STUDENT loan borrowers who are married are sighing in relief after bosses at the Department of Education made a major U-turn on a decision regarding a key repayment program.
The federal agency backtracked on a comment that sparked concerns regarding how monthly payments for income-driven repayment, or IDR, plans would be calculated.
2
2
IDR plans are a type of federal student loan repayment program that bases a borrower’s monthly payments on their income and family size.
As required by federal law, married student loan borrowers who file their taxes jointly with their spouse and are enrolled in an IDR plan have their payments calculated based on their household income.
On the other hand, borrowers who file individual tax returns are supposed to have their monthly payments calculated based on solely their income, not the combined income of the borrower and their spouse.
Under current law, “for married student loan borrowers who file separate income tax returns, the Department of Education ‘shall calculate the amount of the borrower’s income-based repayment under this section solely on the basis of the borrower’s student loan debt and adjusted gross income.’”
Many taxpayers who are married but file separately from their spouse pay higher taxes because they miss out on certain deductions.
Previously, a court declaration was filed by a top Department of Education official suggesting that married borrowers who filed their taxes separately would still have their spousal income taken into account under IDR payment calculations.
The repayment program statement seemingly contradicted long-standing federal rules, prompting much backlash from married student loan borrowers.
However, the Department of Education official filed a corrected declaration with the court this week, retracting the concerning statement.
BACK AND FORTH
The concerning development occurred during a legal challenge surrounding the SAVE plan, a student loan repayment program aimed at offering more affordable IDR options for borrowers.
IDR processing was paused last spring after a court issued a preliminary injunction blocking certain parts of the SAVE plan – specifically how spousal income is treated for married borrowers filing separately.
In response, the Department of Education temporarily halted processing for all IDR plans to update the application system.
The American Federation of Teachers then filed a lawsuit against the Department of Education in March, arguing that such a broad shutdown of the IDR system was illegal and would prevent borrowers from accessing affordable loan payments and progressing toward Public Service Loan Forgiveness.
In response, the Department of Education filed court papers last week stating that processing for ICR, IBR, and PAYE applications would resume in the next few weeks.
However, a sworn declaration filed by acting under secretary James Bergeron on Friday prompted immediate concern among borrowers.
Biden’s previous student loan forgiveness plan
Before the most recent SAVE plan changes, the Biden administration had proposed a separate student loan relief initiative aimed at helping:
- Those who have balances bigger than what they originally borrowed due to interest
- Those who already qualify for student loan forgiveness under existing programs but have not applied
- Those who entered repayment at least 20 years ago
- Those who enrolled in “low financial value” programs, leaving students in debt but without good job prospects
- Those experiencing financial hardship
“Education expects that by May 10, 2025… married borrowers filing separate income tax returns or separated from their spouses will have spousal income counted for the purposes of calculating monthly payment amount under IDR plans, which is a required consequence of the Eighth Circuit’s opinion,” read his declaration.
The statement seemingly contradicted federal statutes, sparking fear among married borrowers that their monthly payments would spike even if they filed their taxes separate from their spouse.
Bergeron ultimately walked back on his previous declaration, filing an amended one on Tuesday.
“Education expects that by May 10, 2025, servicers will implement the treatment of spousal information for ICR, IBR, and PAYE such that married borrowers filing separate income tax returns or separated from their spouses will have the spouse counted in the family size for the purposes of calculating monthly payment amount under IDR plans, which is a required consequence of the Eighth Circuit’s opinion directing a broadened preliminary injunction,” said the updated declaration.
PAYMENT IMPLICATIONS
Bergeron’s revised declaration clarified that, under federal law, spousal income will not be taken into account in a borrower’s monthly payment calculation if they file their taxes individually.
This means that married student loan borrowers will not see a dramatic jump in their monthly payments – in fact, they may actually decrease, according to the amended statement.
The SAVE plan aimed to lower monthly student loan payments, with a key part being how it addressed married couples filing taxes separately.
Originally under the plan, only the borrower’s income and family size were considered – not the spouse’s.
However, a court ruling blocked this part of the plan, effectively reinstating the old rules.
The change means that even if a married couple files their taxes separately, the borrower’s spouse is included when calculating family size.
Income-driven monthly payments are based on both income and family size, with a larger family size equating to a lower monthly payment.
As a result, the change could mean a lower monthly student loan payment for some borrowers each month.
The U.S. Sun previously spoke with a money expert who paid off $173,000 in student loans in less than two years – she shared seven tips.
Plus, read everything you need to know about student loan repayment.