More young Americans are going to college than ever before, but they are also racking up student loan debt at unprecedented rates. As of 2013, 40 percent of young households in the United States had some outstanding student loan debt. This has a lot of potential implications. But since Valentine’s Day is right around the corner, let’s focus on just one: the decision to marry.
Your spouse could be a liability (financially, that is)
Earlier this week, President Obama released the Federal Budget for 2017 and proposed a significant change in the way that debt is handled for married couples. In the current income-driven repayment system, borrowers with low earnings can qualify for reduced monthly payments and sometimes forgiveness on their loans. If the President’s proposal is enacted, eligibility for these benefits would depend on their spouse’s income as well as their own.
A high earning spouse could, in this sense, be a liability for someone who would otherwise be able to take advantage of repayment benefits reserved for low-income borrowers. The proposal is aimed at a fairer assessment of a borrower’s ability to pay. But of course this will depend on how couples choose to manage their finances.
This new “marriage penalty” for borrowers with student debt would come on top of some existing financial downsides. Borrowers with modest earnings (i.e. a Modified Adjusted Gross Income of less than $80,000) are able to deduct interest paid on student loans on their federal taxes, up to $2,500. But this limit is the same for married couples, so many couples will lose out on a deduction they could have claimed if they were single. (Filing taxes separately doesn’t help, since married borrowers filing separately aren’t eligible for the deduction at all.)
Marriage penalties, piling up
As more students take on debt and their debts get larger, the disincentive to marriage created by these rules will also grow. This could mean that young people with debt will choose to delay marriage. So far, despite the frequent discussion of this issue, conclusive evidence is elusive—not least because this kind of effect is fiendishly difficult to measure. But with the combination of disincentives for marriage created by Uncle Sam and the likely behavioral impact of debt, it’s reasonable to suppose that debt is impacting the way that young people are thinking about marriage.
So this Valentine’s Day, when you’re waxing poetic with your sweetheart about your future together, try to keep these things in mind. It can be uncomfortable to talk about finances, so if you’re at a loss for words, perhaps try something like this: “Let’s not forget that our decision tonight could have an impact on our future tax liability and eligibility for federal loan repayment benefits.” Of course, this might kill the mood a little. Oh well. Thanks, Obama.