Lowering Student Loan Payments After Filing a Joint Tax Return

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Updated on Monday, February 8, 2016

Student Loan Payments

If you’re recently married and you have student loans in income-driven repayment, you may have run into this common problem.

You file taxes jointly because that’s what married people do, right? Then you re-apply for income-driven repayment, which you have to do annually, and your required monthly student loan payments spike way up.

If you find yourself in this situation, you may be wondering two things:

  1. What the heck just happened?
  2. What can you do about it?

In this post you’ll get the answers to both questions.

The Conundrum of Marriage and Student Loans

Under income-driven repayment plans, your required monthly student loan payment fluctuates with your income. The more you make, the more you are required to pay (up to a point).

When you’re married, how much you make for the purposes of this calculation depends on how you file your taxes. If you file separately, only your income is counted. But if you file jointly, your spouse’s income is counted as well.

So if you file jointly, and if both spouses are earning money, it’s likely that your required student loan payment will increase.

This presents married couples with a potentially difficult choice:

  1. File jointly, which often saves you money on taxes in exchange for bigger student loan payments.
  2. File separately, which often reduces your student loan payment in exchange for a bigger tax payment.

There’s no easy answer here and it’s important to look at both the short-term and the long-term consequences. After all, lower student loan payments may be easier on your budget right now but may also lead to more payments over the life of the loan.

But in any case, it’s likely that your combined income from filing jointly is what caused your monthly student loan payments to increase.

What You Can Do

So, if you can’t handle those higher payments right now, is there anything you can do to fix it?

There is.

You can file an amended tax return and change your filing status from joint to separate. Once you’ve done that, you can re-apply for income-driven repayment so that your monthly payment is recalculated using only your income.

Here are a few things to keep in mind as you consider this process:

  1. If possible, file your amendment before April 15 to avoid any interest and penalties on the extra tax you owe.
  2. Make sure to amend your return with your state too. You can check with your state’s tax agency to learn how to do this.
  3. This may or may not be the best financial decision. While there is no one-size-fits-all answer here, filing separately is most likely to be a good idea under the following conditions:

Steps to Take

No one likes a bigger monthly payment, so it’s totally understandable if you’re rushing to file an amended tax return right now so you can get those payments reduced.

But before you do that, it’s important to consider the trade-offs so that you can make the best possible decision for your specific situation.

Here are some steps you can take to do that.

Estimate your student loan payments 

There are a few tools you can use to estimate your student loan payments in various situations:

  • Studentloans.gov has a repayment estimator that will help you figure out what your monthly payment will be if you change your filing status.
  • The VIN Foundation has a great repayment simulator to help you understand the long-term implications of various repayment plans.

Estimate your tax payment

How much money are you saving by filing jointly? How much extra would you have to pay filing separately? How do those numbers compare to the potential change in student loan payments? After all, a smaller monthly payment isn’t worth if it your tax bill spikes way up. You can use a tool like TurboTax’s TaxCaster to estimate the change.

Talk to a professional

If you’re unsure, it may be worth finding a good accountant and/or financial planner who can help you sort through your options and figure out which one is best for you.

Amend your tax return

If you want to amend your tax return, you can start with this guide.

Re-apply for income-driven repayment

After you’ve filed your amended return, you can re-apply for income-driven repayment to get your monthly payment reduced.

Are You Sure This is Legal?

It is completely legal to file separately in order to protect your student loan repayment status. However, it could be possible in the future that married couples will be required to file joint tax returns and pay income-driven repayment plans based on their joint income.

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