A Couples Approach to Student Loans

Week in, week out, readers e-mail me with questions about crushing student loan debts and how to find relief.

Honestly, in most cases, the financial damage has been done and I often feel there's not much help I can offer. But an Illinois woman I heard from not long ago raised an issue that, as it turns out, underscores a recent change to a federal student loan program. It could be the solution she and her husband -- and many other young couples just like them -- are looking for.

Q: My husband and I have recently finished our schooling and are trying to research the best way to tackle our student loans. I am a teacher and have obtained two master's degrees and wondered if I am able to consolidate the two loans. Also, being that my husband and I both have student loans, can we qualify for the Income Based Repayment Plan? If so, is that something I should pursue separately or combined? -R.V., Joliet, Ill.

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A: R.V., there's good news for you and your husband, thanks to a change in federal law that could lower your monthly payments as you begin your careers and start chipping away at that debt.

On July 1, a change to the Income Based Repayment program equalized the treatment of single and married borrowers. The program, now a year old, limits monthly payments for borrowers working in lower-paying jobs.

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Previously, the Income Based Repayment program factored in the dual income of a married couple when determining the eligibility of each spouse, but then did not take into account the couple's joint student-loan debt.

That meant married couples could be making monthly payments that were double what two single people in the same financial situation would be paying. Under the old rules, the married couple appeared to have a greater ability to pay down their loans compared to a comparable unmarried couple living together.

Talk about a huge incentive to avoid marriage. I can't imagine a bigger one for young, college educated couples.

Now, married borrowers who file their taxes jointly will have both their joint income and their joint debt factored in when determining whether the spouses qualify for lower monthly loan payments.

Video of President Barack Obama signing student loan overhaul legislation.
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Joint Loan Consolidation No Longer An Option

In your case, R.V., this means the payments for you and your husband could be lower than what they would have been before this month. This assumes, of course, that you qualify at all for Income Based Repayment.

As for your question about loan consolidation, that option is no longer available. In 2006, Congress eliminated joint consolidation loans for married couples. But even if the option were still available, I most likely would have suggested you avoid it because it could have limited your flexibility.

In place since last year, Income Based Repayment caps payments on federal student loans based on the borrower's income and family size. For most eligible borrowers, IBR loan payments will amount to less than 10 percent of income, according to the Project on Student Loan Debt, a nonpartisan, nonprofit organization.

Income Based Repayment is available to those who borrowed money for college under either the federal Direct Loan or Federal Family Education Loan (FFEL) programs. A sliding scale determines how much a borrower can afford to pay each month.

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