It’s no secret that great minds think alike. That’s probably one reason why it’s common for people to choose a spouse based on their own profession.
For example, in one study, a full 16% of married people in the education and healthcare industries were married to another education or healthcare professional. Nine percent of people working in social services were married to another person in the same profession, and 8% of police officers and firefighters also chose spouses with similar professions.
Even if your spouse isn’t in a similar public service job, knowing how PSLF works—and how it impacts your family finances—can help you make an informed decision about what the right course of action for dealing with your student loans is.
Student Loans and Marriage
In the words of the great Peter Cook from The Princess Bride, “Mawage. Mawage is wot bwings us togedah tooday.”
All joking aside, marriage brings a lot more than just people together—it also brings your student loans together, at least in terms of how you manage them as a family.
Let’s be clear: your Federal student loans will always stay in your name. Your spouse will never hold legal liability to pay back your Federal student loans for you, except in the unlikely event you receive an unfavorable court ruling in a divorce.
However, just because you’re technically on the hook for your loans and your spouse is on the hook for theirs doesn’t mean that each person’s loans won’t impact the other person. If you have to make a $500 payment towards your student loans each month and your spouse only has to make a $100 payment, that’s $500 that you can’t use to pay off your spouse’s student loans early. (Or, depending on how you look at it, that’s $100 that you can’t use to pay off your own student loans early.)
The point is that you’d like to be responsible for your own student loan debt—and, legally, you are. But in reality, it’s not possible for you or your spouse’s loans to not affect the other person unless you never get legally married. Even then, if you live together in a non-married domestic partnership, it will still affect your joint finances.
How Public Service Loan Forgiveness Works
PSLF can be a confusing program. We’ll briefly go over how the PSLF program works here to help you understand better how it impacts your combined wallet.
You Need to Be on an Income-Driven Repayment Plan to Use the Public Service Loan Forgiveness Program
When you graduate college with your Federal student loans, you’re automatically entered into a standard 10-year repayment plan. If you have a low income after you graduate, you can choose to enter into an income-driven repayment plan. There are three good income-driven repayment plans currently available:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
Most people with Federal loans can apply for these income-driven repayment plans, regardless of what type of employer they work for. After 20-25 years, your remaining loan balance will be forgiven.
Here’s the kicker for the PSLF program, however: you can actually have your loans forgiven in half the time—in as little as 10 years instead of 20-25—if you meet some criteria and complete some forms.
But because you’ll normally pay off your student loans after 10 years anyway, you can only really take advantage of PSLF if you’re on an income-driven repayment plan because only then will your payments will be stretched out past the 10-year hurdle. If you stay on the standard 10-year repayment plan, you won’t have anything left to forgive by the time the 10-year mark comes up.
If your income suddenly increases after several years of low payments, you still can stick with PSLF. You’ll just use the cap on PAYE or IBR to ensure you have something left to forgive.
How to Qualify for Public Service Loan Forgiveness
To qualify for PSLF, you’ll need to make 120 qualifying payments while employed full-time in a government or non-profit 501(c)(3) position. These payments do not need to be continuous (i.e., you don’t lose your balance of qualifying payments if you take a temporary break to work for a private employer).
Each year you’ll need to complete an employment certification form and send it in. It’s not technically required to send it in each year, but you will need one on file for each year, so it’s easier to do it now rather than 10 years down the line. Then, after you’ve made 120 payments, you complete a form to apply for your loan balance to be wiped away like a Mr. Clean Magic Eraser.
How Marriage Affects Your Student Loan Repayment
If you’re trying to maximize the benefit you get from PSLF, it makes sense to minimize your monthly student loan payments as much as possible. The less you pay now, the greater the amount that will be forgiven.
If you’re a married couple working towards PSLF, you can reduce your monthly student loan payments now by filing your taxes separately. This works on either the PAYE or IBR plans if your spouse does not owe anything.
Using this strategy, it looks like you have a smaller income, and thus the loan payments you need to make under an income-driven repayment plan will be smaller. A smaller monthly payment = a greater forgiven amount after you’ve made the obligatory 120 qualifying payments.
However, it’s not that simple.
If you file your taxes as married-filing-separately, you may get a lower student loan payment, but you could easily end up owing more in taxes since married-filing-separately folks are often taxed at a higher rate.
Put another way:
- If you file your taxes jointly, your student loan payments might be higher.
- If you file your taxes separately, your taxes might be higher.
The only way to know for sure which is the better option is to compare each scenario. To do this, you’ll need to work with an accountant (unless you’re personally handy at tax numbers) to see what the difference in your tax liability will be if you and your spouse file separately, or jointly.
One trick that works well if you use TurboTax is to open the prior year’s returns and toggle between “Married Filing Joint” and “Married Filing Separate” in the software. The difference in the tax bill will be the tax penalty.
