Getting married often hurts borrowers repaying federal student loans. In some cases, the marriage penalty is negligible or non-existent. In other cases, the marriage penalty is significant: monthly payments increase significantly, and some borrowers may miss out on student loan forgiveness.
For many couples, the marriage penalty makes repayment significantly more complicated. Taxes get recalculated, and repayment strategies changed. These subtle differences in repayment plan terms can have a huge impact on monthly payments for married couples.
The Biden administration could simplify repayment by eliminating the marriage penalty.
What is the Marriage Penalty?
For most borrowers, the best repayment option is an income-driven repayment (IDR) plan. The goal behind the IDR plans is to ensure that borrowers can afford their monthly student loan bills. These plans bill borrowers based upon what they can afford rather than what they owe. Another key feature of IDR is that borrowers can qualify for some of the best student loan forgiveness programs.
Unfortuantely for married borrowers, spousal income impacts plan selection and monthly payments. Most married couples file their taxes jointly. By filing taxes jointly, the combined income of the couple determines monthly payments. Unless your spouse has no income, this method of payment calculation results in higher monthly payments.
Higher payments also impact loan forgiveness math. Larger monthly payments leave a smaller balance to be wiped away at the time forgiveness is earned. The increased monthly bill may result in borrowers paying off their debt in full before forgiveness is earned.
How to Avoid or Minimize the Marriage Penalty
Some — but not all — IDR plans exclude spousal income if the couple files their taxes separately. However, filing taxes separately may mean a larger tax bill. As a result, many couples have to weigh the benefit of lower student loan payments against the larger tax bill. Even though most couples can figure out the best strategy without outside help, the process makes student loan repayment unnecessarily complicated.
Payments on non-IDR plans like the standard 10-year plan, the graduated, and extended plan do not include spousal income. Thus, borrowers can avoid the marriage penalty by selecting a non-IDR plan. However, this route may not be a viable choice for borrowers with larger balances and smaller incomes. Additionally, these non-IDR plans eliminate many student loan forgiveness options.
Arguably, the two biggest advantages of federal student loans are the IDR plans and student loan forgiveness. Unfortunately, getting married may greatly reduce both of these benefits. Due to the reduced usefulness of federal loans, many newly married borrowers may elect to refinance their student loans with a private lender.
Refinancing permanently converts federal debt into a private loan, but it also gives borrowers a lower interest rate. At present, the best refinance rates are with the following lenders:
| Rank | Lender | Lowest Rate | Sherpa Review |
|---|---|---|---|
| T-1 |  | 5.28% | ELFI Review |
| T-1 |  | 5.28%* | Splash Financial Review |
| 3 |  | 5.49% | Laurel Road Review |
The options to avoid the marriage penalty are complicated, and they all come with major drawbacks. However, these strategies may help borrowers reduce the total cost of the marriage penalty.
Why Penalize Married Borrowers?
There isn’t any evidence to indicate that the government specifically intended to create a marriage penalty for student loan borrowers.
Instead, the marriage penalty appears to be a byproduct of our tax filing system. Unlike most other countries, American couples usually file taxes together. Because the most recent tax return is the preferred way to document income for IDR payment calculations, spousal income becomes a factor.
Many aspects of the U.S. policy seem to encourage marriage. In addition to tax breaks, couples have healthcare benefits, better insurance terms, and important legal protections. Thus, penalizing marriage for student loan borrowers is inconsistent with the majority of U.S. federal policy.
How the Government Could End the Marriage Penalty
Fixing the marriage penalty is simple.
Instead of relying upon a recent tax return, borrowers could use recent paystubs to document their income when calculating IDR payments. Federal servicers already use recent paychecks to calculate payments for borrowers who have a change in income. Couples could opt to use this alternative documentation approach to certify payments without their marital status entering the equation.
This fix is simple. It makes student loan repayment significantly less complicated, and it means student loan borrowers can get married without having to worry about an expensive marriage penalty in student loan repayment.
President Biden is currently in the process of streamlining and simplifying IDR repayment. Eliminating the marriage penalty should be a part of this discussion.
This is a really helpful article. Can I ask your help with a related question? I am engaged and my fiance and I would like to get married this November. He has over 100K in student loans and I have no loans anymore. His income is less than mine, and this year much less, so we’re trying to sort out both tax filing and loan repayment.
I have 2 questions:
If there is a better place to ask you this, please let me know. I’m very grateful for your article.
Katie
Hi Katie,
Thanks for the kind words and great questions.
1) Married filing separately is a tax consideration that is independent of your student loan plan. Any couple can file jointly or separately. Remember, income certifications last for one year, and they will look at the most recent tax return. If your husband does his yearly certification just before you get married, he potentially could have an entire year worth of REPAYE payments based upon his single status. When the yearly recert time comes around again, it sounds like you want to switch to PAYE. At that time, they will look at his most recent tax return to determine payments.
2) There isn’t a single calculator that can look at the tax and repayment issues at the same time. At least, not that I am aware of. I’d suggest using tax filing software and essentially doing your taxes twice, once jointly and once separately. Then use the Department of Education Loan Simulator to see different repayment plan options.
Best of luck to you both!