Amber writes: My boyfriend is going to grad school. We will probably get married at some point. Is being married detrimental to getting financial aid? Are there benefits or pitfalls?
Marital status affects financial aid awards and repayment.
First, when you fill out FAFSA, the Free Application for Federal Student Aid, or any other student loan application, the income and assets of the applicant’s spouse must be reported. Aid eligibility could increase or decrease depending on that information. (If your spouse earns a large salary, in theory at least, the amount of aid could be reduced.)
While spousal debt does not impact eligibility, the total net worth of your investments as a couple is a consideration. Net worth is calculated by taking the market value of an asset, say, an investment property, and subtracting related debt, such as a mortgage, against that property. For more details on calculating net worth, check out question 41 on the FAFSA.
A spouse’s credit history doesn’t affect aid eligibility, either, unless the student needs to use the spouse as a co-signer. Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, says more than 90% of new private loans require co-signers these days. “The lenders will use the higher of the two credit scores to determine eligibility and the interest rates,” he says.
Once the payments are due, marital status may help or hurt monthly payments under the income-based repayment plan for federal student loans. If the borrower is single, then monthly payments will be based solely on his or her income. But if a married borrower files a joint income tax return, the monthly payment is based on the joint income, which may mean a higher payment. “If a married borrower files separate income tax returns, the monthly payment is based on just the borrower’s income, but the borrower will lose some tax benefits that require married taxpayers to file a joint return,” says Kantrowitz. For example, student loan interest deduction (up to $2,500) is limited to borrowers who file joint returns.
Sara asks: What are the pros and cons to leasing a car?
After spending a week with my folks in Northern California recently, I had to ask myself the same question. I’ve always been an advocate of buying a car outright and driving it into the ground. But recently, my dad — someone whom I’ve always looked up to for financial advice — began leasing, after many years of owning. He couldn’t stop touting the benefits during our car rides: a low monthly charge (compared to the payments if he’d purchased it with a loan), no maintenance fees, a great warranty, etc. And in a few years he looks forward to trading it in for something just as nice, if not nicer.
But I wasn’t totally convinced, especially since I’ve owned one car in my life (a used car I paid for in cash). I tapped auto experts at Cars.com and Edmunds.com and arrived at this financial conclusion: While in the short run leasing may be less expensive than taking out an auto loan for the same car, if you continue to lease various cars for several years, you’ll have likely paid more than if you had just purchased the one car outright and kept it for, say, 200,000 miles.
But what I also learned is that people who lease generally do so not only because it temporarily saves them money. Leasing tends to appeal to certain types of people — especially those who prefer to drive a nicer, newer car. “It works well for people using their car for business and they need…a new car most of the time to keep up appearances,” says Philip Reed, senior consumer advice editor at Edmunds.com. If you’re an aspirational driver, leasing also lets you afford a snazzier vehicle at a better monthly price, albeit for a short time. That’s because you’re basically paying for the car’s depreciation over that two- or three-year lease period. “The depreciation is determined at the beginning, at lease inception, based on a projected value at the end of the term, called the residual value,” says Joe Wiesenfelder, Cars.com’s executive editor.
Some restrictions to consider before leasing: You can’t exceed a certain predetermined mileage allowance — often 12,000 miles a year — and the car cannot be damaged or have above-average wear and tear, Wiesenfelder says. Otherwise, prepare to pay penalties. If you’re an active driver who likes to go on road trips, or park your car in a public garage where it’s prone to dings and scrapes, leasing could be risky. And if you’ve got small children, forget about it!
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