For married couples with student loan debt, one of the most popular strategies for lowering your monthly student loan payment and potentially qualifying for more student loan forgiveness is to file your taxes "married, filing separately".
For both Income Based Repayment (IBR) and Pay As You Earn Repayment (PAYE), your monthly student loan payment is calculated based on your Adjusted Gross Income (AGI). If you're married and file a joint tax return, your monthly student loan payment is calculated on your joint AGI.
So, a simple way to potentially lower your student loan payment and increase your potential student loan forgiveness is to lower your AGI - and married couples can potentially do this by filing separately versus jointly.
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
The Problem With Married Filing Separately For IBR Or PAYE
There are two big issues to consider with this approach. First, this doesn't apply to the Revised Pay As You Earn Repayment Plan (RePAYE). With RePAYE, no matter how you file your taxes, the married joint AGI is what is taken into consideration.
Second, and typically a bigger issue, is that the math doesn't always make sense to do it. You see, when you file separately, you typically also have to pay more in taxes as a couple. As such, you have to outweigh the potential savings from your student loan debt against the higher taxes you'll face. Even if you save a little on your monthly student loan payment, it might not outweigh the higher taxes you'll face each year.
Let's look at a couple of scenarios and see how the math behind married filing separately for IBR and PAYE really works.
The Sweet Spot For Married Filing Separately For IBR Or PAYE Maximization
Note: This article has been updated to reflect the 2018 tax changes. If you've viewed this article before, you may have noticed the numbers have changed.
Let's start with the ideal scenario, because that's what everyone cares about. So, let's set up this scenario as it's pretty typical. We have a couple, with Person A and Person B. They have one child that is 10 years old.
Person A makes $40,000 per year and has $50,000 in Direct Loans.
Person B makes $60,000 per year and has no student loan debt.
Let's look at how their tax return looks. For simplicity, both partners only have W2 income for their AGI.
Married Filing Separately Versus Jointly | |||
|---|---|---|---|
| Person A | Person B | Joint Return |
Earnings | $40,000 | $60,000 | $100,000 |
Student Loan Interest Deduction | $2,000 | $0 | $2,000 |
Adjusted Gross Income | $38,000 | $60,000 | $98,000 |
Standard Deduction | $12,000 | $12,000 | $24,000 |
Itemized Deductions | $0 | $0 | $0 |
Taxable Income | $26,000 | $48,000 | $74,000 |
Regular Tax | $2,930 | $6,500 | $8,499 |
Tax Credits (Child Tax Credit) | $2,000 | $0 | $2,000 |
Taxes Net Of Credits | $930 | $6,500 | $6,499 |
As you can see in the above example, this couple saves $931 per year in taxes by filing jointly.
However, Person A also has that $50,000 in Direct Loans. If this couple files a joint tax return, they do not qualify for IBR or PAYE. If we assume this couple is looking for the lowest payment option for their loans, the best option is the Extended Repayment Plan. Their payment would be $347 per month for 300 months (25 years) - the same length as IBR. That equates to $4,161 per year.
Now, if this couple files married filing separately on their taxes, they will pay $931 more per year. But it opens up more repayment options for Person A. For example, Person A will now qualify for both IBR and PAYE.
For PAYE, the monthly payment will $74 per month, with the potential for loan forgiveness of $64,424 after 240 months.
For IBR, the monthly payment will be $100 per month, with potential loan forgiveness of $11,948 after 300 months.
So, if Person A switches to PAYE, they will save $273 per month in student loan payments alone. That equates to a savings of $3,276 per year in student loan payments.
So let's combine both the higher taxes and lower student loan payments and see what we get:
Student Loan Savings By Filing Separately | ||
|---|---|---|
Filing Jointly | Filing Separately | |
Total Tax Due | $8,499 | $9,430 |
Total Annual Student Loan Payments | $4,161 | $888 |
Total | $13,521 | $10,318 |
So, by making the switch from filing jointly to filing separately, you can expect to save $3,203 per year. Plus, you put yourself on track for potential student loan forgiveness after 20 years as well.
When It Doesn't Make Sense To File Separately For IBR Or PAYE
There are a few scenarios where it doesn't make sense to file separately in order to save on your student loan payments. However, everyone should run the math for their unique situation to decide for themselves.
Some rules of thumb for when it might not make sense:
- When the student loan borrower makes more
- When the income of the borrower wouldn't qualify for IBR or PAYE separately
Easy Ways To Do The Calculations
This may seem a bit overwhelming because there is a lot of math and scenarios to plan for. However, most tax software programs allow you to calculate the difference in taxes you'd pay under both married filing jointly and married filing separately. If you utilize an accountant to help with your taxes, they should also be able to provide you with the differences as well.
Then, you can look at your Federal loan repayment options on the Department of Education Repayment Estimator.
Finally, you just add up the costs. You can use the chart above as a guide to see how your tax and student loan payments would add up, and see which way to file your taxes saves you the most money in total.
Get Professional Help
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
You can also always call your lender, but they might not be able to help with this complex situation over the phone.
Conclusion
Depending on your tax situation and student loan amount, it could save you money to file your taxes married filing separately so that you can qualify for IBR or PAYE and save on your student loans. However, you have to remember that you'll pay more in taxes, so it's important to do the math and see what scenario makes the most sense for you.
Ryan says
I just applied for reevaluation of my payment plan on my student loans. My payment is MORE now. Several hundred dollars more a month. I selected the REPAYE plan.
What is the cheapest option? I can’t afford this doubling of my payments a month.
Robert Farrington says
Ryan, it depends on your situation. RePAYE always uses your married filing jointly income, so it could raise your payments. You also have to resubmit your income every year, so if your income goes up, so does your payment.
You might consider signing up for our Student Loan Freedom program when it reopens this fall: http://growth360tci.wpengine.com/student-loan-freedom/
debbie johnson says
My daughter n law has defaulted on student loans she had prior to marrying my son, needless to say their married filing joint tax return of 7,000 got seized. My son earns over 80,000/year and she earns less than 20,000. What are her options to get her loans back on track. She owes $25,000.00 in government student loans. Apparently none of the 7,000 has been applied anywhere.
