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Getting married can have an impact on your ability to achieve other financial goals, your monthly student loan payments, and tax breaks related to your loans.
But marriage doesnt mean saying “I do” to another set of student loans. Each of you remains responsible for loans you took out before you walked down the aisle.
Here’s how your student loan debt may change following your wedding, regardless of when you got married or when you do.
Hello, sweethearts! Congratulations on your upcoming wedding! However, in the midst of all the planning, venue hunting, cake tasting, and negotiating guest lists, there’s one important thing you might be forgetting: how your upcoming wedding could affect your student loans.
Yes, you read that right! Getting hitched can have a significant impact on your income-driven repayment plan (IDR), the magical program that tailors your monthly payments to your income and family size. So, before you say “I do,” let’s dive into the nitty-gritty of how marriage and student loans intertwine
The tl;dr Version:
- Filing taxes jointly with your spouse usually means your combined income determines your IDR payment.
- Filing taxes separately from your spouse typically means only your income is considered for your IDR payment.
- If you file jointly and your spouse has student loans, your payments might decrease due to their loan debt.
- Filing separately can make some IDR plans more affordable, but you might face a tax hit.
The Income-Driven Repayment Plan: Your Flexible Friend
Many borrowers choose income-driven repayment over the conventional 10-year Standard Repayment Plan because it modifies monthly payments according to family size and income. This means that if you’re married, your payments will be determined in part by your spouse’s income.
Tax Filing: The Key to Unlocking Your Payment Amount
Income-driven repayment plans generally base your payment on your adjusted gross income (AGI), a number derived from your federal income tax return. After tying the knot, you have the option to file your taxes jointly with your spouse or separately.
Here’s the crucial part:
- Joint Filing: Your combined income (yours and your spouse’s) determines your IDR payment.
- Separate Filing: Only your individual income is considered for your IDR payment.
The Exception to the Rule: REPAYE Plan
The Revised Pay As You Earn (REPAYE) Plan stands out from the crowd. It calculates your payment based on your combined income, regardless of whether you file jointly or separately.
The Other IDR Plans: Following the General Rule
The Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) plans stick to the general rule, using your joint income if you file jointly and your individual income if you file separately.
A Handy Table for Visual Learners:
| Repayment Plan | Income Considered When Married Filing Jointly | Income Considered When Married Filing Separately |
|---|---|---|
| Revised Pay As You Earn (REPAYE) | Joint Income | Joint Income |
| Pay As You Earn (PAYE) | Joint Income | Individual Income |
| Income-Based Repayment (IBR) | Joint Income | Individual Income |
| Income-Contingent Repayment (ICR) | Joint Income | Individual Income |
Filing Separately: A Potential Money Saver, But with a Catch
If filing jointly seems disadvantageous, you can always file separately to base your payment solely on your income. However, before making this move, consult a tax professional to weigh the potential financial implications.
Tax Benefits You Might Miss Out On:
- More advantageous tax brackets
- The student loan interest deduction
- The child care tax credit
- The earned income tax credit
The Balancing Act: Tax Savings vs. Financial Benefits
Deciding whether the tax benefits you sacrifice by filing separately outweigh the potential savings on your monthly loan payment requires careful consideration. A financial advisor can provide expert guidance in this area.
Your Spouse’s Student Loan Debt: Another Factor in the Equation
For your spouse’s loan debt to impact your IDR payment, two conditions must be met:
- Their income is included in the calculation (based on the criteria above).
- They have federal student loan debt.
Prorated Payments: Sharing the Burden
Whenever a joint income is used to calculate your payment, your spouse’s federal student loan debt is factored in. Your payment is then prorated based on your share of the combined federal student loan debt.
Example Time!
Let’s say you file taxes jointly with your spouse. You earn $30,000, and your spouse earns $40,000. You have no kids and live in the contiguous 48 states. Your combined income is $70,000. Under the PAYE plan, payments are 10% of your discretionary income, which translates to $380.33 per month. Now, let’s assume you and your spouse each have $30,000 in federal student loans, totaling $60,000. This means you each owe 50% of the combined debt. We divide that $380.33 in half, resulting in a monthly payment of $190.15 for each of you.
What if Your Spouse Doesn’t Have Student Loans?
