Some married student loan borrowers may experience unforeseen relief in their monthly payments due to a recent change in federal policy that could reduce payment amounts under income-driven repayment plans.
Importance of This Change
Over 40 million Americans are burdened with student debt, and recent statistics indicate that delinquencies on these loans are negatively impacting national credit scores.
These delinquencies are a significant factor contributing to the recent decline in the average U.S. credit score, marking the first drop in a decade, according to CNBC.
While the Biden administration has aimed to lighten debt loads, many of its initiatives, including the new SAVE plan, have encountered legal challenges or reversals. The recent clarification from the Department of Education brings much-needed relief for borrowers, especially those who are married.
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Key Insights
This week, the Department of Education updated a previous court declaration that had alarmed many borrowers.
Initially, the department suggested that spousal income would be factored into calculations for income-driven repayment (IDR) plans—such as IBR, PAYE, and ICR—even if the borrower filed taxes separately from their partner.
The revised declaration now confirms that spousal income will not be considered in those cases. Instead, only the borrower’s income will be used to calculate payments when taxes are filed separately. This adjustment adheres to federal law and alleviates the potential for unexpected increases in payments for married borrowers.
Moreover, this change could actually lower monthly payments for certain borrowers.
This is because family size—which is another factor in determining IDR payment amounts—will revert to an older definition due to a court injunction against the SAVE plan. In the past, a spouse was included in the borrower’s family size regardless of the tax filing status.
A larger family size decreases the required payment amount, suggesting that some borrowers could pay less simply because their spouse is included in the calculation.
“Indeed, the revised declaration implies that some married borrowers may see their payments decrease,” stated Attorney Adam Minsky in Forbes.
This shift represents a departure from earlier policies during the Trump administration, which had suggested a version of the SAVE plan that would have resulted in higher payments for married borrowers. At that time, the Department of Education argued that including spousal income for those filing separately created a loophole, prompting suggestions to count that income regardless.
Reactions
Michael Ryan, a finance expert and founder of MichaelRyanMoney.com, conveyed to Newsweek: “When the courts halted the SAVE plan regulations, they inadvertently opened a door where marriage might lower some borrowers’ payments… Now that we’re back to the pre-SAVE rules, your spouse is counted in your family size irrespective of tax filing status. This creates a potentially advantageous situation for savvy borrowers.”
Kevin Thompson, CEO of 9i Capital and host of the 9innings podcast, remarked to Newsweek: “Marriage plays a crucial role in reducing payment amounts as Federal Poverty line thresholds increase, which could lead to lower discretionary income and reduced payments. As your family grows, your repayments might decrease as well because of the increased thresholds.”
Alex Beene, a financial literacy educator at the University of Tennessee at Martin, expressed to Newsweek: “Much like other financial benefits associated with marriage, the potential for lower student loan payments with the start of a family is worth exploring. The financial burden of monthly payments can intensify when considering the additional costs of entering a new chapter in life. Although we’ve witnessed this administration scale back recent student loan forgiveness proposals, making managing debt easier for those starting families represents a positive step they might take.”
What Lies Ahead
The Department of Education has announced that processing for IDR applications will resume by May 10, an essential step as it navigates a broader legal challenge concerning the SAVE plan. A federal court has recently scheduled a status conference to ensure adherence to the new IDR regulations and processing standards.
In the meantime, borrowers should keep an eye on their loan servicers and contemplate how their tax filing status might influence their monthly payments.
Ryan encourages borrowers to fully utilize their pre-tax deductions, as every dollar invested in retirement accounts reduces their adjusted gross income and subsequently lowers student loan payments.
“What works for one couple may not be financially sound for another. I’ve seen marriages postponed, expedited, and financially restructured due to student loan implications,” noted Ryan.
“The most successful borrowers I’ve advised throughout my career aren’t necessarily those who discovered the perfect loophole. They’re the ones who remained flexible, stayed updated, and were willing to adapt their strategies in response to changing circumstances,” he added.
If you are a married student loan borrower interested in sharing your story, please contact [email protected].
