Does Spouse Income Count for Student Loan Repayment?
Married with student loans? Understand how your spouse's income and tax choices shape your repayment obligations.
Federal student loan repayment can be complex, especially when marriage is involved. Borrowers often wonder how a spouse’s earnings influence their student loan obligations. Understanding the interplay between marital status, income, and repayment options is essential for managing student loan debt effectively, as different plans account for household income differently.
How Spouse Income Affects Student Loan Repayment
A spouse’s income can directly impact federal student loan payments, especially for those enrolled in Income-Driven Repayment (IDR) plans. These plans—PAYE, IBR, ICR, and SAVE—adjust monthly payments based on a borrower’s income and family size. The treatment of spousal income varies among these plans, largely depending on how a couple files taxes.
For instance, the SAVE plan includes spousal income in the payment calculation regardless of how taxes are filed. However, recent changes to the SAVE plan allow borrowers who file as “married filing separately” to exclude their spouse’s income. For PAYE, IBR, and ICR plans, a spouse’s income is considered only if the couple files federal income taxes jointly. If they file separately, only the borrower’s individual income determines the monthly payment.
IDR plan payments are calculated based on “discretionary income,” which is the difference between a borrower’s Adjusted Gross Income (AGI) and a percentage of the federal poverty guideline for their family size. For PAYE and IBR plans, discretionary income is AGI minus 150% of the poverty guideline. For the ICR plan, it is AGI minus 100% of the poverty guideline. The monthly payment is a percentage of this discretionary income: 10% for PAYE, 10% or 15% for IBR (depending on when loans were taken out), and 20% for ICR.
Discretionary income changes annually as federal poverty guidelines are updated and as a borrower’s income or family size changes. Including a spouse’s income can increase the household’s AGI, potentially leading to higher monthly student loan payments. Understanding the implications of tax filing status is important for married borrowers.
Choosing Your Tax Filing Status
The decision to file federal income taxes jointly or separately significantly influences student loan payments under income-driven repayment plans. Most married couples file jointly, often resulting in a lower overall tax liability due to various tax benefits, credits, and deductions. However, for borrowers with federal student loans on IDR plans, filing separately can sometimes lead to lower monthly loan payments.
When a couple files jointly, their combined Adjusted Gross Income (AGI) is used to calculate the student loan payment for most IDR plans. This means the other spouse’s income contributes to the payment calculation, even if only one spouse has student loans. Filing separately allows borrowers to have their student loan payments calculated solely on their individual income, potentially reducing the required monthly payment. This strategy is relevant for PAYE, IBR, and ICR plans, where a separate filing status excludes spousal income.
Opting for “Married Filing Separately” status, while beneficial for student loan payments, often comes with tax disadvantages. Couples filing separately may lose access to tax credits like the Earned Income Tax Credit, Child Tax Credit, and education credits. They also become ineligible for the student loan interest deduction and may face higher tax rates or a reduced standard deduction. Tax professionals advise filing jointly for overall tax savings, so borrowers must weigh potential student loan payment savings against a potentially higher household tax bill.
In community property states, the impact of filing separately can differ. Income earned during marriage is considered equally owned by both spouses, regardless of who earned it. If a couple files separately in a community property state, their combined income may still be split equally for AGI purposes, which could affect the student loan calculation.
Applying for Income-Driven Repayment
Applying for an Income-Driven Repayment plan ensures proper processing and calculation of your monthly payments. The application can be completed online through the Federal Student Aid website or by submitting a paper form directly to your loan servicer.
Borrowers need to provide personal details, employment history, family size, and marital status. Submitting proof of income is a key part of the application. This is done by providing consent for the Department of Education to access your federal tax information directly from the IRS, which automatically retrieves your Adjusted Gross Income (AGI) from your most recent tax return.
If your income has changed significantly since your last tax filing, or if you did not file taxes, you can provide alternative documentation of income. This might include recent pay stubs, a letter from your employer stating your gross pay, or a signed statement explaining your current income if formal documents are unavailable. After submitting the application, your loan servicer will review the information. Once approved, you will need to recertify your income and family size annually to remain on the IDR plan and ensure your payments accurately reflect your financial situation.