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Something Borrowed: How Marriage Impacts Your Student Loans

Recently married? Getting married soon? Congratulations! Weddings can require a lot of planning, and you probably already have a ton on your plate, but there is one item you may not have on your to-do list that I recommend you add—figuring out how getting married can impact your student loans.

Now that you’ve read the title, I’m sure you’re thinking, “Wait. Getting married impacts my student loans?” If you’re enrolled or interested in enrolling in an income-driven repayment plan, it sure can.

Filing taxes jointly with your spouse always means we’ll use your joint income when calculating payments under an income-driven repayment plan.
Filing taxes separately from your spouse usually means we’ll use just your income when calculating payments under an income-driven repayment plan.
If we are using a joint income to calculate your payment and your spouse has federal student loans, your payments will be reduced to account for your spouse’s loan debt.
Filing taxes separately can make some income-driven repayment plans more affordable, but you might take a tax hit.

Let’s dive in.

Income-Driven Repayment

Instead of choosing the 10-year Standard Repayment Plan, many borrowers choose to repay their federal student loans according to their incomes. This is called income-driven repayment. Like the name and my brief description implies, income-driven repayment plans use your income and family size to calculate your payment. If you’re enrolled in an income-driven repayment plan [ https://studentaid.gov/IDR ] and you’re married, we not only ask about your income, but also about your spouse’s income as well.

How you file your taxes affects how your income-driven payment amount is calculated

Income-driven repayment plans generally set your student loan payment according to your adjusted gross income (AGI). What is your adjusted gross income? It’s a number from your federal income tax return. After you get married, you have the option to file your federal income tax return jointly with your spouse or separately from your spouse. When you file a joint federal income tax return, there’s just one adjusted gross income, based on the combined income of you and your spouse.

As a general rule:

If you file a joint federal income tax return with your spouse, we’re going to base your student loan payment on your joint income.
If you file a separate federal income tax return from your spouse, we’re going to base your student loan payment on your individual income.

One exception:

Revised Pay As You Earn (REPAYE) Plan: The one exception to this general rule is the REPAYE Plan, which bases your student loan payment on the combined income of you and your spouse regardless of whether you file jointly or separately.

All of the other income-driven repayment plans—the Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) plans—follow the general rule that looks at how you file your federal income tax return with your spouse in deciding how to calculate your payment.

Here’s a table for you visual learners.

How you file your taxes matters: Comparing the effects of filing jointly versus separately on the income-driven repayment plans
Repayment Plan Income Considered When Married Filing Jointly Income Considered When Married Filing Separately
Revised Pay As You Earn Joint Income Joint Income
Pay As You Earn Joint Income Individual Income
Income-Based Repayment Joint Income Individual Income
Income-Contingent Repayment Joint Income Individual Income

If it seems like using a joint income is going to disadvantage you, you can, of course, file your tax return separately from your spouse in order to ensure that your payment is based only on your income. However, before you jump to that option, you should consult a tax professional and consider your total financial situation. Most married couples file a joint federal income tax return for a reason: there are financial benefits to doing so [ https://www.irs.gov/publications/p17/ch02.html#en_US_2016_publink1000170782 ]. While we aren’t tax advisors, here are a few things you may give up by filing separately:

More advantageous tax brackets
The student loan interest deduction
The child care tax credit
The earned income tax credit

It can be difficult to figure out whether the tax benefits you lose by filing separately are worth the money you might save on your monthly loan payment. Only a financial advisor is going to be able to give you expert advice. However, the New York Times Upshot Blog [ https://www.nytimes.com/interactive/2015/04/16/upshot/marriage-penalty-couples-income.html ] posted an article several years ago that may help you make sense of some of this.

All this being said, when you’re married, filing jointly or separately isn’t the end of the story, however. So, if you’re worried that filing jointly is going to disadvantage you, read on.

Your spouse’s federal student loan debt can also affect how your payment is calculated

For us to take your spouse’s loan debt into consideration, only two things need to be true:

your spouse’s income needs to be included in the calculation (based on the criteria above), and
your spouse needs to have federal student loan debt.

