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Spouses on different repayment plans (IBR vs PAYE)
August 6, 2018
4:01 pm
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So recently I’ve been reading (on your site, and elsewhere) that if a spouse also has significant student loan debt, you’re better off not filing separately. Rather that filing jointly, you’re paying the same amount overall that you both would as filing separately, but that each spouses account would get credited essentially in the proportion of overall debt held by that spouse.

My first question is that it appears that spouses can be on different repayment plans and this will work (https://blog.ed.gov/2017/07/something-borrowed-how-marriage-impacts-your-student-loans/). But the percentages aren’t really laid out. If one spouse is on IBR (15% of AGI) and one on PAYE (10% of AGI) then what is the percentage paid on the overall joint income? If both were on IBR, it’s simply 15%, but what is this if the percentages differ?

Second, and slightly more concerning, I cannot recreate numbers that make sense on the StudentLoans.gov calculator. Using some test baseline numbers, then switching them (as the spouse is the driver for the second run) I always come up with a higher amount being paid when filing jointly vs filing separately.
Test case:
Spouse 1:
AGI: $90,000
Debt: $220,000
Rate: 7.25%

Spouse 2:
AGI: $40,000
Debt: $70,000
Rate: 6%

Scenario 1 (Filing Jointly, $130,000 combined AGI)
Spouse 1: IBR – $999
Spouse 2: PAYE – $212/mo
Total: $1211/mo

Scenario 2 ( Filing Separately, Spouse 1: 90k; Spouse 2: 40k)
Spouse 1: IBR – $816/mo
Spouse 2: PAYE – $128/mo
Total: $944/mo

August 8, 2018
11:27 pm
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Indiana
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The student loan repayment calculator is not a perfect tool, so it wouldn’t come as a huge surprise if it produced strange results with this unique situation. When it was first created it did all spousal math wrong when both spouses have student loans and file jointly.

The first question to answer here is why would you be on different repayment plans. Is there a reason why you both cannot sign up for REPAYE? Or a reason why the two of you do not want to enroll in REPAYE? This would lower payments, and remove this potentially complicating issue.

August 10, 2018
12:22 pm
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My loans were in that unfortunately ’06-’09 period that had both high statutory interest rates, and before PAYE was implemented. As you can probably guess, this is law school debt , and graduating in the ’09 job market was tough. Being underemployed for many years, there’s a massive amount of unpaid interest (of that $220k, original principal amount is $161k, the rest is unpaid interest). Switching to REPAYE at this point would be probably suicide as it would capitalize all of that unpaid interest, leading to a foregiveness amount that could destroy me when it comes due.

I’ve got spreadsheets built for my unique situation and payments made, to map out just my past and future payments under both IBR and REPAYE until foregiveness, and the REPAYE one usually leads to a pretty ugly $100k+ tax bill. The tricky part is trying to figure out how to update those sheets to account for spousal income and spousal student loan debt.

Her loans were later, and qualify for the PAYE which is the best program, since it has all of the benefits of REPAYE, but none of the negatives such as combining spousal income regardless of filing status. The other fact that is both good news, and bad news, is that I finally got her into the studentloans.gov website and the loan debt isn’t nearly as bad as we thought. It’s only about $31k, not $70k. That’s great, obviously, but the possibility of an early pay-off complicates the math on REPAYE also since we’d be stuck on it, and her income would then be counted solely towards my loans for the remainder.

Again, understand this is a really unique and tricky situation, so I appreciate any advice.

August 10, 2018
1:52 pm
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Indiana
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It sounds like we were in law school at the same time. I have a few different thoughts on this, so I’ll just jump right in…

So your math says that the REPAYE switch would cause a larger balance than many years of IBR? I take it that means you are paying nearly 100% of the interest that accrues each month?

With your wife’s smaller balance, it sounds as though her debt might be paid in full before forgiveness enters the equation.

You are definitely right that this is a complicated situation. Especially if filing separately is on the table in the future because your wife’s loans will be eliminated.

You seem to grasp the pros and cons of the different routes and at a certain point, this becomes an accounting question. It might be well worth the investment to have an accountant chart out your spending across the various repayment options and tax filing strategies. I don’t know your career paths and future income changes could cause massive swings in strategy.

Given the size of your law school debt, have you looked into government lawyering? It might be a payout from your current salary, but the debt would be forgiven after 10 years.

One other random thought: going back to your original question about joint filing but on different repayment plans. If for some reason there is a “penalty” associated with being on different repayment plans (I don’t know of one, but assuming the worst), what if you had your wife also sign up for IBR? Unfortunately this is a situation that will likely require multiple calls with your loan servicer and detailed discussions about the costs of various options.

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