Most consumers want to cut their student loan debt, and for good reason. High balances can make it harder to take out loans like a mortgage and save for retirement. But is there ever a good reason to put more student loan debt in your name? One commenter wonders if his credit score could benefit from taking on his wife’s loans: “I’ve been helping my wife pay off her student loans for six years,” he writes. “They are in her name only. If I add myself to the loans I’ve been paying off anyway, will that help my credit score?”
Can It Be Done?
Before we address how taking on debt may affect a person’s credit, it’s important to note that adding yourself to a spouse’s student loan may not be straightforward. “Student loans cannot be put in someone else’s name other than by refinancing them into a new loan,” student loan expert Mark Kantrowitz explained over email. Previously, married borrowers could consolidate federal loans, but Congress repealed this ability in 2006 due to issues that arose when couples divorced. In order to wind up on the loan, you’d probably have to refinance to a private consolidation loan or a non-education loan such as home equity. “If the new loan in the new borrower’s name pays off the old loans, it effectively changes the borrowers on the loan,” Kantrowitz says. “But it is also likely to change the terms of the loan, for better or worse.”
Consider Your Credit
Rates on any new loan depend largely on your credit score at the time of application. If your credit’s in good shape, you might be able to secure more affordable terms and conditions. But if it’s not, any loan you secure — and its payments — could become more expensive. Cost is an important factor to consider, since no loan will help your credit if you can’t make the payments on time.
Consolidating a student loan in your name may also hurt your credit. If you’re taking on a big debt without much credit on hand, the effect will likely be “more negative than positive” in the short-term, says Mike Sullivan, director of education for Take Charge America, a credit counseling service based in Phoenix. You’ll risk upsetting your credit utilization rate, a major factor in most credit scoring models. (The rule of thumb is to keep the amount of debt you owe below 30% and ideally 10% of your total available credit.) Plus, the loan application will generate a hard inquiry on your credit report, which may ding your score. You can get a better idea of how more debt might affect your credit by pulling your credit reports for free each year at AnnualCreditReport.com and viewing your credit scores for free every month on Credit.com.
The Downside of Being Saddled With Student Loans
Weigh the pros and cons before consolidating debts with your spouse. Once your name’s on a loan, you’re liable for the debt and may not be able to get out of repaying it even if something goes wrong. (The same applies to co-signing loans with friends and family.) “In community property states, it is possible for one spouse to be obligated for the other spouse’s debts, since income and assets are treated as joint for the duration of the marriage,” Kantrowitz says. “But upon divorce, [student] debt is often treated as separate debt unless the ex-spouse co-signed the loans.”
More on Student Loans:
- How Student Loans Can Impact Your Credit
- Can You Get Your Student Loans Forgiven?
- How to Pay for College Without Building a Mountain of Debt