Stand and deliver! Your Money or Your Wife('s)!
August 25, 2012 3:18 PM Subscribe
Should I pay off my wife's student loans? Should we file our taxes jointly? 60K in student debt!
I recently got married and we have been talking about paying off some of my wife's student loans. She has Perkins and Direct Loans(20k) from undergrad and is currently working on an MLS so she also has some Direct(20k) and Plus loans (20k) from her grad program.
Specifically, I was thinking about paying off her Plus loan since it has an interest rate of 7.8% and it accrues interest while she's in school. She graduates May of next year.
I make 70k a year before taxes (she currently makes 4k with her part-time job), and we live in a metropolitan area, so about 18k goes to rent per year. I have a good amount of savings, but we would like to buy a car and a house at some point.
If I were to pay off some of her loans would there be tax implications for us?
If I am marked as an authorized payer, would my income be considered a factor in the future repayment of her loans?
To clarify, if she's unfortunate and fails to find employment after her graduate program, would she have basis to apply for forbearance or switch to a lower rate plan or would my stable job mean I would end up having to spend my income for her loans? Is there a way to prevent this?
If we file our taxes jointly, will this effect her loans?
Ideally she would like to repay as much of her loans on her own. She is afraid of putting me in a position of joint responsibility.
I recently got married and we have been talking about paying off some of my wife's student loans. She has Perkins and Direct Loans(20k) from undergrad and is currently working on an MLS so she also has some Direct(20k) and Plus loans (20k) from her grad program.
Specifically, I was thinking about paying off her Plus loan since it has an interest rate of 7.8% and it accrues interest while she's in school. She graduates May of next year.
I make 70k a year before taxes (she currently makes 4k with her part-time job), and we live in a metropolitan area, so about 18k goes to rent per year. I have a good amount of savings, but we would like to buy a car and a house at some point.
If I were to pay off some of her loans would there be tax implications for us?
If I am marked as an authorized payer, would my income be considered a factor in the future repayment of her loans?
To clarify, if she's unfortunate and fails to find employment after her graduate program, would she have basis to apply for forbearance or switch to a lower rate plan or would my stable job mean I would end up having to spend my income for her loans? Is there a way to prevent this?
If we file our taxes jointly, will this effect her loans?
Ideally she would like to repay as much of her loans on her own. She is afraid of putting me in a position of joint responsibility.
On the other hand, filing separately can lose you some other benefits that are the whole reason most people file jointly. You need to take all of this to a CPA to get real advice, not just ask people on the internet, because you need official advice on your tax filing status and what other impact MFS would have on your taxes, whether the amount forgiven will be taxable if she stays on IBR until her loans expire by filing separately, etc.
If you don't want to do that, if you just want what's *simple*? File jointly, operate like a joint entity, don't worry about IBR taking the higher number and use both your incomes to pay them off on a relatively short payment schedule that still gives you enough cash at the moment to cover your needs and set aside a bit more towards your future house, etc.
I've seen people jump through tons of hoops for this stuff, and it never really seems worth it. If she was never, ever going to have real money, maybe staying separate would be worth it. But if she expects to have a career at some point and so you aren't banking on getting loan forgiveness in however many years, and you're making a comfortable income right now that can *afford* a student loan payment that will put more towards principal, it doesn't make sense to try to juggle things in extreme ways just to draw out her payments more. All that happens there is that you pay more interest in the long run. You're married. If you're intending to stay married, treating all money as money earned and spent as a couple is usually markedly less trouble than trying to figure out how to split things "fairly".
posted by gracedissolved at 4:11 PM on August 25, 2012 [2 favorites]
If you don't want to do that, if you just want what's *simple*? File jointly, operate like a joint entity, don't worry about IBR taking the higher number and use both your incomes to pay them off on a relatively short payment schedule that still gives you enough cash at the moment to cover your needs and set aside a bit more towards your future house, etc.
I've seen people jump through tons of hoops for this stuff, and it never really seems worth it. If she was never, ever going to have real money, maybe staying separate would be worth it. But if she expects to have a career at some point and so you aren't banking on getting loan forgiveness in however many years, and you're making a comfortable income right now that can *afford* a student loan payment that will put more towards principal, it doesn't make sense to try to juggle things in extreme ways just to draw out her payments more. All that happens there is that you pay more interest in the long run. You're married. If you're intending to stay married, treating all money as money earned and spent as a couple is usually markedly less trouble than trying to figure out how to split things "fairly".
posted by gracedissolved at 4:11 PM on August 25, 2012 [2 favorites]
Less debt = less stress = less relationship stress. It's worth more than millions to not have that additional stress on a new marriage. (or any, really, so many stupid arguments happen over money, or lack of)
This could be part of a larger picture than just her student loans.
Take a look at all debts, including school loans, you guys have, and make sure to pay them off in a logical fashion. See how you can fit that into your joint household budget. (now, and estimated when she is employed).
It's true that student loans tend to have lower interest rates than other kinds of loans. Some people use this as an excuse to never pay them off. You seem to be concerned about paying them, which is great!
Talk to a financial advisor, yes, but absolutely see if the two of you can decide how best to pay all debts off as you build your best possible futures together.
posted by dreamling at 4:27 PM on August 25, 2012 [1 favorite]
This could be part of a larger picture than just her student loans.
