Student Loans, Marriage and IBR (Income Based Repayment)

Michael Lux Best Of, Blog, Student Loans 5 Comments

When one thinks about wedded bliss, many happy thoughts come to mind.  To the super frugal, one of the benefits of marriage is the tax advantages.

However, for anyone with student loans who is planning on getting married or already married, it is important to think about your student loans.  This is especially true for people on the Income Based Repayment (IBR) plan or the Pay As You Earn (PAYE) plan.  Its hardly sexy or romantic to think about, but your decisions could mean thousands of extra dollars in your pocket.

Why Does this Matter?

When you fill out the paperwork for your income based repayment plan, one of the questions that you will notice is that it asks if you are married.  Many married couples have learned the hard way that IBR payments can be based upon the income of the couple.  If you file jointly, when your lender calculates what you can afford to pay on your loans, they will use both of your incomes.  If you file separately, they will only factor in your individual income.  This can make a huge difference in your IBR or PAYE payments.

Does this mean that all married couples on PAYE or IBR should file separately?

Not necessarily!  There are many tax advantages to filing jointly instead of separately.  This is one of those questions where there is not an easy answer and it really depends upon your individual circumstances.

How do I decide what is best for me?

This is one of those situations where you will have to do some math and perhaps even contact an accountant to get the answers you seek.  Start by checking out the federal government payment calculator.  It is a great tool because you can alternate between filing separate and jointly to figure out your potential costs.  Compare this monthly savings with the additional taxes that you will have to pay if you file separately.  I’m not a tax expert, so I’m not going to speculate on how big the tax difference is.  I will just tell you that I know for a fact that it changes things and it is just a question of how much.

Other Considerations

Remember, that even if you do lower your IBR payments, you still are responsible for the balance of your loan.  Paying less now means more in the future.  Obviously, programs like student loan forgiveness can change your repayment strategy, but it is something to keep in mind.

 

Readers: Have you faced this issue?  How did you and your spouse figure out your plan of action?

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Dear Debt

My partner and I are not married and I don’t have IBR. I could or should, but am trying to eliminate loans asap!

Andrew

I work in government and there is a salary schedule so I have a good idea of where my income will be in the future. The IBR just didn’t make sense as I would have a larger monthly payment (compared to my extended payment plan) and while the calculator said I could afford it, I live in NYC where the calculators don’t always take into account. I preferred to get the benefit of married filing joint…

Matt @ momanddadmoney

It really bugs me how complicated our tax system is. It’s ridiculous to me that all of these decisions get so intertwined and complicated so that normal people have a ton of trouble even knowing they exist, let alone figuring them out.

Marie at Family Money Values
Marie at Family Money Values

I did not know that. My son’s wife just graduated from nursing school, using student loans. They married mid stream in her education. However, she is currently delaying the payback somehow because she works for a public institution.

MoneySmartGuides
MoneySmartGuides

Never thought of this. Just another reason to work hard to get your student loans paid off before you get married or at least knock them down a good bit.