Broker Check

Married Filing Separate | Loan Repayment

June 04, 2020

Married filing separately rarely makes sense from an income tax perspective when considering student loans, but there is a scenario where it should get a second look. The two popular income driven repayment plans, PAYE (Pay As You Earn repayment plan) and REPAYE (Revised Pay As You Earn repayment plan), may treat family income differently. Both have monthly payments equal to 10% of your discretionary income and payments are recalculated each year based on updated income and family size. The main difference is the ability to keep payments low by filing your tax return as married filing separately in the case where you have a higher earning spouse.


Let us assume you are in family medicine residency and have every intention of taking advantage of the PSLF public sector loan forgiveness program to deal with your $300,000 of Direct loans. Your spouse however is in anesthesia and has accepted a job with a private company or the Kaiser system and will be making significantly more than you. With the PAYE option, if married filling separate, only your income would be counted in calculating the payment. If you have higher loan balances, lower earning potential, and a significant disparity in income this may be the path for you. There are disadvantages to married filing separately including loss of some credits and deductions such as student loan interest.


Always check with a qualified tax preparer to gauge the tax impact and weight verses the reduction in loan payments.