Married borrowers with student loans, as well as those planning to get married, face important financial and tax decisions following recent changes to the federal student loan system.
The U.S. Department of Education’s new Repayment Assistance Plan (RAP) may increase the so-called “marriage penalty” for some borrowers, according to financial experts. This occurs when combining spouses’ incomes after marriage leads to higher monthly student loan payments under an Income-Driven Repayment (IDR) plan.
“Marriage can change their monthly payment immediately and dramatically, even if their own income hasn’t changed at all,” said Douglas Boneparth, president of Bone Fide Wealth.
Filing Taxes Jointly Could Increase Student Loan Payments
The biggest decision for married borrowers with student debt is whether to file taxes jointly or separately.
While married couples who file jointly submit one tax return combining both incomes, filing separately allows each spouse to report their own income, deductions, and credits.
The tax system generally favors married couples filing jointly, but experts note that filing separately may sometimes make financial sense for borrowers enrolled in income-driven repayment plans.
When couples file jointly, the Department of Education generally considers both spouses’ earnings when calculating monthly student loan payments. This can significantly increase the required payment even if only one spouse has student debt.
For example, a borrower with $110,000 in student loans earning $50,000 annually could see a monthly payment of around $730 if filing jointly with a spouse earning $70,000. Filing separately could reduce that payment to approximately $146 per month.
The savings can be especially important for borrowers pursuing Public Service Loan Forgiveness (PSLF), which allows eligible government and nonprofit workers to have remaining federal student loan balances forgiven after 10 years of qualifying payments.
“Marriage can change their monthly payment immediately and dramatically.”
Douglas Boneparth, CFP
The Impact Is Smaller When Both Spouses Have Student Loans
The difference between filing jointly and separately is usually less significant when both spouses have student debt.
In the same example, if the second spouse also had student loans, filing separately would still reduce their combined monthly payments, but the savings would be much smaller because both borrowers are already responsible for payments based on income.
For borrowers who recently married, changes to monthly payments typically will not occur until after they file their next tax return.
Borrowers on the Standard Repayment Plan or Tiered Standard Repayment Plan are not affected by tax filing status because those payments are fixed and not based on income.
New RAP Plan Could Increase the Marriage Penalty
Experts expect the Education Department’s new Repayment Assistance Plan (RAP) could make the marriage penalty more significant for some borrowers.
Unlike other income-driven repayment plans, RAP does not protect a portion of income for basic living expenses. Instead, payments are calculated based on a borrower’s adjusted gross income (AGI).
Monthly payments under RAP generally range from 1% to 10% of income, with higher earners paying a larger percentage.
Because joint filers combine incomes, borrowers may move into a higher payment category after marriage.
For example, a borrower earning less than $30,000 annually could have a RAP payment based on 2% of AGI, or about $50 per month. If that borrower files jointly with a spouse earning $45,000, the combined income could push the borrower into a higher payment tier, increasing the monthly bill to roughly $437.50.
RAP also provides a $50 monthly discount per dependent. However, married couples filing separately cannot both claim the same dependent.
Filing Separately May Increase Taxes
While filing separately may reduce student loan payments, borrowers must consider the broader tax consequences.
Married couples who file jointly may qualify for more tax deductions and credits and could have greater flexibility with certain retirement contributions.
Borrowers who file separately may lose access to certain tax benefits, including the ability to deduct up to $2,500 per year in student loan interest payments.
Experts recommend comparing the potential reduction in student loan payments with any additional tax costs before deciding between joint and separate filing.
“To decide which way to go — separate versus joint — they need to run the math both ways.”
Mark Kantrowitz, higher education expert
Other Considerations for Married Student Loan Borrowers
Financial experts recommend that married borrowers consider enrolling in automatic payments, as the government is offering a 1 percentage point interest rate discount for borrowers who sign up before the deadline.
Both spouses should enroll if they each have separate student loans, according to Boneparth.
Couples should also know that they can no longer combine their student debt into one joint consolidation loan. While joint consolidation once simplified repayment for some couples, it created complications after divorce.
A 2022 law allows eligible borrowers who previously combined loans through joint consolidation to separate those loans again.
