Married student loan borrowers can finally take a sigh of relief after the Department of Education clarified its earlier position on how payments are calculated under income-driven repayment plans. According to federal law, when married borrowers file their taxes jointly with their spouse and are part of an income-driven repayment plan—this is a federal program that adjusts monthly payments based on income and family size—their payments are calculated using their combined income. However, for those who file taxes separately from their spouse, the rules state that their payments should be based solely on their individual income, leaving out any spousal income. Unfortunately, many married taxpayers who choose to file separately end up facing higher tax bills because they miss out on certain deductions. In a legal battle initiated by a national labor union regarding the Trump administration’s temporary halt of the entire income-driven repayment plan system, a senior official from the Department of Education had previously submitted a sworn declaration in federal court. This declaration suggested that spousal income would be factored into the payment calculations for borrowers applying for the ICR, IBR, and PAYE plans, even if they filed taxes separately. However, just this week, the official submitted a revised declaration to the court, retracting that earlier claim. So, here’s the latest update on the situation.
The Department of Education recently threatened to include spousal income in the calculations for student loan payments under Income-Driven Repayment (IDR) plans. Since February, the federal student loan IDR system has been mostly inactive due to a recent ruling from a federal appeals court regarding the ongoing legal battle over the SAVE plan. This plan, introduced by President Biden, aimed to lower monthly payments for borrowers and expedite student loan forgiveness in specific situations. However, SAVE has faced obstacles since last summer, and the latest order from the appeals court has broadened the injunction against the SAVE plan to cover the entire regulatory framework that governs it. The Department of Education contended that the ruling from February required a temporary halt to the entire IDR system, which includes the Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), and Pay As You Earn (PAYE) plans, even though the legal challenge is technically focused only on the SAVE plan. They mentioned that it would take some time for the agency and its loan servicers to revise the IDR application and the related processing system to align with the new court order.
The American Federation of Teachers took legal action back in March, claiming that the sweeping and indefinite shutdown of the entire Income-Driven Repayment (IDR) system was unlawful and would cause serious harm to borrowers who have a right to affordable payments through these plans. For many borrowers, enrolling in these plans is also a crucial step toward obtaining student loan forgiveness through the Public Service Loan Forgiveness (PSLF) program, which, by the way, isn’t facing any legal challenges at the moment. In response to the AFT’s plea for a temporary restraining order to push the department to restart IDR application processing, the Department of Education submitted court documents last week stating that they would begin processing applications for Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), and Pay As You Earn (PAYE) in the coming weeks. However, a sworn declaration from Acting Under Secretary James Bergeron filed on Friday raised some eyebrows. Along with the announcement of resuming application processing next month, the declaration stated, “Education expects that by May 10, 2025, servicers will implement the treatment of spousal information for ICR, PAYE, and IBR. This means that married borrowers who file separate income tax returns or are separated from their spouses will have their spousal income considered when calculating their monthly payment under IDR plans. This change is a necessary result of the Eighth Circuit’s opinion directing a broader preliminary injunction.” This statement seemed to directly contradict federal laws, especially the one that governs the IBR program. That law clearly states that for married student loan borrowers who file separately, 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.” Importantly, this statute is not blocked or affected by the appeals court currently reviewing the SAVE plan legal challenge. Department of Education Files Corrected Statement for Married Student Loan Borrowers On Tuesday, Acting Under Se.
