Today we are going to focus on income driven repayment plans for spouses who both have federal student loans.
Much of the discussion on spousal income revolves around avoiding your spouses income to lower student loan payments. This is usually the case in couples where only one spouse has federal student loans. Options like filing taxes separately are available and the math starts to get pretty complicated.
However, when you both have student loans, the math gets much easier.
If you are reading this article, you probably already know that PAYE and REPAYE require 10% of your discretionary income each month while IBR requires 15% of your discretionary income. (Tip: if you both have federal loans and are signing up for an income driven plan, try to sign up for PAYE or REPAYE — IBR advantages mainly come into play for couple where only one person has federal student loans).
Figuring out your monthly payments is a two-step process. Step One: figure out how much you are expected to pay as a couple. Step Two: figure out how much each spouse pays each month. The combined monthly payment will always be the amount you are expected to pay as a couple.
Suppose you and your spouse each make $60,000 per year in discretionary income. (To keep the math easy we will assume that as a couple you have $120,000 in discretionary income). If you both are signed up for REPAYE, as a couple you will be expected to pay $12,000 per year towards your student loans, or $1000 per month. This is because 10% of that combined $120,000 is $12,000.
Now lets assume husband has $20,000 in federal student loans and wife has $60,000 in federal student loans. Husband’s bill each month will be for $250 and wife bill each month will be for $750. This is because wife’s balance is 3 times large than husbands, so her payment will be 3 times higher. If husband and wife had equal debts, they would have equal $500 payments. The key takeaway here is that as a couple you will always be paying 10% of your combined discretionary income. Who pays what is just a function of who owes more on their student loans.
If your head is starting to spin, the good news is that there is a calculator that you can use to figure out how much you and your spouse will have to pay for your student loans. The Department of Education Repayment Estimator does a nice job of collecting the relevant information and providing pretty good estimates of what you will be expected to pay.
Dealing with Lender Issues
Many customer service representatives do not understand how the math works in this situation. They may tell you that as a couple you are paying 20% of your total combined income on your student loans. This is not accurate. Most of the time even when the service representative is wrong in their explanation, once the application is processed, the numbers they return are actually correct. In this case the repayment estimator on the department of education website may be a better source of accurate information than the customer service rep.
If you are interested in digging a little deeper into this issue, we first looked at it last year in the case of married couples both on IBR. This in-depth article includes code of federal regulations citations as well as details from the paperwork on how spousal income is calculated.