How Married Couples Can Take Advantage of Public Service Loan Forgiveness for Their Student Debt

It’s no secret that great minds think alike. That’s probably one reason why it’s common for people to choose a spouse based on their own profession.

For example, in one study based on U.S. Census data, 16% of married people in the education and healthcare industries were married to another education or healthcare professional. Nine percent of people working in social services were married to another person in the same profession, and 8% of police officers and firefighters also chose spouses with similar professions.

Know what else those occupations have in common? They will also likely qualify for Public Service Loan Forgiveness (PSLF).

Even if your spouse isn’t in a similar public service job, knowing how PSLF works — and how it impacts your family finances — can help you make an informed decision. Here's how married spouses can take advantage of Public Service Loan Forgiveness.

Student loans and marriage

In the words of the great Peter Cook from The Princess Bride, “Mawage. Mawage is wot bwings us togedah today.”

All joking aside, marriage brings a lot more than just people together. It also brings your student loans together, at least in terms of how you manage them as a family.

Let’s be clear. Your federal student loans will always stay in your name. Your spouse will never hold legal liability to pay back your federal student loans for you, except in the unlikely event you receive an unfavorable court ruling in a divorce.

However, just because you’re technically on the hook for your loans and your spouse is on the hook for theirs doesn’t mean that each person’s loans won’t impact the other person. If you have to make a $500 payment toward your student loans each month and your spouse only has to make a $100 payment, that’s $500 that you can’t use to pay off your spouse’s student loans early. Or, depending on how you look at it, that’s $100 that you can’t use to pay off your own student loans early.

The point is that you’d like to be responsible for your own student loan debt. And, legally, you are. But in reality, it’s impossible for you or your spouse’s loans not to affect the other person, unless you never legally tie the knot. Even then, if you live together in a non-married domestic partnership, it can still affect your joint finances.

How the Public Service Loan Forgiveness program works

PSLF can be a confusing program. We’ll briefly review how the PSLF program works to help you understand how it impacts your combined finances.

You need to be on an income-driven repayment plan to use PSLF program

You’re automatically placed on a standard 10-year repayment plan when you graduate college with your federal student loans. If you have a low income after you graduate, you can access a more affordable payment by choosing repayment options based on your discretionary income.

Popular income-driven repayment (IDR) plans for federal student loan debt include:

• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Saving on a Valuable Education (SAVE), which used to be called Revised Pay As You Earn (REPAYE)
• Income-Contingent Repayment (ICR)

Income-driven repayment plans are available to most people with federal loans, regardless of their employer. After 20 to 25 years, your remaining loan balance will be forgiven.

Here’s the kicker for the PSLF program. You can have your loans forgiven in half the time (in as little as 10 years instead of 20 to 25) if you meet certain criteria, like having eligible loans.

But because you’ll normally pay off your student loans after 10 years anyway, you can only take advantage of PSLF if you’re on an IDR plan. Only then will your payments be stretched out past the 10-year hurdle. If you stay on the Standard Repayment Plan, you won’t have anything left to forgive by the time the 10-year mark comes up.

If your adjusted gross income (AGI) suddenly increases after several years of low payments, you can stick with PSLF. You’ll just use the cap on PAYE or IBR to ensure you have something left to forgive.

Many borrowers inadvertently signed up for the wrong repayment plan in the past and mistakenly believed they had signed on to the PSLF program. Luckily, the PSLF and IDR Waivers were put into place to correct that.

Editor's note: The PSLF Waiver expired on October 31, 2022. However, nearly all the benefits are still available through the IDR Waiver until June 30, 2024, for those currently working in qualifying not-for-profit or government jobs.

How to qualify for PSLF

To qualify for PSLF, you’ll need to make 120 qualifying payments while having full-time employment in a government or nonprofit 501(c)(3) position. These payments don't need to be consecutive.

For example, you won’t lose your balance of qualifying PSLF payments if you take a temporary break to work for a for-profit organization, transition to part-time employment for a short period or take time away from the workforce to be a stay-at-home parent.

Each year, you’ll need to complete an employment certification form and recertify your individual income or joint income and family size to stay on your payment plan. Then, after you’ve made 120 payments, you complete a form to apply for your remaining balance to be wiped away like a Mr. Clean Magic Eraser.

How marriage affects your student loan repayment

If you want to maximize the benefits of PSLF, it makes sense to minimize your monthly student loan payments as much as possible. The less you pay now, the greater the forgiven loan amount.

