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Consolidate Student Loans With Spouse
Are you married and do both you and your spouse have student debt? Are you looking for ways to settle it faster? Have you wondered if it’s possible to consolidate student loans with your spouse? We have some answers you’ll be interested in.
What Is Loan Consolidation?
Loans can become very expensive. Especially student loans that spend many years accumulating interest without any repayments. Some forms of student debt only initiate the repayment schedule when the principal beneficiary graduates. This means it’s had some time to accumulate interest without any repayments. Now you have some expensive loan costs to cover. But have you heard of loan consolidation? An Indian loan consolidation works exactly the same. Let us explain.
Loan consolidation helps you turn many loans into a single loan. You take out a new loan to pay off your old loans, but it comes with a benefit. You can possibly get a lower interest rate on it. A lower interest rate leads to cheaper monthly payments. And you can always use the lowered interest rate to repay your debt faster if you’re serious about settling it. If you use debt consolidation wisely, you may be able to grow your wealth much faster. Be wise in your use of this financial tool. Ask for help from a professional like an accountant or financial advisor if you are unsure about how to apply it in your life.
Can Spouses Consolidate Student Loans?
Whether you took out a loan for your spouse’s education, or have loans of your own, it all works the same. The question is, however, whether you are able to consolidate loans with your spouse. It will depend on the type of student loans you have, but the likelihood is very good that you can. Here’s what you need to know.
When Can You Consolidate Student Loans With Your Spouse?
There are obviously a few criteria that determine who is eligible to consolidate student loans with their spouse.
In 2005, the U.S. Congress decided to abolish the Department of Education’s joint consolidation loans. If you and your spouse used federal direct loans you won’t be able to consolidate both your loans to a direct loan. You’ll only be able to consolidate your loans separately. If you would still like to consolidate together, you would need to seek a private lender willing to help. Private refinancing company PenFed Credit Union offers to consolidate direct student loans with a spouse, for example.
PenFed simplifies the refinancing process. You can also take over your spouse’s debt as the sole borrower (with their permission). But the option to consolidate is only a good idea if you benefit from it in some way.
Reasons to Consider Consolidating Loans With Your Spouse
As mentioned previously, you must benefit from a loan consolidation to justify its use. It’s like deciding whether you’ll pursue an F1 dependent visa. Do the pros outweigh the cons? Here are some reasons why you can consider consolidating student loans with your spouse.
For a Lower Interest Rate
When you first got your student loans, you most probably had a lower credit score when compared to the credit score you have now. You’ve started working in the meantime and you have paid a few monthly repayments. Your increased income also probably led to an increased usage of your credit card. Responsible use of credit promotes a stronger credit score. And stronger credit scores help to cheapen your debt.
Consolidate your student loans with your spouse to lower the interest rate on your loans. A lower interest rate will slow down the pace at which your debt gathers interest. This helps to lower the effect of compound interest on your debt (which is essentially just interest on interest). It can also help you possibly shorten the amount of time it would take to settle your debt.
For Reduced Monthly Payments
Consolidating student loans with your spouse can reduce monthly payments. The interesting part is, only one of you needs a strong credit score. We already know you’ll get a lower interest rate. But it will also lower the required monthly payments. You’ll have fewer expenses to worry about and better cash flow. So you’ll have more money available for the things that matter most.
Some lenders may even allow you to renegotiate the terms of your loan agreement. For example, extending your loan term. This allows you to repay the same loan over more months than previously allowed. When you extend the loan term you’ll lower the required payment per month. But be aware though, you may pay less per month when compared to a loan with a shorter term, but a loan with a longer-term accumulates more interest over its lifetime. You’ll pay less per month but you’ll end up repaying much more in the end. It’s easier on the cash flow but it strains your ability to grow your wealth in the long term.
For Simplified Monthly Payments
Life is intricate enough as it is. You don’t need the added stress of managing multiple loan accounts. So, consolidate student loans with your spouse to create one single loan account. This means a single monthly payment. You won’t have to struggle with the hassle of managing your cash flow to service multiple payments that go off at different times in a month. You also won’t get multiple statements from your lenders. You get one account, you pay one monthly payment, and you deal with one lender. Simple and easy. Filing your tax will also be much easier if you only have one repayment.
Reasons to Not Consolidate Your Loans With Your Spouse
As stated above, you should only consider a student loan consolidation with your spouse if it benefits both of you. There are, however, certain reasons where you should not consolidate your student loans with your spouse.
Loss of Federal Protections
If at least one of you took out a federal direct loan, you’ll have to think twice about your decision to consolidate student loans to a private lender. It becomes even riskier when both of you have direct federal loans. You’ll lose the benefits that come with direct federal loans when you consolidate to a private lender.
You’ll lose the ability to opt for an income-driven repayment plan. Income-driven plans require payments as low as 10% of your monthly income. You’ll also lose any opportunities for deferment or forbearance. In special circumstances, you can apply for the temporary suspension of your monthly repayments. But once you’ve consolidated to a private lender you’ll lose the ability to use the income-driven repayment plan, forbearance, or deferment opportunities.
Difficulties Untangling Finances
Now it’s not the best thing to think about, but it could be applicable. You and your partner can enjoy some benefits due to your student debt consolidation, but it could become a headache if you decide to break up.
Getting your finances untangled if you want to part ways can be difficult. Ask your lender how they would treat the untangling of your consolidated loan account in the event of a divorce. It’s never a bad idea knowing what would happen in a worst-case scenario.
How to Consolidate Student Loans With Your Spouse
Let’s say you’ve considered all the advice above and you decide to go for it. You want to consolidate your student loans with your spouse. How do you do it?
Choose a Lender and Identify the Loans
First of all, you need to find a lender willing to consolidate you and your spouse’s direct federal student loans. Look for multiple lenders, apply, and only choose the best offer. Then choose which loans you would like to consolidate. You don’t have to include every loan you have. Tell the lender which loans you specifically want to have consolidated.
Choose a Repayment Plan
Speak to your lender about their different repayment plans. Negotiate if possible and find the cheapest way to get this done. Remember, you don’t have the same options available to federal student loan holders. And you might not have the same benefits as before. So ask your lenders if they can help you in any way.
Accept and Initiate a New Loan Agreement
Give the lender time to process the information you’ve submitted. Soon you’ll have a student loan consolidation offer. You and your spouse should work through the agreement and understand your rights as well as your obligations.
Please note, you must pay your old student loans until your new lender informs you about the success of the student loan consolidation. You are liable for your old loans until the consolidation has been confirmed by your new lender. Only then can you start repaying your new lender.
Debt consolidation with a spouse can be a powerful tool for reducing you’re overall cost of debt. You can consolidate your student loans with your spouse to lower the interest rate, cheapen the monthly repayments, and simplify the repayment structure. Find a lender who’s willing to help you and apply as soon as possible! And if you’ve’ got bad credit, there’s still hope. All that’s left to do is to leverage a debt consolidation loan with your spouse to better your financial situation.