Robert Farrington says
You’re correct – that $7,000 will go to collection costs, interests, and fees – none will go towards the loans, and the balance will keep growing.
She needs to rehabilitate her loans and get on an income-driven repayment plan. Check this out: Student Loan Rehabilitation.
Nick Vail says
Robert, great article, as always! I work with a number of professors who make a good amount of money (usually married filing jointly) and have 2-3 kids. I have been showing them PSLF. Would you typically suggest IBR or the revised PAYE?
Robert Farrington says
I typically recommend IBR or PAYE, and avoid RePAYE. There are few scenarios where RePAYE makes sense, most notably because it always uses your married filing jointly AGI and you don’t have options to file separately. However, every scenario is different, and in some cases, if you have Direct loans prior to 2007, it might make sense to do RePAYE anyway.
Michele says
Is there any please to physically go to have a face-to-face conversation about what plan is best for my particular situation? I am IBR but not sure whether I should file married or jointly. My husband was out of work 18 months ago for almost 2 years – we have a lit of credit card debt from that time period making loan payments difficult. Who can we go see? Thank you
Robert Farrington says
No, sorry, there isn’t a place for you to meet face to face for your student loans. The Dept of Education should consider that though. To do the calculation here, though, you should talk to your tax preparer to do the calculation yourself with a free calculator on TurboTax or H&R Block.
Matt says
If I go with Married Filing Separately to keep my payments down, can I go back and amend my return to Married Filing Jointly at a later time? I know this is kind of “working the system”, but I’m curious if it’s a legitimate loophole, or if there are laws against it.
Robert Farrington says
Yes, but it’s best to consult with a tax advisor before making changes one way or the other.
Josh Hillemeier says
Hello: I live in CA, a community property state. Under REPAYE, if we file separately, is our individual income, after splitting everything, how each person’s payments will be determined? Or even in a community property state, does the joint income determine the monthly payment?
Josh Hillemeier says
I should add that we both have student loan debt, though my wife is paying back through a standard repayment plan. I am currently in REPAY with a much larger debt load. Our strategy has been to file separately, thus keeping my payments low, while paying off my wife’s loans aggressively.
Robert Farrington says
Under RePAYE, it doesn’t matter your filing status, it always considers your combined income (AGI). This only applies to IBR and PAYE.
Josh Hillemeier says
Even though my wife is paying back through standard repayment? As such, she’s not eligible for any IBR repayment plan. Thanks for your service.
Robert Farrington says
Yes, the rule under RePAYE is that it is always combined AGI if you’re married. It has nothing to do with her loans or repayment plan.
Elizabeth says
I am considering staying home with my children, but my husband and I are strapped with loans (loans prior than 2007 so no option for PAYE). Would we be taxed too much if I claimed Married Filing separately and did IBR? From what I understand, with that option I would pay nothing on my loans while claiming MFS. Another thing I heard is that they hit you with the taxes when you return to work so I am unclear what to do. Any advice?
Robert Farrington says
It’s best to speak to a tax accountant to run the different scenarios for you. Many accountants can quickly prepare a return for both MFJ and MFS and tell you which would be the better choice.
Kevin says
Thanks for all of the great information. One of my questions relates to how the debt “appears” under the PAYE program. According to the calculator on the FSA website our payments would be $0.00 but not entirely sure whether that is accurate. We are trying to apply for a mortgage and wondering if under the PAYE program whether an amount is reduced monthly that would appear on a credit report, etc.
Also, the FSA site mentions to qualify for the PAYE program one must, “Continue to make income-based payments under this plan, you must have a partial financial hardship (and be a new borrower).” Since these loans have been on deferment, would they be eligible? Thanks-
Robert Farrington says
Yes, you can switch to PAYE while on deferment. Just call your lender or go online to studentloans.gov.
When applying for a mortgage, your lender uses either of the following to calculate your monthly payment for Debt to Income ratio purposes:
– 1% of the balance of the loan amount
– your standard 10-year payment plan amount
Many people find they have trouble qualifying for a mortgage because of this. Remember, the lender is looking out into the future – so since your payment could rise if your income does (and it caps at the standard 10 year plan amount), that is what’s used for your debt to income ratio.
Adam says
Great article Robert! Thanks for writing this. I have been paying IBR for 5 years, aiming to take advantage of public service loan forgiveness after 10 years. For that reason I’m aiming to keep payments as low as possible. I just got married this year, my wife has paid off her loans but mine are considerable. I make several thousand per year more than her annually ($75k / $70k). While I make more, I’m not sure if filing jointly makes sense if I’m hoping to keep payments low to leverage PSLF. Any thoughts?
Robert Farrington says
You have to do the math. Most tax software and tax professionals can easily calculate this for you. PSLF is a great program, but you have to do the math.
Nora Stephens says
Robert,
I am enrolled in the PSLF program and currently on the Income Driven Repayment plan. I have done the math; it seems that filing married but separate would be wise as my payment would be hundreds of dollars less a month. In earlier comments, I saw that you advised using the IBR or PAYE repayment plans. On the FedLoan website, it states you have to have a partial financial hardship to qualify. What constitutes as a partial financial hardship for these federal loans? And if I were able to qualify this year, when I re-submit information the following year, will they automatically keep me in the IBR or PAYE, or will I have to prove that I have a financial hardship every year?
Among other debts I am trying to pay off, I would like to save for my kids college so that they don’t have to deal with the stress of tens of thousands of dollars of student loans post graduation…does that count as a financial hardship? HA!
Thanks for any advice!
Robert Farrington says
Partial financial hardship means your income is low enough that 10 or 15% of your discretionary income would be less than your standard 10 year repayment amount.
You can calculate your discretionary income here: http://www.lendkey.com/studentloans/2013/11/05/how-do-i-calculate-my-ibr-payment/
If you get on these programs, you have to re-certify your income every year. Your payments could rise, but they won’t exceed your standard 10-year plan amount.
JJ says
I have student loans which I obtained before marriage and am not employed. My spouse is employed. Will my loan payments be based on my spouse’s income? He is not a co-signer and we have not co-mingled our debts.
