Student Loans and Divorce
FACT #1: About 50% of couples in the US get divorced.
FACT #2: There is a lot of student loan debt out there — about 44 million people have student loan debt, with a burden of nearly $1.5 Trillion in total, an amount second only to aggregate mortgage debt in the US. The average class of 2016 graduate has $37k in student loan debt.
What do these seemingly unrelated topics have to do with each other? You may have seen the news story about how 1 in 8 people blame student loans for their divorce, in which case you know the answer. It is pretty much common knowledge that the #1 thing that couples fight about is money, but to think that student loans have specifically been named as the cause is definitely a 21st century phenomenon. So why is this the case, and what can you do about it?
This wasn’t as much of an issue in the past, because it wasn’t as easy to get student loans back in the day. Although people are now beginning to focus more on the risk/return of student loans and a college education- and perhaps making decisions accordingly- for many the awareness of the downside that has been caused by this easy money could be too little, too late. So now as a country we are in a deep, deep hole of student loan debt. (As a side note, I now hear many parents talking about encouraging their children NOT to go to college — and rather to consider trades or other career paths- which is a relatively new phenomenon among parents who are themselves professionals).
People feel trapped by their student loans. We hear this routinely from Pefin users — they think there can’t be a light at the end of the tunnel, and so they are stuck. The reality is that in almost every situation there is a way forward- it may not be an immediate solution but there are many motivating stories on the internet about how people have dug their way out of the student loan hole. What is needed is a plan and the resolve to stick to it, but it can be done.
Married couples are generally ill equipped to handle financial stress — let’s face it, single people aren’t that well equipped either, but adding another person to the conversation makes it exponentially harder. There aren’t typically classes on how to manage personal finances, nor are their classes on how to be married — combining the two means a lot of trial and error — which can lead to serious discord.
It isn’t the money- it’s what you can do with it. When people fight about money it usually isn’t really about money. It may be about control or trust, but it is most likely to do with what money decisions can enable you to do, or not do — things like have a baby, buy a house, plan for retirement, etc. There is that iconic scene from the movie The Jerk where Bernadette Peters famously says “It’s not about the money, it’s the stuff!”
What can be done about this?
1)To prenup or not to prenup? One common suggestion is to have a prenuptial agreement so that there is clarity about how to deal with finances before the marriage. I do think that having a clear, joint, plan for understanding your newly combined financial situation is key- but I don’t think a prenup is really the answer for student loans- or for most people entering a marriage. Prenups make sense if one party coming into the relationship is bringing a large amount of assets, and maybe has children from a previous marriage that they want to protect. A prenup isn’t really necessary if the couple doesn’t have a lot of assets (and who needs all those legal bills?) — what they need is a plan, and an open discussion about money.
2) Understand the baggage before you get married — everyone has a history when it comes to their relationship with money. If your spouse-to-be engages in retail therapy to deal with stress, you need to know that before you get married- and have a plan to deal with it. Understanding each of your relationship to money- and then how you plan to share finances (or not) after the wedding, will help a lot to mitigate future tension.
3) Life is ever changing, so keep in mind that the situation today — with whatever income and debt you have — will not be the situation forever, for better or worse. So having some contingency plans (what happens if one of you loses your job? What happens if you have a baby? What are the important things you want to save for? etc). For better or for worse encompasses a lot of potential issues- including financial hardship that is difficult to anticipate. When it comes to student loans, that is something that is known (assuming you incurred them before getting married) so dealing with the issue head on is critical- once you have a plan for the known challenges, you can better weather the inevitable unknowns.
4) Invest in planning, and learning, about your finances. Pefin is a great place to start to get a picture of your financial situation today, and also how it evolves in the future. Being able to plan together for a family, a house, sending kids to college and for a comfortable retirement can actually be fun! Once you have a roadmap it makes it easier to get where you want to be- and when life inevitably changes, Pefin automatically updates, providing practical suggestions on how you can make the plans that matter most to you affordable — keeping you on track through life’s ups and downs.
5) Secrets, secrets are no fun…especially when it comes to money. Agree to keep the other spouse informed when it comes to the good, the bad and the ugly of your financial situation. Do this before and, just as importantly, after you are married. Communication is important in all aspects of marriage and certainly in the sensitive arena of money.
In the event that you are already in the situation that divorce is where you are headed, know your state laws regarding who is responsible for the student loans. It may be different than you think! Typically debt you incur before you are married belongs to you, and is shared if it is incurred after you are married — but this depends on the state law, so check into it to be clear. Knowing the facts always helps- and for those of us who have been divorced and know the trial and tribulations, financially and emotionally that comes with that territory, rest assured there is light at the end of that tunnel as well!