Income Driven Repayments - How Marriage Changes Your Payments
Student loans are more than a financial problem. There are millions of people around the country waiting to get married and have children until the student loans are gone. Don't let this be you. Get married. Have kids. Enjoy life.
How Family Size Affects Your Student Loans
If you remember back to part one of this series, we discussed how to calculate your income-driven repayments. One of the factors is your family size. As your family size grows, the amount due on your student loans may go down. So life changes such as getting married or having children may lower your student loan payment.
If you are already married, you need to know there is a critical decision to make about your student loans. If you file your taxes, joint verse married filing singly. Your Income-Driven Repayment plan calculates your payment based on the income you make. Some income-driven plans will allow you to exclude your spouse's income if you file separately.
The decision on how to file your taxes is not a fast decision to make. Here are a few things to think about first.
1. What affect will this have on your total tax bill
In most instances, filing separately will increase your tax bill. You want to compare the savings on your student loans and the increase to your taxes to make sure you are saving money. You don't want your student loan savings to be offset by a higher tax bill.
2. Is the lowest payment your best option?
If you are not trying to get student loan forgiveness, the lowest payment may not be your most desirable option. With every dollar you don't pay on your loans, you are adding years and interest to your total loan cost. Unless there is a reason you might want to avoid making small payments.
3. Don't just check the "I don't have access to my spouse's income" box
When you submit an Income-Driven Repayment request, there is a box that states you don't have access to your spouse's income. This box is there for separated couples and other particular situations where you indeed may not have access to their income numbers. If you check this box, you will be allowed to exclude your spouse's income, but you will also be agreeing that you don't have any way of finding out what their income is. If you live together, have a safe relationship, or even file taxes jointly, you should avoid checking this box. If you falsify this information, you can be charged with fraud.
I stress this because there are blogs and Quora answers recommending checking this box. Don't.
Is This Strategy Right For You
Generally, this strategy is best for couples with an income gap between spouses, where the lower-income spouse has a more substantial loan balance. Usually, this translates to a non-profit employee with low to moderate-income but large masters level debts bring married to a small student loan debt high-income spouse.
The first example I ever came across was a minister (low income, high debt) married to a lawyer.
Lastly, some payment plans consider your student loans jointly when determining your payment. Meaning, your income-driven repayment will be split between your loans and your spouses. This may make filing your taxes separately worth minimal benefit.
In all, this is not a simple decision. You and your tax preparer should work together on the tax calculations as well as your student loan planner. We didn't even talk about who claims any kids if you have them.
If you want some help running an analysis of the option, we can schedule a time to start working on your plan.