Compare that to what your student loan payment would be if you file jointly or separately (you can call up your loan servicer to get this information, or use this calculator).
Whichever option—married-filing-jointly or married-filing-separately—is cheapest after taking both your tax and student loan payments into account is the one you should choose.
Married but Filing Separately for IBR or PAYE
While the only way to know for sure if you should file jointly or separately is to run the numbers, there are some clues that can help guide you.
Filing separately for the IBR and PAYE programs is generally better for married couples with similar incomes. In this case, the tax penalty is usually lower than if one spouse earns a vastly higher amount than the other spouse.
In this case, the math is more likely to work out in your favor because any tax penalty is likely not high enough to wipe out the savings you’ll get from a lower student loan payment.
If you sign up on our email list to get our calculator, you’ll be able to model the payment difference between married filing separate and married filing joint.
If you want to estimate the difference in taxes between the two filing statuses, try out the married filing separate calculator below. It assumes you use the standard deduction and doesn’t constitute formal tax advice. That said, I hope you find it to be a useful starting point.
Married Filing Separate vs. Married Filing Joint Calculator
*Note: Assumes standard deduction
Taking Advantage of Public Service Loan Forgiveness on the REPAYE Program
It’s pretty common to have one or both spouses switch from a public service job to a private sector job. After all, the paychecks are usually higher in the private sector. If you or your spouse think this is possible in the future, it might be better to go with the REPAYE plan.
Here’s why: while you’re paying off your loans, interest will continue to accrue. If the amount of interest that you’re supposed to pay each month is higher than your monthly payment amount under an income-driven plan, it will be tacked on to your loan balance, and it will continue to grow over time rather than shrink.
But, if you’re on the REPAYE program, the government will pay half of the difference between the interest owed and your annual payment, meaning that your loan balance will grow slower over time.
Let’s look at an example.
Let’s say Bob Loblaw owes $300 in interest as a part of his student loan payment. But, if his monthly payment amount is capped at a smaller amount—say, $200—there’s a $100 difference.
If Bob Loblaw is on a non-REPAYE plan, each month that $100 difference will be tacked on to his loan balance, and it will get larger over time.
But if Bob Boblaw is on the REPAYE program, the government will pay half the difference—$50—while the other $50 is tacked on to his loan balance. It will still grow over time but at half the rate.
If Bob Loblaw decides to leave his public service job and start a private practice with his wife Bobetta, he’ll have a much smaller balance to pay off or have forgiven over time thanks to the interest subsidies from the REPAYE program.
Finally, let’s look at a couple common questions we get from readers and clients. Make sure to check out our Top 40 PSLF Tips to get the full scoop.
1. What are the Public Service Loan Forgiveness Income Limits?
There are no income limits for the PSLF program.
However, if your income is high relative to the balance of your student loans, you might not qualify for an income-driven repayment plan.
If you can’t get on an income-driven repayment plan, you won’t be able to take advantage of the PSLF program because you’ll have paid all of your loans off under the standard 10-year repayment plan by the time you would qualify for PSLF after 10 years. In other words, you’ll have no balance left to forgive by the time you would qualify for PSLF, so it’s a moot point.
In general, we find a lot more high-income individuals would qualify for PSLF than they realize.
2. Is the Public Service Loan Forgiveness Grandfather Clause a Real Thing?
Not specifically. If any changes are made to the PSLF program (a very likely thing with the current administration), we feel 90% confident that current people in the PSLF program will be grandfathered in.
This is typically what happens when new legislation is passed. However, it’s not a 100% guarantee, and new borrowers would not be eligible for the program anymore.
3. What is the Public Service Loan Forgiveness Maximum Forgiveness Amount?
There is currently no cap as to how much can be forgiven. In 2015 legislators tried to impose caps on the amount that can be forgiven, however, this was shot down. It shows that there is very little political will to impose caps on forgiveness amounts for this popular program.
4. Can I Consolidate My Student Loans With My Spouse?
No. Oddly enough, this is a question on the application form for Federal student loan consolidation, however, it’s not allowed under present rules. It’s a classic example of government bureaucracy falling behind itself with all of the rule changes.
5. Is My Spouse Responsible for My Student Loans if We Divorce?
It depends on which state you live in. In a divorce, your assets and debts generally get split up by a court, and it’s possible that you could be assigned some of your spouse’s student loan debt. Not all states do this, however, which is why it’s necessary to consult with a divorce attorney.
Get a Custom Student Loan Plan
If you owe more than $100,000 in student debt, we’ll probably add a ton of value over and above our one-time flat fee for our consult service.
The key is to make sure you’re not sticking your head in the ground trying to avoid thinking about your loans because they’re stressful. Use our free tips or hire someone like us to figure it out for you.
Are you and your spouse considering Public Service Loan Forgiveness? Why or why not? We’d love to hear your thoughts in the comments!