Income-driven repayment plans can help student loan borrowers who have a lot of debt from school but don’t earn enough money to reasonably afford the monthly payments. However, if you go this route, be aware that income-based repayment for married people is a little different than for single borrowers.
If you’re single, an income-driven repayment plan — and the paperwork required to enroll — is pretty straightforward. You’ll just need to share some basic personal information about yourself and your finances.
But taking advantage of an income-driven repayment plan when you’re married can get complicated. Depending on how you file your taxes, your spouse’s income may or may not impact your repayment plan. You’ll also have different paperwork and documentation to submit, and the situation could change if you get divorced.
Here are some points to consider if you’re interested in income-driven repayment plans and are married:
- Marital status impacts your income-driven repayment plan
- Should you file separately to get a lower monthly payment?
- Changes to the income-driven repayment request form
- Dealing with divorce and student loan repayment
Income-driven repayment plans look at your total household income — also known as your adjusted gross income, or AGI — when determining what your monthly student loan payment will be. When you’re single, your household income is likely just your paycheck.
But when you get married, you may have an additional source of income coming to your household, thanks to what your spouse earns, and this will, of course, increase your AGI. That might seem like good news for your finances, but it can mean a larger student loan payment.
Your payment also depends on whether your spouse has federal student loans. Both of your incomes and loans can factor into determining how much you may pay each month.
A key issue involves how you and your spouse file your taxes, since your repayment will be based on the income from your tax return.
Filing jointly means your total household income — generated by both you and your spouse — is taken into consideration by an income-driven repayment plan.
However, “married filing separately can substantially lower your loan payment,” explained Mark Struthers, a certified financial planner who founded Sona Financial. “Your household size stays the same, but your income goes down when they calculate discretionary income.”
It may seem like the obvious step is to check the “married filing separately” box on your next tax return in order to get a lower required payment on your student loans. But this approach comes with some downsides, such as losing some important tax breaks and credits. These could include:
- Child and dependent care tax credit
- Earned income tax credit
- Deduction of net capital losses
You could also lose the ability to claim the student loan interest tax deduction, so filing separately to prioritize your debt repayment may not make sense unless you’re sure that savings in student loan payments on this plan will be more than what you’ll pay in extra income tax.
There’s no one right answer as to whether you should file jointly or separately when you’re on an income-driven repayment plan and married. You need to look at a number of factors, including:
- Your income, your spouse’s income and your total household earnings
- Your current student loan payment
- Whether or not your spouse has federal student loans
- What your student loan payment would be on income-driven repayment if you file your taxes jointly vs. what it would be if you’re filing separately
- The value of tax benefits and credits you enjoy if you file jointly, and how much you would miss out on if you file separately
There are a lot of numbers to review and consider, so you may benefit from talking to a tax professional. Find an accountant or other tax advisor to help determine what approach makes the most financial sense for an income-based repayment plan borrower who is married.
Regardless of which tax filing status you choose, you’ll need to submit a lot of information to the Department of Education to apply for income-driven repayment if you’re married.
The form requires married borrowers to share proof of their spouse’s income. This is designed to benefit you — if your marital status and household income disqualify you from a traditional income-driven repayment plan, you may still qualify for the Revised Pay As You Earn (REPAYE) repayment plan.
Getting divorced doesn’t disqualify you from an income-driven repayment plan, but it does impact the information that the government uses to calculate your monthly payment amount.
When you get divorced, your household size will likely change. If you filed jointly with your spouse previously, you’ll now file using the single status — which may change your official household income, too.
“If you are getting divorced, the decreased family size will increase your discretionary income,” explained Struthers. “But that increase may be offset by the decrease in your adjusted gross income.”
Regardless of what the changes are, you will need to share the updates on the request form that you need to fill out if you want to use an income-driven repayment plan. However, don’t feel like you need to make those updates the day after your divorce.
“You only have to certify once a year. If it is not in your best interest, I would not volunteer any information mid-year,” advised Struthers. “You don’t have to.”
Figuring out your student loan payment plan is no easy task when you’re recently married or divorced. Doing some research or taking the time to consult with a tax professional can save you money and keep you on track to pay off your student loans.
Meanwhile, you can learn more about applying for an income-driven repayment plan in this guide.
The information in this article is accurate as of the date of publishing.
Sarah Li Cain contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.28%3||Undergrad & Graduate|
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|2.39% – 6.01%||Undergrad |
|1.99% – 5.61%5||Undergrad & Graduate|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.