Robert Farrington says
If you’re on IBR or PAYE, it’s based on your combined AGI is you file together. On RePAYE, it’s always based your combined AGI regardless of how you file.
Megan R. says
Hello!
My husband and I are newly married and live in California, a community property state. I make $60k/year, have $36,000 in student loan debt, and am on IBR to pay back my loans under PSLF. My husband makes $80k/year, has $105,000 in student loan debt, and is on IBR to pay back his loans under PSLF as well. We have no dependents and do not own a house.
We are trying to do our taxes this year and have reached out to a tax professional at H&R Block here in California, who seemed to know nothing about MFS in a community property state. I am fairly certain MFS is right for us, but if anyone out there has any advice, we’d love it!!!
Robert Farrington says
You need to speak to a real accountant/tax professional. Tax preparers (like what you’ll find at H&R Block) are not tax professionals or accountants. You could also do the math yourself using online tax software if you prefer.
Here is an article you might find helpful. https://www.ftb.ca.gov/Archive/Forms/2004/04_1051A.pdf
Megan R. says
Thank you! 🙂
GH says
My wife will finish graduate school by the summer and will get a job with a school to be in the 10 year program. Her loans are pushing 300k and the difference between filing MJ (1500) and MS (700) is 800 a month. That’s basically a 10k a year difference.
I made 86k and maxed out my 401k so my MAGI is 68 and I paid over 13k in taxes. Using just the standard deduction I should get back 1700 or so. Her MAGI is about 74 and paid almost 12k in taxes. She’ll have to pay but at this time it seems worth it to file separate. I’m sure there is something I missed and we’ll end up paying 7k or something. lol
We are both around 50 and have no kids or plan to. The only downside is she can’t deduct loan interest but it is capped at 2000 or 2500 anyways.
I think as long as I max out my 401k it’ll help towards filing MS….I hope anyways. We visit our tax lady next week to compare.
Brian says
I’ve been married filing separately to qualify for the IBR for a few years now. This time around, the application is requesting my spouse’s income.
I contacted the Federal Student Aid Office (studentloans.gov) and they told me that they now look at total income (both spouses) whether you file separately or not, and that they changed the policy last year.
This sounds fishy to me, and someone told me over the phone the opposite answer. Nevertheless, my application is requesting my spouse’s income and I’m worried if I send that in I’ll be disqualifed for IBR and will end up with an enormous payment…
Any idea what’s going on here?
Robert Farrington says
They go by your total adjusted gross income for RePAYE – both IBR and PAYE can still just be based on your income. You can file the paper form manually (not online).
Monica says
GH, I’m in a similar situation and they are asking for proof of my husbands income. The IBR plan I applied for in the PAYE which means they shouldn’t need his financial informations since we filed separately. Did you need to submit your wife’s income documentation? Did they end combining your incomes for your repayment plan?
thanks
William Resor says
So I was curious about this and yep, I was on to something. I have finished one year of PSFL and was on an IBR. I resubmitted income and my payment went up. I am not sure if the first year asked about my wife’s income but now I am back on in-school deferment. I want to resubmit due to making less money due to working a Chaplain Residency (1/2 of pay is non-taxable for housing allowance). What is the best way to do this? Maybe a paper application??? Any advice is greatly appreciated.
Robert Farrington says
Yes, send in a paper application certified mail: https://static.studentloans.gov/images/idrPreview.pdf
Amanda says
Hi Robert, Just to clarify, I attempted to make a change to my plan with Great Lakes. I noticed when I went through the FAFSA website, it would allow me to select plans through the process, but then at the end I had to select a box that basically said it would be up to my lender. The way around this through filing via paper?
Thank you!
Robert Farrington says
Yes, you can file by paper application and it’s better in this scenario. You can find the application here: https://ifap.ed.gov/dpcletters/attachments/18450102IDRFINALExtended.pdf
Just make sure you send it certified mail with a return receipt so you can prove your lender received it. And it is up to your lender, but they are required by law to allow it if you qualify.
Lauren says
I’m a college professor and got wise to this a few years ago. As soon as I got accepted into PSLF, I started filing married separate and chose IBR. We have 5 children and I’m ~100k in debt. My husband makes much more than I do, so “on paper,” with 5 dependents, with my income, I’m a hard case 😉 This move dropped my monthly payment by about $750, and coupled with my 120 payments to forgiveness (I’m about 30 in), I will save nearly $90k in the end.
Sean says
This is what I plan on doing! I do not qualify for IBR if filing jointly (AGI too high). And my payment is almost $7k more under REPAYE. I see that we will pay about $3k more in taxes if we file separately, but I am still saving $4k overall. I am just curious… are there any unforeseen consequences to filing separately? I know I will miss out on some tax credits. And I found that there is a “penalty” if I switch back to REPAYE from IBR (which I would do if for some reason we decided to go back to filing jointly). This information is not available publicly and varies depending on what customer service agent I talk to (unfortunately a little too common of a feature that goes with Fed Loan Servicing and the PSLF program). It seems to me, if I continue filing separately, and the PSLF program actually pays off this is great, because it also incentivizes me to pay into retirement and further reduce my AGI and monthly IBR payment. I just hope I’m not missing anything here. Best to all!
Robert Farrington says
What type of “penalty” are you talking about? If you want to switch from one plan to another, you can do so once per year, so long as the maximum loan term for the new plan is longer than the amount of time your loans have already been in repayment.
Sean says
I was told- If I change to IBR (qualifying via filing separately) we must continue filing separately, or I will have to go back to REPAYE and the student loan payments will increase to cover the difference between REPAYE and IBR that I saved during that period.
Robert Farrington says
Ahh, I see what you’re talking about. It’s not technically a penalty, but you’re making up the difference in lost loan payments over the remaining time of your RePAYE. It’s basically as if you never left RePAYE.
For example, if you pay $200/mo under RePAYE, then drop to $100/mo under IBR, if you go back to REPAYE, you have to “pay back” that $100/mo ($1,200) difference over the remaining life of your loan.
The one true penalty for leaving RePAYE is that your unpaid interest will capitalize when you switch out of REPAYE, but it’s all going to be forgiven in PSLF, this is essentially irrelevant.