Take a look at all debts, including school loans, you guys have, and make sure to pay them off in a logical fashion. See how you can fit that into your joint household budget. (now, and estimated when she is employed).
It's true that student loans tend to have lower interest rates than other kinds of loans. Some people use this as an excuse to never pay them off. You seem to be concerned about paying them, which is great!
Talk to a financial advisor, yes, but absolutely see if the two of you can decide how best to pay all debts off as you build your best possible futures together.
posted by dreamling at 4:27 PM on August 25, 2012 [1 favorite]
My husband and I had to file separately for the first few years of marriage because of tax issues and I was kind of horrified to learn that filing separately means you forgo your loan interest deduction. My tax return money (important, because I was hardly making anything) dropped from like two thousand bucks to two hundred.
Anyway, that's behind us. We now operate as if our finances are OUR finances, and for us, as a couple, it made sense for my husband to use his savings to pay off my highest interest loans. The rest are on an IBR plan. We weren't very good at keeping separate finances (just the other day I handed him a twenty to buy me flowers). Our goals are the same and we're a team and working toward the same stuff. Sometimes I shoulder more of the burden, sometimes he does, depending on who is making more, sometimes we split it. It works for us. It might not work for you.
(For what it's worth, there were socio-economic differences between our families which meant that I had to take out loans to get a degree and he didn't. His helping me to shoulder the burden was a really big thing emotionally, in a positive way--I couldn't trust people to help me before. I can now. That was huge. Huge.)
posted by PhoBWanKenobi at 4:27 PM on August 25, 2012 [1 favorite]
Anyway, that's behind us. We now operate as if our finances are OUR finances, and for us, as a couple, it made sense for my husband to use his savings to pay off my highest interest loans. The rest are on an IBR plan. We weren't very good at keeping separate finances (just the other day I handed him a twenty to buy me flowers). Our goals are the same and we're a team and working toward the same stuff. Sometimes I shoulder more of the burden, sometimes he does, depending on who is making more, sometimes we split it. It works for us. It might not work for you.
(For what it's worth, there were socio-economic differences between our families which meant that I had to take out loans to get a degree and he didn't. His helping me to shoulder the burden was a really big thing emotionally, in a positive way--I couldn't trust people to help me before. I can now. That was huge. Huge.)
posted by PhoBWanKenobi at 4:27 PM on August 25, 2012 [1 favorite]
It's not your savings, it's the family's savings. It's not her debt, it's the family's debt. 20K at 7.8% is just going to drag you down.
Also, things don't always work out like this, but often they do: It costs the same for a man and a woman to go to school, but coming out of it the man will make more money. Men get higher paying jobs, get paid more at the same jobs, and don't lose time at work for kids. She's going to be a librarian, probably underpaid, hard to find work, and may take time off for kids. I've got the same kind of career path, and it means that my husband contributes to my loans.
I don't mean to say that woman need to be taken care of and men need to be providers, but being a wife and especially a mother can cost you. You should make sure you (as a unit) and taking care of both of you equally so that if you end up apart for whatever reason neither one of you is behind.
posted by that's how you get ants at 6:38 PM on August 25, 2012 [7 favorites]
Also, things don't always work out like this, but often they do: It costs the same for a man and a woman to go to school, but coming out of it the man will make more money. Men get higher paying jobs, get paid more at the same jobs, and don't lose time at work for kids. She's going to be a librarian, probably underpaid, hard to find work, and may take time off for kids. I've got the same kind of career path, and it means that my husband contributes to my loans.
I don't mean to say that woman need to be taken care of and men need to be providers, but being a wife and especially a mother can cost you. You should make sure you (as a unit) and taking care of both of you equally so that if you end up apart for whatever reason neither one of you is behind.
posted by that's how you get ants at 6:38 PM on August 25, 2012 [7 favorites]
She can do IBR and if she works in the public sector, she can get it forgiven after 10 years.
But you guys should do all the different calculators available online.
posted by k8t at 7:39 PM on August 25, 2012
But you guys should do all the different calculators available online.
posted by k8t at 7:39 PM on August 25, 2012
If I had a way that my household could earn 7.8% on a tidy sum of money I'd do it in a heartbeat.
When we were coming out of school, I had debt and she did not. I really wanted to pay it off myself and I did, but as we've grown more comfortable with the fact that we're a team and we're going to be together for the long run, it seems petty in retrospect. Mrs. Advicepig has since gone back to school and is borrowing much more than I ever did to pay for it. When it comes time to repay it, we won't spend a second thinking about how to keep it unentangled.
posted by advicepig at 8:50 AM on August 27, 2012
When we were coming out of school, I had debt and she did not. I really wanted to pay it off myself and I did, but as we've grown more comfortable with the fact that we're a team and we're going to be together for the long run, it seems petty in retrospect. Mrs. Advicepig has since gone back to school and is borrowing much more than I ever did to pay for it. When it comes time to repay it, we won't spend a second thinking about how to keep it unentangled.
posted by advicepig at 8:50 AM on August 27, 2012
This thread is closed to new comments.
posted by crunchtopmuffin at 4:04 PM on August 25, 2012