The details:
My wife needs to get IBR for her loans. We’ve been married since 2011 and have been filing jointly. She worked all of 2013 but quit in January 2014 to look for work in her field (unemployed). She went to school from 2006-2008 and graduated with 2-yr degree, then finish the 4-yr program in 2009-2011. The federal loans are probable around 30-40k. My income (~50k) is high enough to probably hamper her IBR efforts, but not enough to pay her loans every month (along with every other bill in the world). I can manage to pay my own student loans, but adding hers is too much to bear. I’m running out of time.

The question(s):
We got our 2013 W-2’s from our employers. We want to file “married filing separately” for 2013, then immediately turn around and apply her to IBR. Can we do this? I need to know this so my accountant can file it MFS. If this won’t work, then I will file MFJ to save money.
What about her recent decision to quit her job? How can we reflect her $0 monthly income in her application?

Please help. Thanks to anyone who replies in advance.

-Wits End in PA

Hi Wits End,

I feel your pain.

You can file MFS for 2013 and turn around and apply for IBR.  You say “...if this won’t work, then I will file MFJ to save money.”  Have you actually done the calculations for your taxes AND the IBR payments to see how everything adds up- MFJ and IBR payment vs MFS and IBR payment.  You need to do both calculations to be able to make the best decision.  You also need to consider Alternative Documentation if are you in a community property state. I suspect you are because you mention MFS. 

Alternative Documentation in conjunction with MFS will make it possible to show that whatever income your wife NOW has (i.e. since she quit her job in 2014)- so THIS will be the basis for her IBR calculation (in combination with your Family Size).  Alt. Docs. in community property states should trump whatever her MFS 2013 Fed Tax or your MFJ 2012 Fed Tax returns show.

Can she get unemployment insurance payments from the State?- since she quit this may be difficult.  If so, this provides easy documentation of her CURRENT (now $0) income for the Alt Docs (you need to establish a certain maximum income based on the IBR formula to reduce or eliminate her IBR payments).  If she is not getting or soon expecting to receive unemployment income, there are other possible ways to establish her current (small or $0) income-
-her resignation letter
-bank statements showing the change in her deposit pattern - pre and post employment
-correspondence with whatever state unemployment/job search agency she is working with now to find a new job
-any documents from her previous employer (the one she recently quit) regarding her resignation
-is she currently doing any sort of volunteer/un-paid internship work - if so get a letter stating her hours per week, thus helping to establish her unemployed status

Any documentation you file must be less than 90 days old.  They seem to be somewhat liberal as to what is acceptable as Alt Docs.  I believe a determination is ultimately up to the individual loan servicer.

People can quit their job- this should not be held against her by the loan servicer evaluating her eligibility for IBR, and should in your case reduce or eliminate her IBR payment for the first year IBR period.

Also, along with whatever documentation you file, include a short letter stating what you are requesting and the circumstances behind your request.

Have you considered other ways to postpone payment for a period of time?- so you can learn what you need to learn and then go ahead with IBR if it still makes sense.  If you think there is a possibility that your wife will never earn enough to make the IBR payments easily- remember that the principal and interest are forgiven after 25 years (and the mood in Congress seems to be favorable to also removing the current obligation to pay tax in the forgiven amount at that point).  Also, take a look at my own Q&A on this same IBR forum.

Good luck!