Warren says
Great article. Thank you.
My wife is on her third year of IBR (not RePAYE) and currently qualifies for PSLF. Her annual salary is roughly $55,000 and she has over $300,000 in loans. My salary for 2016 was $70,000 and I do not have any loans. Next year my salary will be $250,000.
In order to protect her future eligibility for IBR and PSLF do we need to file Married but Separate for 2016 or can we file jointly in 2016 to receive the benefit and then file separately in 2017 when my salary increases. We are having an accountant run the 2016 numbers (joint vs separate filing) and will weigh that against what her adjusted monthly payment would be next year. But we also want to make sure we are not jeopardizing her PSLF or monthly payments in the future. We appreciate your advice!
Robert Farrington says
PSLF doesn’t care how you file your taxes – you just need to be on IBR. Even if that amount of the IBR payment equals the standard plan, IBR is what matters.
For PSLF specific questions, you might find our short eCourse helpful: http://growth360tci.wpengine.com/17523/pslf-online-video-training/
Kyle says
Hi Robert, thanks for the article very useful. My family is in almost an identical situation as described in your example above, except add $50,000 student loan debt to person B too. We have been paying the 30-year payoff amount for about 6 years now but as our family is growing finances get tighter. We are looking at switching to IBR, but after reading your article it looks like we cannot until we switch to Married filing Separate, is that correct? (We have two different government-backed servicers so I was wondering how they’d know our AGI but Student Loan debt separate.)
Thanks,
Robert Farrington says
You can switch anytime, but it will use your combined AGI if that’s how you filed your taxes.
Keith says
I have a similar question to those above with comparing MFS and MFJ in Community Property State (Texas) and how it will impact the student loan payment for my wife’s student loan. She is a school counselor with about $40K in student loan debt and is currently paying under the PAYE plan. I make about $110k and she makes about $65k annually. How is her student loan payment calculated each year if we file MFS in a community state? I want to make sure that it’s worth filing separately instead of jointly.
Robert Farrington says
You need to speak to an accountant or tax professional to do the math for you to see if its worth it. But generally, you must split all the household income and expenses on each return, not just his income/her income. So, in your example, you each would have income of $87,500.
Tony S says
Robert, so for this case is $87500 [the reported MFS 1040 Line 21 basically] going to get reported as the income of just one person to the lender? I feel this is not representative of the one person’s income in community property state but Pub 555 makes us all report it that way, even though it’s not indicidual income rather community income. Thoughts how to avoid reporting (a+b)/2 as income?
I think great lakes had a system where you report “alternate method” such as a pays tub and as long as you file seperstely…..you’re good to go. Do u recommend using the paper form always now with the lenders ?
Robert Farrington says
I always recommend using the paper form. However, I don’t recommend using the “alternative method” via paystubs. I recommend submitting your individual tax return.
The reason is, when they calculate the alternative method, they leverage your gross pay from the paystubs, not your net. So, your monthly payment will be higher. The reason for this is they can’t make assumptions on what your end of year AGI will be – they have to call it via the gross pay. So, use your tax return, file paper with return receipt so you have proof of date and that it was received.
Tony S says
I undestand. However, in community property states the lower earner will always report higher AGI than their gross salary because of Pub 555 forces the tax payer to report on 1040 line 22 = ( a+b) / 2. a= one person income and b=the others. So to Great Lakes and other lenders it “looks” like they earned more than they did, even with MFS. The only solution I have found is to send paystub, tell GL their spouse will not give you access to his or her return, and deny any request for your tax return [by saying the income significantly changed each and every year]. Has worked so far…..seems utterly shaky year to year though. I wish there was a more accurate way to do this. We are on IBR. [The old one].
Robert Farrington says
Even using your paystubs will be a higher payment as they use your gross income, not your net. However, you still might be better off.
Melissa says
If I was to consolidate my student loans and start the IBR plan under the PSLF program what income would they use, my taxes from 2016 that I just filed in 2017? We filed MFJ this year but want to do MFS for the future. Does that mean we will pay the MFJ until we can change to MFS next year? The only reason we had to file MFJ this year is because we used the affordable care act and I think it is a requirement.
Thanks for such an informative blog.
Robert Farrington says
They would use your income from 2016 AGI.
Maggie Peterson says
Great conversation here – thanks! I don’t believe I saw this question above, and have not been able to find an answer. We have done the math, and it makes sense for my husband and I to file MFS. On our taxes though, I claimed one of our children, and my husband claimed the other. Will this become a factor when I go to re-certify my IBR? The loan calculator asks how many children we have, not how many I am claiming – is this correct? I just don’t want to have a rude awakening when I go back to re-certify my IBR, if they consider my family size 2 instead of 4, based on my 1099.
Robert Farrington says
They should go based on your taxes.
Eric says
Robert,
I have been taking student loans out since 2001. Currently finishing another degree in 16 weeks. I’ve never have had to paid on a student loan because I’ve essentially been enrolled or in deferment over the past 16 years. Currently I am looking to figure this out as I have a family and we want a house.
120,800 in student loans
Married with 1 baby
I am a teacher in SC – high needs area of business education
My income is 39,00
Spouse income 79,00 with no loan debt / but is an Assistant Principal.
Last year we filed jointly due to our adopted baby and newly married title..
can you help me understand what I need to do? Or where to start?
We live check to check as it is with no student loan payment..
I am really scared my mistakes with college debt will prevent our home ownership dreams & our budget maxed always! Makes me depressed.
Thank you
Sleepless in SC
Robert Farrington says
In general, you need to decide what makes the most sense – it sounds like filing separately would and you could qualify for a very low payment based on your income. Furthermore, you should be looking into Public Service Loan Forgiveness to get the balance forgiven after 10 years of teaching. Read about PSLF Student Loan Forgiveness here.
Sadly, you’re going to have to put the housing dream on hold for a bit. You need to get your loans under control and be able to budget for a full loan payment + house payment if you want to qualify for a mortgage. However, 10 years goes quickly too if you can get your loans forgiven. Read about the challenges of buying a house with student loans here.
