The Collision of Student Loan Debt and Joint Marital Taxation

Abstract

Students presently graduating from college represent perhaps the most indebted generation of young adults in the history of the United States, which may be attributed to the fact that interest-bearing debt plays a primary role in ensuring that our children pursue higher education. The long-term consequences of student loan borrowing, and its impact on this generation of borrowers, both remain to be seen. To assist borrowers with the burden of loan repayment, the federal government has developed several income based repayment programs. This Article focuses upon one important detail of these programs that has largely escaped the focus of the media and scholars: the ability of a married borrower to file separate tax returns and qualify for income-based repayment on the basis of his or her income alone.

A complicated tax decision is presently forced upon married borrowers when embarking upon student loan repayment under income-based repayment programs: file taxes jointly and have monthly payments based on joint adjusted gross income (AGI) and combined student debt balances; or, file taxes separately and have monthly payments based on individual AGI and individual student debt. Student loan policy is shifting, however, and it is likely that some married borrowers will have no choice but to file joint returns as of January 2016.

This Article contends that both the present and proposed approaches are broken, and examines the joint filing system through the lens of a simultaneous set of policies and objectives, namely the nation’s program for dealing with educational costs and student debt. In coordinating income-based repayment with a tax filing system that is not marriage neutral, the married female student loan borrower is penalized twofold by her student loans: the gender pay gap means that a woman must work longer to repay her indebtedness, and because of joint tax filing, she is also likely to suffer the consequences of secondary earner bias. This Article illustrates that the joint filing system provided for under the Internal Revenue Code has not kept pace with the economic reality of two-earner families, and suggests that with the crushing weight of student loan debt falling disproportionately on the shoulders of women who must remain in the workplace, the need to revise an outdated system is immediate.

Keywords: tax, student loan, joint filing, women, marriage, PAYE