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Dear Quentin,
My girlfriend and I have been dating for approaching two years now and are starting to think about future plans — including buying a bigger place together for a forthcoming family.
We currently live in the one-bedroom condo I bought in 2017. I’m 38 and feel confident about my financial situation. I make $130,000 a year, have $200,000 in my 401(k), no credit-card debt, and have roughly $55,000 in savings on top of my condo.
My girlfriend, who is about to turn 35, is in a very different place. She earns $80,000 a year, has no retirement account, owns no property, but she does have about $18,000 in savings. I only recently found out my girlfriend also has $83,000 in student-loan debt.
Previously, she admitted to having “some” student loans, but I had no idea it was $83,000. That’s a huge amount of money. She didn’t fully understand the significance of that. At least her credit score is in the 710 to 720 range.
We’re now struggling with how to get that debt under control and still meet our family and relationship goals. We would like to buy a house at some point in 2024, but living in a high-cost part of the country, a house will cost $800,000 at least.
We’re aiming to have about $200,000 to help with a down payment, closing cost and move, but we’re about $50,000 shy of that.
What options do we have? I’m hesitant to reduce my 401(k) contribution, which is 15% right now. But what should she do? Put all of her disposable income into paying off her student loans? We’re trying to talk to mortgage lenders to see what their advice is, and how much flexibility we might have.
I’m not sure it’s my obligation to repay her debt, but her inability to contribute to savings or match my monthly mortgage payment will hurt our ability to buy a bigger place next year. It will take a while to make a good dent in her debt. How should we proceed?
The Boyfriend
Dear Boyfriend,
You’re in this together.
The student debt is, as you suggest, your girlfriend’s responsibility. But I would like to make one thing very clear: student debt does not and should not make potential partners radioactive. Your girlfriend obviously worked hard to get her degree or degrees, and that’s a big burden for someone so young.
At first glance, I don’t think either of you are in a solid position to buy a home together. That may change by next year, but I suggest you don’t put too much pressure on yourselves, especially given your lack of savings. (One caveat is the amount of money you may have in equity on your current apartment.)
Depending on how much money you owe and how much equity you have in that condo, you may or may not be able to upgrade — that’s assuming you were not planning to rent it out. But it will be a tight squeeze, given your price range and your current salary and savings.
Your girlfriend, as you rightly point out, is in an even more precarious position — like millions of college graduates. Let’s assume she’s paying a 4.66% interest rate on her $83,000 loan over 10 years. Her monthly payments would be approximately $867, and her lifetime cost on that loan would be $103,994.
Given her own annual income of $80,000, she is not in a position to buy a home alone. That said, “admitted” seems a bit harsh. But this tension does suggest that you should tread carefully at this juncture, and not empty all savings, especially if you are concerned about your respective contributions.
Another consideration: Your interest rate. In 2017, a 30-year fixed interest rate would have cost you just over 4%. Currently, the 30-year fixed would set you back 7%, or more. Are you sure you want to give up a lower interest rate? You will need to factor this into your new housing costs.
It’s healthy to have these conversations now, but there are several elephants in the room. Yes, they relate to your girlfriend’s student debt, and your own financial situation. It is challenging for both of you. Preferably, you should aim for a 20% down payment to help avoid mortgage insurance.
“‘Student debt does not and should not make potential partners radioactive.’”
If you have financial stress now, moving in together and putting unnecessary pressure on both of your finances — not to mention putting your girlfriend’s $83,000 in student debt center stage as the biggest “problem” of all — is not the best way to embark on a life together. Try not to single out her debt as a problem.
The good news is that you are having these tough questions now rather than later. Larry Pon, a financial planner based in Redwood City, Calif., suggests you restore faith in each other’s finances, and bring more transparency to your respective money situations by running a credit-report check.
You can go to AnnualCreditReport.com to get a free credit report from each of the credit bureaus: Experian, TransUnion and Equifax. “This could be one of your date-night activities,” he says (optimistically). “For full disclosure, you should also get a free credit report for yourself.”
You and your girlfriend can access her student-loan information on StudentAid.gov. “Figure out whether they are private loans or federal government loans,” Pon says. “The federal loans are eligible for all kinds of benefits. Most notably, there is currently a pause on student-loan payments until June 2023.”
Would she be eligible for the $10,000/$20,000 in student-loan forgiveness, assuming the Supreme Court gives President Biden’s student-loan forgiveness plan a green light? If she is on an income-based repayment plan, marriage and filing a joint tax return could impact those payments. Read more on that here.
Think twice — for the moment — about buying a home together and commingling your assets, because once you do that there is no going back. You both should be on a solid financial footing. Do you want to have an equal down payment, and equal mortgage repayments? This is a conversation you need to have.
Interest rates may come down later this year or next. You can reevaluate the situation then. I fully empathize with both of you, especially your girlfriend. Americans have taken on $1.6 trillion of student debt, and 43.5 million borrowers carry federal student debt with the average balance surpassing $35,000.
It’s no wonder that more young Americans are skipping college. Undergraduate college enrollment has fallen by 8% from 2019 to 2022, according to data from the National Student Clearinghouse. It’s also the steepest decline on record, the Associated Press reported. People are understandably jaded by student debt.
I have no doubt that you will both forge a path ahead and build a home together, if that is your long-term plan. I just want you to do it when you are ready, and without putting too much pressure on your finances and your relationship. You’ve both come so far already in an era of rising rates, prices and student debt.
I salute you both.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
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