If you’re married and have federal student loans, your monthly payment amount under income-driven repayment (IDR) plans often depends on your combined household income. However, the Non-Filing Spouse Consideration rule allows for a different calculation when you file your federal taxes as “Married Filing Separately.” In this case, certain IDR plans, including the popular SAVE plan, base your payment solely on your individual income, excluding your spouse’s earnings.
This differs from the previous REPAYE plan, which included spousal income regardless of tax filing status. Now, with SAVE, PAYE, and IBR plans, if you choose to file separately, your spouse’s income will typically be ignored in your loan payment calculation, potentially lowering your monthly payments substantially.
However, filing separately may lead to higher federal income taxes because it limits access to various tax deductions and credits like the Student Loan Interest Deduction, the American Opportunity Tax Credit, and a higher phase-out on Roth IRA contributions. The standard deduction is also lower for those filing separately compared to jointly. According to the IRS filing status guide, this trade-off is an important consideration before opting for this filing status.
To determine if this strategy benefits you financially, compare:
- The expected reduction in your monthly student loan payments due to excluding your spouse’s income.
- The likely increase in your total federal income tax liability as a result of filing separately.
For example, a borrower earning $55,000 with $90,000 in federal student loans married to a spouse earning $150,000 might see their monthly payment on the SAVE plan drop from over $1,200 (filing jointly) to about $180 (filing separately). Even if filing separately increases their tax bill by $4,000 annually, the overall savings remain substantial.
Note, the Income-Contingent Repayment (ICR) plan does not offer this exclusion; it always includes spousal income regardless of tax filing status. The plans allowing Non-Filing Spouse Consideration are:
This approach is not suitable for everyone. Consider consulting a tax professional to assess your individual circumstances, factoring both student loan savings and tax implications. You can adjust your filing status annually, so revisiting this decision each tax year is wise.
For more on related repayment plans, see our articles on Repayment Schedule Options and Federal Student Loans.
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