Marie says
Hi Robert,
Thank you for this article. I am currently on an IBR but found that I can pay more than what my payment is by working extra jobs. Do you know if there is a penalty for paying more on an IBR repayment plan.
Robert Farrington says
Hi Marie,
That’s awesome that you can pay more towards your loans. However, I don’t recommend it unless you are planning on paying them off early.
With IBR, your payment is based on your income. Any balance will be forgiven at the end. But if you pay more, you could end up seeing less forgiveness. If you’re looking at a program like PSLF, it can really be negative to do: http://growth360tci.wpengine.com/19797/pay-ahead-status-loan-forgiveness/
Marie says
Thank you so much.
Daniel says
In your first example, why would the couple not qualify for IBR or PAYE if they file a joint return?
Robert Farrington says
They make too much to qualify for a “partial financial hardship”.
Tim says
Hi Robert,
I’m wondering if you have any advice for my situation. Three months ago, my wife started her post-collegiate career at a non-profit org. with a $40K/year salary. She has ~$150K in student loan debt, all of which qualifies for PSLF with this employer (9 years and 9 months to go!). Her current IBR monthly payment is $0.
I started my post-collegiate career six months ago, making ~$110K/year, and I have zero student loan debt.
Without doing the math, I presume that we should be filing taxes separately to optimize our yearly combined tax and student loan payment amount. I plan to use the tools that you linked to validate that.
We are hoping to buy our first home soon, and I’m worried about how this might affect our tax filing options. If we obtain a mortgage together (i.e., become co-borrowers), are we jeopardizing our ability to file taxes separately? Or does it only make sense to exclude her entirely from the home-buying process? What all factors do we need to weigh here, given the above?
Also, it turns out that the medical benefits program offered by her employer is better and cheaper for us both to be on compared to those offered by my employer. If we decide to use her employer’s medical insurance (where I am considered a dependent of her), does this affect our tax filing and/or PSLF options in any way?
Thanks for any help you can provide!
Robert Farrington says
Hi Tim,
Getting a mortgage together has no impact on how you file your taxes or hold title on your home. You can both be single and buy a house/get a mortgage together – lenders don’t care about that.
I will tell you that her IBR payment will not count towards your Debt-To-Income ratio – when figuring out how much mortgage you can afford you need to use a payment of her standard plan amount or 1% of the loan balance ($1,500/mo) as her current payment. Then, you can calculate how much mortgage you can afford/will be approved for. You can learn more about buying a house on IBR here.
As for medical, you’re fine. Once again, how you file your taxes doesn’t impact your marriage in any way. If her employer offers medical benefits to spouses, you just have to be a spouse.
Ashley says
I’m confused at the part where you mention that under ibr there isn’t a chance for forgiveness after the 25 years…i was just reading a document about all the repayment options and it said that under any of them there is a chance for forgiveness after the 20-25 years though the time can vary from plan to plan. Also, I’m on IBR and only make 36k per year paying almost $250 per month so now your estimate for the hypothetical 40k person only paying $200 makes me sad.
Robert Farrington says
Hi Ashley,
You only get forgiveness on any remaining balance after the repayment period. In many cases, you pay off the loan in 20-24 years, resulting in no forgiveness.
You can use the Student Loan Repayment Estimator and see how much you’d potentially get forgiven here: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action
Rachel says
Hi there,
Is it still true that IBR plans do not take your spouse’s salary into consideration if you file your taxes separately? I spoke to a rep. from Fedloan yesterday and they confirmed that verbally, but I wanted to cross reference because I have seen some comments that they have changed it.
Thanks
Robert Farrington says
Yes, this is correct and the entire basis for this article.
Jaime says
I just got married…we both have loans.
While my loan debt is significant (250K) my annual income is about 250K. (pre-taxes).
My husband makes 50K a year and his loans are 60K. He will qualify for the 10 year loan forgiveness plan with his loans.
I would like to file separate because I do not want to be on the hook for his loans. I am paying the mortgage to our home and other expenses as well as $3000/month in loans.
When there is that much disparity in income, and the fact that he will qualify for the 10 year loan forgiveness plan (unfortunately I will not), I believe it makes more sense to file separately until his loans are gone. Is that accurate?
He called today and they confirmed that they will not use my income on the form but I am just having a hard time coming to terms that they will look at my $200K salary from last year and accept his IBR application.
Robert Farrington says
If you file separately, and mail in the forms, the law says you can do it. You need to file a paper application, and when you file your taxes, you need to be MFS.
Also, realize that you will pay more in taxes, so be sure to have an accountant do that math for you. While it sounds like a good move, numbers don’t lie.
Jaime says
Thanks, much appreciated. Yes, we used an accountant last year too but I might ask around for a more experienced accountant as I’m now dealing with more than one source of income (for myself). Thanks!
Marvin says
I just have a question about how payments will work. My husband just filed for consolidation of his $350k in student loans, and will be on the IBR plan (our AGI was 86,715 last year, filing jointly). Using the calculator, I have estimated his payment to be about $779 a month. I am still in in-school deferment as I complete my MBA, and will go through the consolidation process this next May. I have about $280k in loans. When I consolidate and begin payment under IBR, let’s say my payment will be about the same as his: $779, does this mean that he will have a payment of $779 and I will have a payment of $779, or a total of $1,558 per month? Or, is the fact that our AGI is $86,715 going to limit our combined payments to the $779 amount? In other words, will his payment be $779 until I graduate and begin paying my own loans, and then after I consolidate, our combined loan payments won’t exceed the $779 a month (given our AGI stays the same)?
Robert Farrington says
Nope, each of you will face that payment amount. It doesn’t take into consideration other debt repayment – just your individual debt repayment.
xander thomas says
Hi,
My wife and I have student loans mine >150k and my wife 100k. We file taxes seperately. We applied for the REPAYE last year for my wife via paper application (with the assistance of a fedloan employee) but I don’t remember sending in my income information ( I make significantly more than my wife) or signing so I am not sure if my income was taken in consideration. If what is reported here is true, do I have to switch her to IBR or Paye in order for them to consider only her income moving forward? Is there a significant difference in repayments for REPAYE vs IBR or PAYE? In terms of loan forgiveness, my wife is a teacher, if she switches to IBR/PAYE will it increase the time period for loan forgiveness?
