Over the last few days, I’ve received several questions about IBR, and other income-driven plans such as REPAYE and Pay As You Earn. It seems there is a ton of confusion about calculating income-driven payments with spouses each have student loans.
The basic rule is straightforward: If you and your spouse both have student loans and both are on an Income-Driven Repayment Plan, then as a couple, your total payments will be approximately the same as they would be if you were single.
Your payments may change if you get married, but the change to your partner’s payments will offset the billing difference. For example, if your monthly payment goes up by $100, your partner’s monthly payment will go down by about $100.
The Rules for Couples on Income-Driven Repayment Plans
I usually don’t like to dwell on the research that goes into each article, but given that there is so much contradictory information out there on this topic, it is probably prudent.
Like any student loan issue, it starts with a call to the student loan servicer. When I asked about how marriage would affect my student loan payment, I proposed the following hypothetical. Suppose my spouse and I each make $40,000 per year, both have student loans, and both are on IBR. Will our payments be the same as two single people making $40,000 per year, or will they be double? I was told confidently (and incorrectly) that our payments would be double.
Because I was reasonably confident that the provided information was incorrect, I politely went through several other hypotheticals with my lender. Eventually, the customer service representative changed her answer. She explained that if we both were on IBR before marriage and then got married, our total payments should remain the same. She based this response on the Income-Driven Repayment application form. This particularly clever customer service representative noticed that you could submit information about your spouse’s federal student debt. They wouldn’t ask for this information if it didn’t count. Thus, she concluded that her initial answer was wrong and that payments would not double if two IBR borrowers got married.
Not being fully satisfied with this answer, I then turned to Google for further help based upon the information from my lender. A bit of legal research followed. Eventually, I found the definitive answer in the form of the Code of Federal Regulations, specifically, 34 CFR 685.221(b)(2)(ii), which states that when calculating IBR payments:
The Secretary adjusts the calculated monthly payment if—Both the borrower and borrower’s spouse have eligible loans and filed a joint Federal tax return, in which case the Secretary determines—
(A) Each borrower’s percentage of the couple’s total eligible loan debt;
(B) The adjusted monthly payment for each borrower by multiplying the calculated payment by the percentage determined in paragraph (b)(2)(ii)(A) of this section; and
(C) If the borrower’s loans are held by multiple holders, the borrower’s adjusted monthly Direct Loan payment by multiplying the payment determined in paragraph (b)(2)(ii)(B) of this section by the percentage of the total outstanding principal amount of the borrower’s eligible loans that are Direct Loans;
Similar language for PAYE can be found at 34 C.F.R. § 685.209(a)(2)(ii)(B).
This legal jargon basically says that the total IBR payment is calculated for the couple. Individual payments are then based upon the portion of the debt in the name of that particular spouse. So if your spouse has twice the student debt you do, if you both are on IBR, her payment will be double yours… but as a couple, your total payment will effectively stay the same.
Avoiding Confusing Information
Many customer service representatives will get this information wrong as mine did. This is a pretty complicated bit of student loan rules, so it isn’t reasonable to expect them to advise you on this subject perfectly.
Perhaps that most harming source of bad information is the department of education student loan calculator. This estimator does not account for spousal student debt but does include spousal income. So if you estimate your payment, and then estimate your spouses, it is possible you will get a number double what you owe.
UPDATE 11/7/16: Great news on the repayment estimator site… it now includes an option to list spousal income as well… meaning this previously lousy resource is now very helpful!
Calculating Monthly Payments
Now that the Department of Education’s Student Loan Estimator is working for married couples who both have student debt, borrowers can estimate their monthly payments as a married couple.
For those that want to understand how the calculations are made, the Department of Education is first looking at the combined adjusted gross income (AGI) of the couple from their most recent tax return. From that number, the Department will calculate the discretionary income of the couple. Depending upon the Income-Driven Repayment plan selected, the couple will be responsible for paying 10, 15, or 20% of their discretionary income towards their federal student debt. (Up to this point, the process for single individuals and couples is the same.)
When couples both have federal student loans, the payment is split proportionally to how much each partner has borrowed. In other words, the total spending each month will be the same, but the spouse who borrowed more will be the one with the higher payments.
An Example of Changing Payments after Getting Married
Your current monthly PAYE payment is $100. Your future spouse has a PAYE payment of $50. Combined, the two of you spend $150 per month.
Upon getting married, your individual monthly payments may change, but the total should be approximately the same. If you and your new spouse both have approximately the same amount of federal debt, you will each pay $75 per month. Even though your payment went down, your new spouse’s payment went up by the same amount.
If you and your spouse both have student loans and both sign up for IBR or PAYE, there shouldn’t be a marriage “penalty” if the paperwork is processed correctly. However, given the complicated nature of this issue, it is worth keeping a close eye on as your documents are processed.