variable rate advertised by top student loan refinance companies, you typically need an excellent credit score.
When looking to combine student loans with a spouse, however, only one of you needs a strong score, at least at PenFed. The credit union uses the higher credit score between you to determine the interest rate for the loan. This can mean additional savings for the spouse sporting the lower credit score.
Reduce your monthly payment amount
If lowering your rate isn’t a possibility or a priority, you and your partner could aim to reduce your monthly payment amount instead. You could achieve this by lengthening your loan repayment term from that 10-year term you were handed on your original federal loans.
Be advised that lengthening your term to reduce your monthly payment comes with the consequences of paying more interest over time. Consult a student loan refinancing calculator to gauge the potential costs.
Simplify your repayment
If you and your partner each have multiple loans, you might be making as many as a dozen payments to a handful of different loan servicers. Through refinancing, you could make one monthly payment to one servicer of your choice.
When you consolidate student loans with a spouse through a private refinancing company, you also leave some federal loan frustrations behind. You won’t have to worry about your tax filing status (single or joint) or annual recertification process for income-based repayment plans, for example.
Become better teammates
Finally, co-mingling your debts can help you avoid assigning blame to the person whose loan balance is higher because the debt now belongs to both of you.
Having the same rate as your spouse also means you will achieve debt freedom at the same time. This can foster a sense of teamwork and motivate both of you to pay off your debt as soon as possible. Then you can move on to other milestones you may want to achieve as a couple, such as buying a house or starting a family.
Why you shouldn’t consolidate student loans with your spouse
Despite the advantages, refinancing your student loan debt with your spouse’s is not always the best idea.
Losing federal loan protections
If one or both of you primarily borrowed using the federal direct loan program, then you should think long and hard about refinancing your student loan debt through a private lender.
This is because anytime you refinance direct loans with a private company, you agree to yield all the benefits associated with those federal loans. These benefits can include eligibility for deferment and forbearance, access to Income-Driven Repayment programs and pathways toward forgiveness and cancellation.
Additionally, if one or both of you work in public service and you would like to maintain eligibility for the Public Service Loan Forgiveness program, then keeping your loans federal — and therefore separate — may be the best choice.
Untangling your finances, if necessary
This isn’t always the best subject to bring up, but it’s worth remembering that joining your debt now could be the wrong decision if you break up later.
Before you elect to combine student loans with your spouse, ask potential lenders how they would handle your request to divide the debt upon divorce. Even if you feel a split isn’t a possibility for you and your significant other, it may not hurt to be aware of what would happen in a worst-case scenario.
Should you consolidate student loans with your spouse?
If you’ve decided to consolidate student loans with your spouse, then ensure you are both on the same page regarding all potential issues, including answers to questions like:
- How will the monthly payments be made?
- What are your goals with refinancing? Are you lowering your interest rate? Decreasing your monthly payment? Getting out of debt sooner?
- How will refinancing fit in with your other financial goals?
In the end, only you and your spouse can decide if refinancing your student loans with a private company is the decision that will work best for you. Don’t be afraid to be unconventional if that is what’s best for you, your spouse and your finances.
Andrew Pentis contributed to this report.
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