One of the more confusing topics on federal student loans is the calculation of IDR payments on plans like IBR, PAYE, and SAVE for married couples who both have student loans.
Many couples fear that their student loan payments will double if they get married. This is not the case.
Your payments will almost certainly change if you get married, but the change depends upon several details.
A Note from the Sherpa: This article was initially written in the early days of this site. It has since been updated numerous times to include up-to-date information, including the new SAVE plan.
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 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 doubled.
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 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 fully satisfied with this answer, I turned to Google for further help based on the information from my lender. A bit of legal research followed. Eventually, I found the definitive answer in 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 CFR § 685.209(a)(2)(ii)(B).
This legal jargon basically says that the total IDR payment is calculated for the couple. Individual payments are then based on 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 the same IDR plan, her payment will be double yours.
Calculating Monthly Payments
One of the best tools for calculating monthly payments is the Department of Education’s Loan Simulator. Couples can add both their incomes and student loans to get an accurate projection of monthly payments.
For those who 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. The spouse who borrowed more will be the one with the higher payments.
How Married Couples Pay More on IBR, PAYE, and SAVE
Now, things get complicated.
Even though the double payment concern doesn’t exist, it is still possible that payments will go up.
The increase can be traced back to the discretionary income math. Loan payments are based upon discretionary income, defined as earnings above 150% of the federal poverty level. (Note: SAVE uses a more generous 225% of the poverty guidelines.)
A quick example of payment calculations will help illustrate the issue. Suppose I earn $44,000 annually, and the federal poverty guidelines say that 150% of the poverty level is $20,000. My discretionary income is $24,000 per year or $2,000 per month. If I were on PAYE, 10% of my monthly discretionary income would be $200. Thus, I pay $200 per month on PAYE.
For couples who both have student loans, filing jointly or separately impacts the amount of money that you keep each year before you have to make payments. If you file separately, you get to keep that first $20,000, and your payments are based upon the rest. Your spouse also keeps the first $20,000, making payments based on the additional income. By filing separately, you EACH get to keep that first bit of income.
If you file jointly as a couple, you only get to keep that first bit of income once. If your combined income is $90,000, you subtract that $20,000 from the poverty guidelines once, leaving $70,000 of discretionary income. Because of this distinction, a couple will pay slightly more if they file jointly.
For many couples, the slight increase may not offset the downsides of filing separately. However, the only way to know for sure is to do the math on filing jointly and filing separately. Between tax programs that quickly estimate your tax bill and the Department of Education Loan Simulator, comparing the two options isn’t difficult.
Special Rules for REPAYE and SAVE
At one point, the REPAYE plan had special rules for married couples who filed separately. In most cases, borrowers still had to include their spousal income, even though they filed separately. For this reason, many married borrowers were encouraged to stick with PAYE or IBR.
With the creation of the new SAVE plan, the old REPAYE rules were eliminated. This is excellent news for married borrowers who want to take advantage of the new SAVE plan.
Now, spousal income is treated the same for all IDR plans. If you file separately, you can exclude your spouse’s income from your loans. If you file jointly, payments are based on your combined income.
When Married Couples Who Both Have Student Loans Should File Separately
Adding kids to the equation can change the math.
As one reader noted in the comments, being in a family of four means that the poverty guideline number is much higher than it would be for just two. Filing separately and being able to subtract that number twice can make a big difference.
The larger your family, the bigger the potential savings from filing separately, even if you both have student loans.
The Short and Simple Answers for IBR, PAYE, and SAVE Couples Who Both Have Student Loans
- Filing taxes jointly does not mean your student loan payments will double.
- Filing taxes jointly does mean that your monthly payments will be somewhat higher.
- If you have a larger family, the IBR and PAYE benefit of filing separately goes up.
- Borrowers should compare the potential savings of filing separately against the higher taxed bill caused by filing separately.
Finally, I’d also like to point out that getting a low IBR or PAYE payment is not the goal of federal student loan borrowers. The goal is to eliminate the debt. For borrowers chasing after student loan forgiveness, the lower payments are valuable. If you will eventually pay the debt off in full, lower monthly payments just mean the loan will cost more in the long run.