In this case, your $380.33 payment remains unchanged, as you owe 100% of the combined federal student loan debt.
Filing Separately: A Path to Lower Payments
If that $380.33 feels overwhelming, and you’re considering the PAYE, IBR, or ICR plans, filing taxes separately could be your saving grace. Using the same example, filing separately would base your payment solely on your $30,000 income. Under PAYE, your payment would drop to $47 per month.
Comparing the Options: Joint vs. Separate Filing
| Married Filing Jointly | Married Filing Separately |
|---|---|
| Spouse HAS Federal Student Loan Debt | Spouse DOESN’T Have Federal Student Loan Debt |
| Your Income | $30,000 |
| Your Loan Debt | $30,000 |
| Spouse’s Income | $40,000 |
| Spouse’s Loan Debt | $30,000 |
| Relevant Income | $70,000 |
| Relevant Loan Debt | $60,000 |
| 10% of Discretionary Income | $380.33 |
| Your Percentage of Relevant Loan Debt | 50% |
| Your Monthly Payment | $190.15 |
The Final Verdict: Weighing Your Options
In the example above, your PAYE payment would be $380.33 if you file jointly and $47 if you file separately. This translates to a potential saving of $333.33 per month, amounting to $3,999.96 over a year. The key question is whether your taxes would increase by less than, more than, or equal to this amount when filing separately.
In a Nutshell:
- Filing jointly or choosing the REPAYE Plan means your combined income determines your IDR payment.
- If your spouse also has federal student loan debt and you file jointly, your payment is prorated.
- Filing separately can lead to lower payments under all IDR plans except REPAYE, but your tax burden might increase.
Remember:
- You can apply for an IDR plan on StudentLoans.gov. Annual income and family size recertification is required.
- If your spouse also wants an IDR plan, they need to apply separately on StudentLoans.gov. Co-signing each other’s applications is necessary.
So, before you say “I do,” take the time to understand how your impending marriage could impact your student loans. By carefully considering your options and seeking expert guidance, you can make informed decisions that ensure a financially secure future for you and your spouse.
You might not qualify for the student loan interest deduction
A student loan interest deduction is available to anyone whose modified adjusted gross income for the previous year was less than $90,000. Students who make less than $75,000 can deduct up to $2,500 for student loan interest for the 2023 tax year; those who make between $75,000 and $90,000 can deduct less.
Once you get married, the rules change. If you and your spouse together earn more than $185,000, you’ll lose the deduction. Additionally, there is no way around the system; if you file separately, you are unable to claim it at all.
Your spouse’s payments could affect your finances
In the event that the cosigner is unable to repay a private graduate school loan or refinancing loan, you will be held legally liable for the balance. Additionally, the loan will show up on both of your credit reports, which may make it more difficult for you to obtain new credit or debt, like a mortgage.
In certain states, creditors may seize both of your income and assets, or your joint tax return if your spouse took out a student loan during your marriage but was unable to make payments and fell behind on the debt. The federal government will also go after your tax refund for loans taken out after marriage that default.
Here’s what you should know about student debt before getting married
FAQ
What happens to student loans if you get married?
Are student loans taken out during marriage?
Does my spouse’s income affect my student loan payments?
How does marriage affect student financial aid?
How does marriage affect student loans?
Here are a few other ways that marriage can affect student loans: 1. Your income-driven plan may change 2. Your spouse could be responsible for your loans 3. Not every lender allows you to refinance your student loans jointly 4. You might stop qualifying for the student loan interest deduction 5. Your spouse could help you with payments 1.
Does my spouse have student loan debt?
For us to take your spouse’s loan debt into consideration, only two things need to be true: your spouse needs to have federal student loan debt. So, any time we use a joint income to calculate your payment amount, we will also take into account any federal student loan debt your spouse has.
Will my spouse’s income affect my student loan payments?
With SAVE, your spouse’s income and federal student debt won’t impact your payment calculations — but only if you file taxes separately. Because SAVE assigns you a payment that’s between 5% and 10% of your discretionary income, this could reduce your monthly payments if your spouse earns a higher income than you.
Are You responsible for student loans your spouse took out after marriage?
Whether you’re responsible for student loans your spouse took out after you got married is dependent on where you live. In most states, debt taken out during the marriage is the responsibility only of the person who is on the loan agreement.