One of the issues with the Revised Pay As You Earn Plan is that spousal income is almost always included in calculating your ability to pay (unlike IBR and PAYE). However, if you and your spouse would both benefit from REPAYE, it still might be a good option.
The following email outlines a common situation…
Hi there –
I just heard about the new student loan program REPAYE and wondering if it would be a benefit to me and my soon-to-be spouse. I have huge student loan debt from grad school and then never went into my related field. My current interest rate (because these loans are so old) is 7.5% and annually my interest after my payments is being capitalized at a alarming rate. I am getting married in the fall and just discovered the REPAYE program. The amount of my repayment would be manageable under my income alone. However, when you factor in my soon-to-be spouse, it is much more difficult on our finances. I actually used the calculator for approximate monthly payments.
The kicker is that my soon-to-be spouse would also benefit very much from the REPAYE program while single. What do we do when both of us use the REPAYE program. Is our monthly payment split into two and cover both of us totally 10% of the determined discretionary income? Or will it cost us 20% of our discretionary income for payment of both of our student loan debt? I haven’t been able to find that answer anywhere and your help is greatly appreciated!!
So what are the payments?
To answer Carlos’s question, 10% of your combined income will go towards student loan payments, not 20%.
Where things get complicated is determining who pays what. The first determination is how much you owe as a couple. This number will be 10% of your combined discretionary income. Once you know how much you owe as a couple, each individual’s bill is determined based upon how much they owe. So if you owe $100,000 and your spouse owes $50,000, your bill will be double your spouse’s because you have twice the debt. If your combined payment was calculated to be $300, it means your monthly bill would be $200 and your spouse’s would be $100. If you each owed $100,000 on your student loans, your payments would be equal, thus with a combined payment of $300, each of you would be responsible for $150 per month.
The Tricky Part
Many of the customer service representatives at the federal loan servicers do not understand this concept, so it can be very difficult to get a clear explanation.
The processing of the new payments is also fairly difficult. Lenders have already had issues with processing REPAYE payments for individuals; so getting it right for couples will add an extra layer of difficulty. We would suggest you talk with your lender(s) about the best way to process the paperwork so that your payments are calculated accurately the first time around. This may require a couple phone calls and asking to speak to supervisors in certain circumstances.
It will also be important for you to have a pretty good idea of how much you should be paying under REPAYE. That way if you get a bill and the numbers seem way off, you catch it before you pay more than necessary.
Ultimately, REPAYE can be a great option for couples who both have large amounts of student debt. The hard part is getting it all set up.