If you’re a married couple working towards PSLF, you can get lower payments now by filing your taxes separately. This works on the PAYE plan or IBR plan if your spouse does not owe anything.

Using this strategy, your income will be smaller because you won't need to include your spouse's income (so, not showing combined income). Thus, the loan payments you need to make under an income-driven repayment plan will be smaller. A smaller repayment amount means a greater forgiven amount after you’ve made the required 120 qualifying payments.

However, it’s not that simple.

If your tax filing status is “married filing separately,” you may get a lower student loan payment. But you could easily end up owing more in taxes since married filing separately folks are often taxed at a higher rate.

Put another way:

• If you file taxes jointly, your student loan payments might be higher.
• If you each file a separate federal income tax return, your tax bill might be higher.

Related: Is the Married Filing Separately Health Insurance Penalty Worth It? How to Minimize the Impact

The only way to know for sure which is the better option is to compare each scenario. To do this, you’ll need to work with a tax advisor (unless you’re personally handy at tax numbers) to see the difference in your tax liability if you file separately or jointly. A professional can help you review tax benefits and tax credits, your overall taxable income, student loan interest deductions, and navigate the intricacies of the IRS.

If you use tax software like TurboTax, you should be able to open the prior year’s returns and toggle between “Married Filing Joint” and “Married Filing Separate” in the software. The difference in the tax bill will be the tax penalty.

Compare that to what your student loan payment would be if you file jointly or separately. You can contact your loan servicer to get this information or use our Student Loan Forgiveness and Repayment Calculator.

Whichever option is cheapest — married filing jointly or married filing separately — after taking both your tax and student loan payments into account is the one you should choose.

Related: How to Decide When to Use Married Filing Separately on Your Tax Return

Married but filing separately for IBR, SAVE, or PAYE

The only way to know for sure if you should file jointly or separately is to run the numbers. But some clues can help guide you in your decision.

Filing separately for the IBR, SAVE, and PAYE programs is generally better for married couples with similar incomes. In this case, the tax penalty is usually lower than if one spouse is a high earner with income that is vastly higher than the other spouse's salary.

In this case, the math is more likely to work out in your favor because any tax penalty is likely not high enough to eliminate the savings you’ll get from a lower student loan payment.

If you sign up on our email list to get our calculator, you'll be able to model the payment difference between married filing separately and married filing jointly.

If you want to estimate the difference in taxes between the two filing statuses, try out the married filing separate calculator. It assumes you use the standard deduction and doesn't constitute formal tax advice. That said, I hope you find it to be a useful starting point.

Taking advantage of PSLF on the SAVE program

It’s pretty common to have one or both spouses switch from a public service job to a private-sector job. After all, the paychecks are usually higher in the private sector and may put you in a higher tax bracket.

If you or your spouse think this is possible in the future, it might be better to go with the SAVE plan.

Here’s why. While you’re paying off your loans, interest will continue to accrue. If the interest you’re supposed to pay each month is higher than your monthly payment amount under an IDR plan, it will be tacked on to your loan balance. It will continue to grow over time rather than shrink.

But, if you’re on the SAVE program, the U.S. Department of Education will pay all the difference between the interest owed and your annual payment. This means your loan balance will grow slowly over time.

Let’s look at an example.

Let’s say Bob owes $300 in interest as a part of his student loan payment. But, if his monthly payment amount is capped at a smaller amount — say $200 — there’s a $100 difference.

If Bob is on a non-SAVE plan, each month, that $100 difference will be tacked on to his loan balance. And it will get larger over time.

But if Bob is on the SAVE program, the government will pay all of the difference ($100).

If Bob decides to leave his public service job and start a private practice with his wife, he’ll have a much smaller balance to pay off or have forgiven over time, thanks to the interest subsidies from the SAVE program.

Also, the new SAVE plan allows married borrowers to file separately and not include their spouse's income.

FAQs

Let’s look at some common questions we get from student loan borrowers. Make sure to check out our top PSLF tips to get the full scoop.

Get a custom student loan plan

If you owe more than $20,000 in student debt, we can add a ton of value well over the cost of our one-time flat fee for our consult service.

The key is to make sure you’re not sticking your head in the ground trying to avoid thinking about your loans because they’re stressful. Use our free tips or hire someone like us to figure it out for you.

Are you and your spouse considering Public Service Loan Forgiveness? Why or why not? We'd love to hear your thoughts in the comments!