Thank you for your help, it’s greatly appreciated.
Robert Farrington says
RePAYE requires both incomes regardless of filing status, as you’ve found out. If you want to switch plans, you have to make sure you qualify for the one which you are planning to switch to. IBR and PAYE are the only income-driven plans where you can file separately and just have your individual incomes counted.
For PSLF, there is no difference because they all qualify. For just getting forgiveness as part of the repayment term, it depends on your loans, payment amounts, and other factors to see if anything will be forgiven.
The big question is taxes – always keep in mind that this will increase taxes, so do the math.
xander thomas says
Thanks much for your input.
Sam says
I think I have my answer that I just have to run the numbers to see what benefits me more but I thought I would ask just for any other opinion.
My wife and I are both teachers. We make about 50,000 each a year gross. Adjusted is more like 35-40,000. I have been filing separate to keep my loans low as well as putting money away pre tax to lower my income. She doesn’t have any loans. I’m about 107,000 in debt for my loans.
We just had our first child last Jan (yes we just celebrated a 1 year bday). My worry is that we will miss out on all the tax credits from having a child. When I called my loan service provider they asked me for my gross but normally they take adjusted gross so I think the numbers they have me might be a little high. I was told about $230 if I file separate and $890 filing jointly. I’m on IBR now but then was told the RePaye would put me at $590. Ive also never been able to claim the loan interest when filing separate. Anyone have any opinions on my best option? I have read so much but am still unsure of the amount of credit per child (we have another on the way). So I am unsure of what will offer me to save the most money?
Robert Farrington says
This is a prime example of where a good CPA/tax preparer comes in handy. Spend the money and have them prepare your returns this year. Then ask him which makes the most sense. This is a tax question more than a student loan question because of all your life changes.
Once you know what each option will be, figure out your loan payment using your AGI. Don’t call your loan servicer (you’re just talking to a minimum wage call center rep) – use the calculator on StudentLoans.gov and see your options yourself. You can then do that math on which is better.
Ian says
This is extremely helpful, Robert. Thank you!
My wife & I live in California. She has a student loan currently enrolled in IBR & confirmed for PSLF. Last year, we filed jointly. We are considering filing separately this year. She earns approx. $48K per year gross, whereas I earn closer to $100K. Her current student loan bill is approx. $1,200/month.
Mid-year, I lost my job. It was extremely hard to pay this loan on her income alone. Once I finally landed a new job, we resubmitted & our payment actually went up. FedLoan calculated the payment based on our combined gross income, basically, as we submitted paystubs. It was a nightmare.
As a result, we are considering filing separately this year to do everything we can to bring her loan payment down. I’ve done quite a bit of research but have two questions. Really appreciate your help with this…
First, even though she is already enrolled in IBR & we have filed separately in the past, would we be able to file separately this year & thus have our loan reduced based on her income alone? My concern is that we will file separately only to learn that it may not have any effect on her bill.
Secondly, as California is a community proper state, what extra steps do we need to take in order to insure that the loan is based only on her income? It’s my understanding that her AGI will still reflect our combined income on the tax return, and it’s my understanding that’s the number the payment is based upon.
Thanks again so much for your help.
Robert Farrington says
Hey Ian,
You can resubmit the paperwork based on your new filing status any time. I’m also curious – did you resubmit online or manually via a paper application. Many time, if you submit online, it simply pulls your tax information and you can’t make an exception to your income. However, if you file via paper, you can use your paystubs to get your payment lowered.
As for your questions:
1. Yes, you can file separately and her AGI would be used for IBR. Remember, this only works for IBR and PAYE. If you select RePAYE as your repayment plan, it always uses your combined AGI regardless of filing status.
2. You need to speak to an accountant or tax professional to do the math for you to see if its worth it. But generally, you must split all the household income and expenses on each return, not just his income/her income. So, in your example of you making $100k and her making $50k, you each would have income of $75k. That $75k (minus deductions) would be what her loan payments would be based on.
Ian says
Thanks so much, Robert. Incredibly helpful.
To answer your question, we resubmitted by mail. We submitted our paystubs, as well. What I believe happened is that they based the paystubs on a year (even though I had not earned for a full year) as well as taking our current MFJ status. The result was basically what we had before. I believe we should have resubmitted immediately after losing my job, and thus not having any paystubs other than unemployment. But again, thankfully, I’m now employed.
Thank you for answering my questions. Just to clarify as there was a typo in my first question, we filed previously as MFJ in 2017 for our 2016 return. So, is there any issue or push back from the loan provider in switching to MFS for this year in 2018 for our 2017 return? I believe you answered the question either way, though, as we can change our status. Just making doubly sure due to the typo, apologies.
We are on IBR, but thank you for the other information.
And regarding my second question, we are speaking with a tax professional but I think we may need a better one! So, if I’m following you correctly, my wife’s AGI – provided that we are in California – will never really be just her income? My hope was that her loan would be based on her salary alone of $50K less deductions for her AGI. But you’re saying that both of our AGIs would be our combined gross income less deductions and then divided in half? So, the end result would be approx. $75K (less deductions) and then her new loan payment would be based off of that figure, correct?
Regardless, though, her loan would be based on $75K (less deductions) if we MFS rather than $150K (less deductions) as MFJ? With a rate of 15%, that is approx. $11,250/yr ($935.70/mo) as MFS versus $22,500/yr ($1,875/mo).
Please let me know and, again, THANK YOU!
Robert Farrington says
There should be no issue switching from MFJ to MFS.
Check with your accountant, but because you’re in a community property state, your income is community property and would be split like that. And like you said, it’s still a better AGI for your loan payment.
Emy says
Hello Robert! Thank you for this wonderful article! I have a question. Currently I have IBR as my repayment plan. I also qualify for PSLF. If I get marry, Can I and my husband filed my taxes as MFS Living and using the same address in our taxes? Or we can only File as MFS if we are separated and living in different addresses?
