Do I Have to Include My Spouse’s Income for Student Loan Repayment?

When navigating student loan repayment, borrowers often wonder how a spouse’s income affects their obligations. Understanding this can be complex, as the impact of spousal income depends on the type of student loan and the chosen repayment strategy. This article clarifies these elements to help borrowers make informed decisions regarding their repayment options.

When Spousal Income is Considered for Student Loans

A spouse’s income becomes relevant primarily for federal student loans managed under Income-Driven Repayment (IDR) plans. These plans, such as Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR), are designed to make monthly payments affordable by basing them on a borrower’s financial situation. For federal student loans on standard repayment plans or for private student loans, a spouse’s income does not influence the monthly payment calculation.

IDR plans calculate payments using a borrower’s Adjusted Gross Income (AGI), which is a figure from a federal tax return representing gross income minus certain deductions. The specific rules for including spousal AGI vary by IDR plan and the tax filing status elected by the married couple.

“Discretionary income” is central to IDR calculations. This represents the portion of a borrower’s income considered available for student loan payments after accounting for essential living expenses. It is determined by subtracting a percentage of the federal poverty guidelines for a given family size from the borrower’s AGI. The inclusion of a spouse’s income directly impacts the AGI used in this calculation, which in turn affects the determined discretionary income and the resulting monthly payment.

Impact of Tax Filing Status on Repayment

The choice of tax filing status significantly influences whether a spouse’s income is included in federal IDR payment calculations. For most IDR plans, if a married couple files their taxes as “Married Filing Jointly,” both spouses’ Adjusted Gross Income (AGI) will be combined. This combined AGI can lead to a higher calculated discretionary income and, consequently, a higher monthly student loan payment.

Conversely, filing taxes as “Married Filing Separately” generally allows the borrower to exclude their spouse’s income from the IDR calculation for most plans. This can result in a lower calculated payment, as only the borrower’s individual AGI is considered. The Income-Contingent Repayment (ICR) plan is an exception, as it may still consider spousal income even if taxes are filed separately, or allow for joint repayment regardless of filing status. The SAVE plan specifically allows for the exclusion of spousal income if taxes are filed separately, which is a change from its predecessor, REPAYE.

Choosing to file “Married Filing Separately” to reduce student loan payments can have various tax implications. Couples filing separately often lose access to certain tax benefits, such as specific education credits, the student loan interest deduction, and the Child Tax Credit. The standard deduction for married individuals filing separately is also half of what it is for those filing jointly, which could result in a higher overall tax liability. Borrowers should carefully weigh potential student loan savings against any increased tax burden, consulting with a tax professional for personalized advice.

Calculating Your Income-Driven Repayment Amount

Income-Driven Repayment (IDR) plans determine monthly payments based on a formula that accounts for a borrower’s Adjusted Gross Income (AGI) and family size. The core of this calculation involves determining “discretionary income,” which is the difference between your AGI and a specified percentage of the federal poverty guideline for your family size. For most IDR plans, this percentage is 150% of the poverty guideline, but for the SAVE plan, it is 225%, meaning a larger portion of income is protected, potentially leading to lower payments.

Once discretionary income is calculated, your monthly payment is typically a percentage of that amount, varying by IDR plan. For instance, the SAVE and PAYE plans generally set payments at 10% of discretionary income, while IBR can be 10% or 15% depending on when loans were first taken out. The ICR plan uses 20% of discretionary income or a payment based on a 12-year standard plan, whichever is less. For example, if a borrower’s AGI is $50,000 and the 225% poverty line for their family size is $40,000, their discretionary income would be $10,000 ($50,000 – $40,000). A SAVE plan payment would then be 10% of this $10,000, or $1,000 annually, divided by 12 for a monthly amount.

The federal poverty guidelines are updated annually and vary by family size and location, directly impacting the discretionary income calculation. An increase in family size, such as adding a spouse or dependent, generally increases the protected income amount, which can reduce the calculated discretionary income and subsequently lower monthly payments. Borrowers can use online simulators provided by the Department of Education or their loan servicers to estimate payments under different IDR plans based on their specific financial circumstances.

Key Considerations for Your Repayment Strategy

A crucial requirement for borrowers on Income-Driven Repayment (IDR) plans is the annual recertification of income and family size. Changes in either the borrower’s or their spouse’s income, or adjustments to family size, will directly affect future monthly payment amounts.

Historically, some married couples held joint federal spousal consolidation loans, which combined their federal student loan debts into a single loan. While these loans are no longer offered, a recent law, the Joint Consolidation Loan Separation Act of 2021, now allows borrowers to separate these older joint loans into individual Direct Consolidation Loans. This change provides flexibility for couples, particularly in cases of divorce or separation, to manage their individual loan obligations.

An increase in combined income could lead to higher IDR payments, while a decrease might result in lower payments. Seeking professional advice is beneficial. Consulting with a qualified tax professional can help evaluate the tax implications of different filing statuses, and a student loan expert or loan servicer can provide tailored guidance on repayment plan options.