Hello,
My wife and I who married this year are in deep student loan debt and trying to figure out how this complex repayment scheme applies to us. My wife has 125k in federal student loan debt and makes 46k per year as a social worker PSFL. I have 60k in federal student loan debt and make 150k in the private sector.

Our thinking is to pay mine off as quickly as possible, and she would work for the 10 years to get the forgiveness. After mine were paid off we would use the extra money we have to save for retirement and a house down payment.

We have been trying to put a plan in place, but than we got very confused by the IBR plans and PSFL and the associated tax situations.

Since our incomes are so far apart is it a good idea to file married - separate, married jointly, divorce and file single (but stay together)?  Other than student loan interest we don’t really get to deduct anything.
Now does this situation change if we have a kid?

If we file jointly will the PSFL plan expect my wife to take 10% of my earned income for her payments?

How does student loan repayment and taxes work for married couples with one as high earner private sector worker and a modest earning non profit worker?

Thanks,
-J

Take a look at the IBR Q & A sheet on the studentaid.ed.gov website. There’s a section for Married borrowers that explains how payments are divided if you are both on IBR and have different debt amounts. You’d have to first see if you both qualify for IBR, and whether or not a joint filing might disqualify you from ibr based on your incomes. If you don’t mind losing out on tax credits, I’d think that married filing separate would be your best bet. Otherwise, the person with the most debt would have the higher payments, since they don’t seem to weight it by how much each person makes. They divide it by debt amount.

The IBR calculates monthly payments based on income. If you are married filing jointly, they will calculate the monthly payment based on your joint income. That would significantly increase your wife’s monthly payment, and more importantly, your high income may even bump her from qualifying for IBR or PSLF, since a “partial financial hardship is required.”

If filing separately, they would only calculate your wife’s monthly payment (and her ability to qualify for IBR and PSLF) based on her income alone. My wife and I have been filing separately for 5 years. Having a kid won’t change this equation, but you would lose out on some.child-based credits and deductions.

So you’ll have to weigh the benefits/drawbacks, and you may consider speaking with an accountant. To put another wrench in this, there are proposals to eliminate the ability to file separately to separate income for repayment and qualification purposes. So you should keep your eye on this. I’m sure Heather will provide an update if something happens here.