Robert Farrington says
You can file separately regardless of your living situation. Just realize that you may pay more in taxes than you save on your loans, so you need to do the math.
emy says
Thank you very much for taking your valuable time to answer and understanding my question! I meant to ask *Can my husband and I file our taxes as MFS living at the same address?* After this I promise I will never ask a question at 5:40 AM ever again! Once again thank you very much.
Robert Farrington says
Yes, it doesn’t matter your address.
Kerpal says
I was about ready to file separate to keep my wife’s loan payments on IBR down, and I was thinking about the tax vs. loan payment savings exactly as you outlined here but then I recently learned that the “married filing separate” status basically doesn’t let you contribute to a ROTH IRA. It’s not a well known IRS rule probably because it affects such few people. The nitty gritty of it is if you file “married filing separate” and make more than 10K AGI (which is nearly everyone with a job) then you cannot contribute UNLESS you didn’t live with your spouse at all that year (coincidentally I did not live with her as we just got married last year and I’m still trying to find a job to move out with my wife). Anyways, I really value the ROTH IRA I’ve built up for me and my wife but eventually I’ll probably live with her and we’d have to file jointly. Do you have any guidance here? Do I just have to weigh the value I get from having a growing ROTH versus the savings from a lower payment?
Robert Farrington says
Yup, it’s just what you value and can afford. You might want to speak with a tax professional too to ensure that you’re not missing anything else.
Jarred says
My wife and I were told that partial financial hardship was determined based combined income regardless of filing status. So where we file separately and the best plan looked to be PAYE, she wasn’t eligible based on my income and was placed on the REPAYE plan. That doesn’t seem consistent with your responses above. Are they messing something up with her repayment? Is there a trick to get them to evaluate her IDR application without including my income at all but still being compliant with any laws?
Robert Farrington says
RePAYE requires you use your combined AGI. There are no exceptions if you file separately.
However, you can qualify with IBR if you file separately. You should do a paper application and submit your information that way.
Robert says
Robert, I have noticed that on every plan, borrowers will need to claim what is forgiven as income. (This does not include individuals on the PSLF program.)
Now that means if a borrow is forgiven $60,000 after paying for 20 years on the IBR program, they would need to show that in their taxes as income. There are no IRS rules in place for this situation and in a sense, the borrower may be paying for the same amount on the 10-year plan. So, in the long run, you are tied to debt longer than 20 years!
If you know something I do not know about please elaborate!
Robert Farrington says
You are correct, but we’ve found about 80% of borrowers still pay no tax due to insolvency.
For the remainder, it’s still a really good deal. The absolute worst case scenario if you’re not insolvent AND in the highest tax bracket (which would be very rare given the income level required) would be 37% – meaning you effectively see 2/3 of your student loan balance disappear.
Even then, you could setup a payment plan with the IRS for this much lower balance – still saving money.
So, if you get $60,000 forgiven AND you’re not insolvent, you’d see your tax bill rise by roughly $12,000 or so. That’s a huge discount compared to your balance. And if you can’t afford it, the IRS can setup many more repayment options than what you’d get on your loans to begin with – on this new lower balance.
Sean says
Robert,
Can’t tell you how helpful the reading has been. I can’t seem to figure out a good plan besides filing separately, but maybe you can correct me. If I’m making 105K and the wife about 80K (but as recently as August, this was low enough to create only 50K in income this year, because of raise and time off for a child). I have about 500 a month in student loans (~25K), but in my father’s name, so tough to deduct or renegotiate. She has 252K in undergraduate and law school loans. It seems clear that despite all the advantages of filing together, she’d be going from <500 a month to 1500. Supposed to meet with a CPA tomorrow, but his first instinct was for us to file jointly, which surprised me. Anything I'm missing? I can't see how filing jointly saves us ~12K to make it worth it.
Robert Farrington says
Your CPA should show you the numbers side by side. It definitely could help you at tax time with things like using an IRA to save (and reduce your AGI).
However, your CPA might also not realize how large a difference your student loan payment would be. So, make sure you educate him on the numbers of your loan so that you can make a truly informed choice.
Other Sean says
I keep getting different answers from Fed Loan Servicing on how to calculate family size. I have two kids, and since my wife and I are MFS I figured we would each claim one child. So, therefore I figured my family size is 2 (my child and me). However, I was told by two Fed Loan employees by phone that what I do on my taxes doesn’t matter, so I can put 3 (my two children and me) or maybe even 4 (all of us)- even though I am filing separately. This would really bring my payment down, but doesn’t seem right. I asked for something in writing and I was directed to section 9: Definitions “Family Size” here:
https://myfedloan.org/documents/repayment/fd/select-plan-idr.pdf
Is this correct?
Robert Farrington says
For your loan, you would want to report is as you report it on your taxes. As to how to do your taxes, you should speak to an accountant or tax professional about that.
Other Sean says
Thank you for your response!
Ok, I have to say I am SO FRUSTRATED that I am turning to an independent (and awesome!) blog over my loan provider for accurate information. How is it that they aren’t giving me accurate information?!
I could follow the advice of Fed Loan Servicing but it feels like I’d be risking my PSLF.
Do you have a source you are using for your information on determining family number? I thought I had one, but I guess not!
Robert Farrington says
If you read that link you provided, it says you can file separately and the Department of Education will count what you file for your taxes. So, your dependents are “what you file on your taxes”.
Now, what you choose for dependents to file is a tax question, not a student loan question. It’s best you speak to a tax professional to determine how many of your children to claim, or if you’re splitting it 50/50 with your spouse.
Dawn says
Hi Robert. I have been single and enrolled in IBR for three years and PSLF. I am engaged and will be married this summer. My husband and I will file married but separate next year. I am worried though because on MYFEDLOAN.gov. it specifically asks about being married when you re-certify each year. I understand that my taxes would be used, but this new prompt does make me nervous. Is there an update on this new question being asked? Will they want me to submit my husband’s income as well?
Robert Farrington says
If you’re on IBR, they don’t need it if you file separately. If you’re on RePAYE, you have to report both. We recommend not re-certifying online, and using the paper form. Send it certified mail with return receipt.
