Hello,

I am a third year law student and will be graduating in May 2014 with about +150K in federal student loans (unsub and sub). My husband and I were recently married and this will be our first year we can file our tax returns as married-jointly or married-separately. My husband has bout 9K in federal sub and unsub loans. I believe I qualify for PAYE b/c I did not have debt until 2009 and received loan disbursement from Aug 2011 to January 2014 (or at least I think I do… please feel free to correct me if I am wrong).

My husband currently makes about 40K and I will hopefully be going into a job with a state or local government making something roughly comparable. I know that our filing status will affect my payments but can’t decide whether filing married-jointly or married-separately is the best choice for us in the long run. Also, we live in a community property state.

Anyone go through anything similar or have any advice?

Hello.  My name is James and I am Heather’s Communications Director (and husband).  Heather is traveling today but she sent the following information to me in response to your questions.

Although married borrowers who file a joint tax return will have their income-driven payments based on joint income and the total amount of both spouse’s student loan debt, each spouse’s loans will not actually be combined.  They’ll add up your loan balances just for sake of the calculation, but each spouse’s loans will remain separate, each spouse will owe a particular amount on his or her loans, and each would earn (or not earn) forgiveness independently.

Married student loan borrowers can choose to either:
- file taxes jointly and have monthly payment based on joint AGI and combined student debt, or
- file taxes separately and have monthly payment based on individual AGI and individual student debt

If a married couple files a joint federal tax return, a total student loan payment amount for the couple will be calculated taking into account both spouses’ debt and both spouses’ income.  A proportion of the total payment will be assigned to each spouse based on their share of the couple’s total student loan debt.

If a married person wants to have his or her monthly student loan payment calculated solely on the basis of his or her individual income and student loan debt, he or she must file a separate federal income tax return.

Married student loan borrowers must try to weigh the value of tax benefits against student loan benefits.  Most (but not all) married couples will pay more combined tax on separate returns than they would on a joint return. 

Married couples who file jointly have access to certain credits and deductions, like the Earned Income Tax Credit, and the student loans interest deduction, which they would not get if they filed “married filing separately”.

Marriage only impacts Public Service Loan Forgiveness insofar as tax filing affects payments under an income-driven plan (as above), and married people get to count their spouse in their family size (no matter how they file taxes) and family size also affects payments.

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), married persons are considered to own their income jointly.

When a married couple from a community property state files separate federal tax returns, they generally must report half of their combined income rather than reporting their own earnings alone.  In order to have their payment based on separate rather than joint income, student loan borrowers in community property states must file a separate tax return and must also supply “alternative documentation” of their separate income to their loan servicer.

Hope this helps!

Best,

James Jarvis
Communications Director
AskHeatherJarvis.Com

James:

I think you are misinformed.  “...student loan borrowers in community property states must file a separate tax return and must also supply “alternative documentation” of their separate income to their loan servicer.”

Borrowers do not have to do both simply because they MFS in a community property state.  Usually, an alternative documentation of income is needed in the event there is a change of income after a tax return is filed but not just because someone lives in a community property state and files separately.  I know this because my wife and I file separately, live in a CP state and my servicer has never asked for anything outside of a tax return.

I was wondering, is Heather ever going to answer the questions proposed on this site from last week regarding the proposed changes in the PSLF program?  She has posted new articles since the questions were asked but has not bothered to answer the questions presented by posters on the subject.  Is there a reason for the delay?

Wow.  Tell us what you really think.  Here’s my response:

Borrower - 24 March 2014 10:44 PM

James:

I think you are misinformed.  “...student loan borrowers in community property states must file a separate tax return and must also supply “alternative documentation” of their separate income to their loan servicer.”

Borrowers do not have to do both simply because they MFS in a community property state.  Usually, an alternative documentation of income is needed in the event there is a change of income after a tax return is filed but not just because someone lives in a community property state and files separately.  I know this because my wife and I file separately, live in a CP state and my servicer has never asked for anything outside of a tax return.

James is correct.  When a student loan borrower’s federal tax return reflects 50% of community property (for example, half of combined earnings), rather than the income earned by the student loan borrower his or herself (which may be less than half of combined earnings), a borrower must supply Alternative Documentation of Income to have his or her payment based on his or her earned income.  Sure, borrowers may choose to supply only the tax return but then his or her payment will be based on whatever AGI the tax return reflects.  Insofar as a borrower’s separate income is not always reflected on his or her federal tax return (as can be the case under community property rules), if he or she wants the payment based on separate earnings, then he or she must supply Alternative Documentation. 

I was wondering, is Heather ever going to answer the questions proposed on this site from last week regarding the proposed changes in the PSLF program?  She has posted new articles since the questions were asked but has not bothered to answer the questions presented by posters on the subject.  Is there a reason for the delay?

Dude.  Grouchy much?  I support my family by selling professional training and consultation services to universities, financial advisors, and professional associations.  I choose to provide free information resources and assistance to student loan borrowers because I care.  In response to the proposed changes, my priority is to take action to influence the policy makers in an effort to prevent or mitigate changes that would hurt student loan borrowers.  I am simultaneously doing my best to get information out to the people who need it and delivering on my obligations to my paying customers and my family.  Why do I not respond quickly to every question I receive?  Because I’m really, really, busy.