Hello Mrs. Jarvis, I have a few questions about my current situation I was hoping you could answer.

I am currently a student in Army ROTC who will be commissioning Active Duty in December. By that point, I will have about $36,500 in Federal Stafford Student Loans and my wife will have about $15,000 in Federal Stafford Student Loans. For the context of this question, she will be either unemployed or working in a civilian job wherever I am stationed.

My intent is to use the Pay As You Earn plan. I am thinking that our combined AGI will be around $25,000 after deductions to retirement. From what I am reading, because we are a married couple filling jointly, we will make a combined monthly payment, that is based off of our income. Is that correct?

Also, because I am in the military, I am planning on using PSLF. However, if we are making combined monthly student loan repayments, but I am the only one working in a federal position, how does PSLF work? Does my portion of the loan discharge after 120 payments, and we would then be just paying for hers?

Thanks, and I hope you can help me better understand this.

Hello.  This is James Jarvis, Heather’s Communications Director (and husband).  I am also a retired Marine officer, so thank you in advance for your service.  Here are a couple of recent posts from Heather that may address your questions.

Regarding PSLF and marriage: An individual can earn PSLF for his or her loans only, not for a spouse’s loans.  Married borrowers may only have their payments based on their separate income if they file a separate tax return, not a joint return.  So a borrower who files a joint return may still earn some forgiveness, but will be making payments based on his or her combined joint income.  No one is forced to combine their loans, in fact, there is (no longer) any opportunity to combine married people’s federal student loans (and that’s a good thing).

Here are a couple of links for more information about PAYE and PSLF that may be helpful to you.
http://studentaid.ed.gov/sites/default/files/military-student-loan-benefits.pdf
http://askheatherjarvis.com/uploads/images/March 2013 PSLF Emp Guide.pdf
http://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness.pdf
http://studentaid.ed.gov/sites/default/files/public-service-loan-forgiveness-common-questions.pdf

I’ll forward your forum post to her to answer your specific questions.

Best,
James Jarvis
Major, U.S. Marine Corps (Retired)
Communications Director
Heather Jarvis, Student Loan Expert LLC

Heather is traveling today, but here is her 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 own 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.

Hope this answers your questions.

Best,
James

Thank you James, that was extremely informative.

I now understand that the PSLF would only be applicable for my loans, not hers. The only other part I am confused about is what would happen immediately after the loan discharge.

Sticking with the idea that I have $36,500 in loans, she has $25,000 in loans, and we earn a combined income of $25,000 while filing as jointly. Under the Pay As You Earn plan, a monthly payment for that amount of income is roughly $100 a month. I understand that, that payment is sent to us jointly with a pro-rated amount going to each of our percentages of the loans (in this instance, it would be about 60/40%).

If I am using PSLF, when we reach 120 payments my loan will discharge and hers will remain intact. If our income continues to only be $25,000 annually, we will still be sent that monthly bill of $100 but instead of the amount being split among the two loans, it will now only be put towards her loan 100% because that is the only loan outstanding.

Hi!  You are correct that because the amount due under Pay As You Earn is based on Adjusted Gross Income and the federal poverty rate that corresponds to family size, and NOT based on outstanding loan balance(s), the calculated payment due would be the same assuming the same AGI and family size.  And yes, if only one spouse has a loan, the full payment would go towards that loan.

Bear in mind also that to choose PAYE, a Partial Financial Hardship (debt to income ratio) must be shown.  A borrower need not maintain the same debt to income ratio to stay in PAYE, but if a Partial Financial Hardship no longer exists, any unpaid accrued interest is capitalized, or added to the principal of the loan.  I mention that because PSLF would cause a drop in the overall loan balance, and could potential have that consequence. It’s not the end of the world by any means, but could serve to increase your costs since then what was originally interest would then generate interest itself (following that capitalization).

Hope this makes sense.  I’m not sure I’m explaining it well.

Hi again Heather, thank you for explaining that as I did fully understand it.

I have come up with another question though. Once I commission and start using PSLF, I was thinking about trying to earn a graduate degree when on active duty. I was wondering how this would work if I was to take out a graduate plus loan or other type of federal aid. Would it be that once I graduate, I would start a new loan repayment period and new PSLF, effectively having two at once. For example, in six years I graduate with a masters. I would be in year six of my undergraduate loan PSLF, while also starting a new graduate PSLF. Is this correct or am I way off base?