Erica says
Hi Robert,
Thanks for the informative article. I’ve been paying my federal loans REPAYE but am getting married this year and didn’t realize I would have to report my spouses income even if we file separately. Why is this? Do you know how I would change my income based repayment plan then to avoid this? My loans will probably triple if I have to include his income. From what I remember I wasn’t even given a choice with what repayment plan I was enrolled in. Thanks so much!
Robert Farrington says
Why? It’s the law. When they created RePAYE, they were trying to close the Married Filing Separately “loophole” if you want to call it that. You can potentially change to IBR or PAYE if you qualify based on your income – so that’s something to consider.
Erica says
Thanks Robert for your quick answer. When I do the “repayment estimator” on student loans.gov it sounds like based on my income I could qualify for any, but they automatically put me in the “lowest plan,” if I’m remembering correctly. Do you think when I reapply online in the next year I can request to be on a certain plan (PAYE for example) if I call my servicer (my fed loan), or is there another way to apply? Thanks so much! None of these questions ever seem to have answers online.
Robert Farrington says
Yes, you can also file the paperwork manually.
Erica says
Just to follow up with my question- I’m getting married this Sunday and am now worried that I won’t qualify for a different income based plan because I am on REPAYE and his AGI will be taken into consideration. Do you recommend submitting a new application to try to get on a new plan before we get married? Can the application be done at any time? Thanks so much again!
Robert Farrington says
You can file the paperwork manually with just your income.
Brenda says
Hi,
I have recently become separated from my husband (4 months now) and live in a different city. I am trying to consolidate my student loans online but it keeps asking for his income too. We will be getting a divorce within the year and I don’t get any money from him. How can I file for a consolidation loan without using his income? Should I just put single down?
Robert Farrington says
You should fill out the paper application and send it in certified mail.
Sarah says
In the article, you say, “For PAYE, the monthly payment will $133 per month, with the potential for loan forgiveness of $45,630 after 240 months. For IBR, the monthly payment will be $200 per month, with no potential forgiveness after 300 months. ” Why wouldn’t there be forgiveness for the IBR amount that was left after 300 months?
Robert Farrington says
Because if you make all the payments, the loan would be repaid in full before any forgiveness.
Jessica says
Hi Robert,
I am trying to recertify my IBR right now. I’m a US citizen who lives with my UK national husband in the UK. We were married in 2017 and this is the first time I’ve recertified since being married and living in a foreign country. The recertification form for the IBR says I need to provide my husband’s income, eventhough I used married filing jointly in this year’s tax return, and they want a copy of his federal tax return, which he doesn’t have, as he’s not a US citizen. Do I have to provide them with his income information even if I am married filing jointly and he’s a foreign national?
Robert Farrington says
Talk to your loan holder – they can often take alternative documentation which sometimes can be a signed statement. You may have to escalate your question due to the odd circumstances. I would consider sending the question via email rather than calling and outlining all the facts as much as possible.
Shula says
Hi Robert,
Hopefully you can help. I make 52k/year and hold 62k in student loan debts, and am currently on IBR, I believe. My husband has about 30k a year but is still in school and so is in deferment on his loans and only making about 20k a year. We got married last year so this winter was the first time I recertified as married filing jointly– since his income is so low it did not affect my payments that much. However, once he finishes school we’ll both be paying loans back.
My question is: on all the income based plans, your payment is calculated as a percentage of your income. But married filing jointly, it’s a % of joint income. However, if we are both expected to pay 10% of discretionary joint income, then 20% of our discretionary income will be going towards loans, correct? Or is there a way to combine them so that only 10% of our discretionary income goes towards loans? And if we combine them will that wipe out the history of payments I’ve made towards my loan forgiveness threshold?
Robert Farrington says
You would each be responsible for 10% of your discretionary income for your loans…
You cannot do spousal consolidations (it was offered for a time but it was a very bad deal).
Josh says
Hi Robert, thanks for the very helpful article. I live in CA (a community property state), and my fiance has a large amount of student loans and makes significantly less than me. She is repaying her loans through PAYE or IBR (apologies, I forget which), but she eventually hopes to receive public service loan forgiveness. My income is substantially higher than hers. If we were to file married filing separately, do you know whether half of my income would be included in her income?
Robert Farrington says
If you are using tax returns as proof of income, her income will be 50% of AGI (so it would be higher) since it’s community property.
However, you can use alternative documentation for her income if her income doesn’t accurately reflect that. That’s using pay stubs, etc.
Rie says
Hello! Stumbled on your article while searching for repayment options and it looks to possibly be beneficial for my situation. My question is, will this work with PPL loans? I am currently in the “Extended Repayment Plan”. I inquired about consolidating to an ICR but they asked if I file jointly with my husband and his income is much higher than mine so the payment is higher than the Extended Plan. If I consolidate to an ICR and file separately will they only consider my income?
PS. We have no dependents
Robert Farrington says
If you already file MFS, then you can use just your income for ICR.
Rani Khan says
I have large student loan. It started at almost $180,000 It was consolidated for 30 years. I paid about $1,000 a month for 8 years. Now due medical reasons I can’t work much. I changed my loan to IBR plan 3 years ago since my loan is still over $130,000 and my income is only $40,000. I am married and file separately even though my husband doesn’t make significantly more than me. I did save money in a U.S. Bank about $80,000 while I was working in the past and because we live modestly. My question is can my savings be touched by the loan? Can they request me to pay the loan since I have a savings even though I only make $40,000 a year. Is my savings safe? Do I qualify for the IBR?
Robert Farrington says
If you’re on IBR, re-certify your income based on what you’re currently making. They will lower your payments appropriately.
Second, your savings is fine, but if you do default, any future government payments can be taken (i.e. Social Security, Tax Refunds, etc.).
Finally, while not amazing, remember you get forgiveness on IBR after 25 years: https://thecollegeinvestor.com/11856/secret-student-loan-forgiveness/
JA says
Are there certain options that are more/less favorable for people with over $300K in student loan debt?
Robert Farrington says
It’s impossible to say. At that level, depending on your career, there are lots of options, but you should really sit down with a financial planner familiar with student loans to hash out the different approaches.