So, any time we use a joint income to calculate your payment amount, we will also take into account any federal student loan debt your spouse has. We will then prorate your payment based on your share of your and your spouse’s combined federal student loan debt. And for the record, your spouse doesn’t need to be repaying his or her federal student loans under the same repayment plan as you or even under an income-driven repayment plan. Here’s an example.

Example:

Let’s say that you file taxes jointly with your spouse. You make $30,000 and your spouse makes $40,000. You don’t have any kids, and you live in the contiguous 48 states. You have a combined income of $70,000. Under the Pay As You Earn plan, payments are 10% of your discretionary income [ https://studentaid.ed.gov/sa/glossary#Discretionary_Income ]. That works out to be $380.33 per month. Now let’s say that you and your spouse each owe $30,000 in federal student loans, for a combined total debt of $60,000. Stated differently, you each owe half (50%) of the combined federal student loan debt. So, we take that $380.33 and divide it in half, to get $190.15. That $190.15? That’s your monthly payment. If your spouse independently applies for the Pay As You Earn Plan (which he or she would have to do in order to enroll), your spouse’s payment would also be $190.15 per month. If your spouse chooses a different repayment plan, his or her payment may be different, but it won’t affect your calculated payment of $190.15.

Now I hear you saying, “But what if my spouse doesn’t have federal student loans?” Well, under the example above, that $380.33 would be your payment, because you owe 100% of your and your spouse’s combined federal student loan debt.

If that $380.33 isn’t affordable to you, and you’re interested in the Pay As You Earn, Income-Based Repayment, or Income-Contingent Repayment plans, this brings us to your other option: filing taxes separately from your spouse. Using the example above, if you filed separately from your spouse, your payment would be based only on your income of $30,000. Under Pay As You Earn, your payment would be $47 per month. The chart below walks you through the different options.

Comparing the effects of filing jointly versus separately on the Pay As You Earn Plan when your spouse does and does not have federal student loan debt.

Married Filing Jointly

Married Filing Separately
Tax Filing Status Spouse HAS Federal Student Loan Debt Spouse DOESN’T Have Federal Student Loan Debt Spouse HAS Federal Student Loan Debt Spouse DOESN’T Have Federal Student Loan Debt
Your Income $30,000 $30,000 $30,000 $30,000
Your Loan Debt $30,000 $30,000 $30,000 $30,000
Spouse’s Income $40,000 $40,000 $40,000 $40,000
Spouse’s Loan Debt $30,000 $0 $30,000 $0
Relevant Income $70,000 $70,000 $30,000 $30,000
Relevant Loan Debt $60,000 $30,000 $30,000 $30,000
10% of Discretionary Income $380.33 $380.33 $47 $47
Your Percentage of Relevant Loan Debt 50% 100% 100% 100%
Your Monthly Payment $190.15 $380.33 $47 $47

Okay, let’s take a look one last time at the example above where you have student loan debt and your spouse does not. In that case, your Pay As You Earn payment would be $380.33 if you file jointly and $47 if you file separately. So, you can save $333.33 per month by filing separately. Is that worth it? Well, that savings works out to $3,999.96 over the course of the year. Will your taxes go up less than $3,999.96? More than $3,999.96? At all? That’s what you need to find out. If your taxes don’t go up by filing separately or they go up less than $3,999.96 by filing separately, it may make sense to file separately.

Let’s sum up.

If you file taxes jointly with your spouse or choose the Revised Pay As You Earn Plan (REPAYE), your joint income will be used to calculate your income-driven payment amount.
Any time a joint income is used, your payment is prorated if your spouse also has federal student loan debt.
If your spouse doesn’t have federal student loan debt, you can get a lower payment by filing your taxes separately under all income-driven plans except REPAYE, but the amount of income tax you owe may go up if you do.
You can apply for an income-driven repayment plan on StudentLoans.gov. You must recertify your income and family size each year to remain on these plans.
If your spouse also wants to enroll in an income-driven repayment plan, he or she must complete a separate income-driven repayment plan application on StudentLoans.gov [ https://studentloans.gov/myDirectLoan/ibrInstructions.action ]. Additionally, you each need to co-sign each other’s applications.

Ian Foss is a Program Specialist at the U.S. Department of Education’s office of Federal Student Aid.