Married student loan borrowers can breathe a bit easier after the Department of Education on Tuesday walked back an earlier statement that had suggested there would be significant changes to how payments are calculated under income-driven repayment plans.
Under federal law, married borrowers who file taxes jointly with their spouse and are enrolled in an income-driven repayment plan — a type of federal student loan repayment program that ties monthly payments to the borrower’s income and family size — would have their payments calculated based on their combined income. But borrowers who file taxes separately from their spouse are supposed to have their monthly payments calculated based on their individual income; spousal income would be excluded. Many married taxpayers who file separately incur higher tax costs due to the loss of certain deductions.
In an ongoing legal challenge brought by a national labor union over the Trump administration’s temporary shutdown of the entire income-driven repayment plan system, a top Department of Education official had filed a sworn declaration in federal district court suggesting that spousal income would be included in the payment calculation for student loan borrowers applying for the ICR, IBR, and PAYE plans, even if they file taxes separately. But this week, the official filed a corrected declaration with the court, walking back that earlier statement. Here’s where things now stand.
Department Of Education Had Threatened To Count Spousal Income In Student Loan Payment Calculations For IDR Plans
The federal student loan income-driven repayment system has been largely shut down since February after a federal appeals court issued a new decision in the ongoing legal challenge over the SAVE plan. SAVE was President Joe Biden’s newest IDR program designed to reduce borrowers’ monthly payments and fast-track student loan forgiveness in certain cases. SAVE has been blocked since last summer. The appeals court’s latest order expanded the injunction blocking the SAVE plan to encompass the entire regulatory regime governing SAVE.
The Department of Education had argued that the February ruling necessitated the temporary shutdown of the entire IDR system, including for the ICR, IBR, and PAYE plans (even though the ongoing legal challenge is technically limited to just the SAVE plan). The department said it would take time for the agency and its loan servicers to update the IDR application and the associated processing system to comply with the new court order.
The American Federation of Teachers filed a lawsuit in March, arguing that such a broad and indefinite shutdown of the entire IDR system was unlawful and would irreparably harm borrowers who have a legal right to access affordable payments via income-driven plans. Enrollment in these plans is also typically necessary for borrowers pursuing student loan forgiveness through Public Service Loan Forgiveness. PSLF is not subject to any current legal challenge.
In response to the AFT’s request for a temporary restraining order to compel the department to resume IDR application processing, the Department of Education filed papers in court last week indicating that processing for ICR, IBR, and PAYE applications would be resuming in the coming weeks. But a sworn declaration filed by Acting Under Secretary James Bergeron on Friday immediately raised eyebrows.
In addition to resuming application processing next month, “Education expects that by May 10, 2025, servicers will implement the treatment of spousal information for ICR, PAYE and IBR such that 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 directing a broadened preliminary injunction,” read the declaration.
This appeared to directly contradict federal statutes, particularly the one governing the IBR program. This statute says, in no uncertain terms, that 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.” That statute is not at all blocked or enjoined by the appeals court that is handling the SAVE plan legal challenge.
Department Of Education Files Corrected Statement For Married Student Loan Borrowers
On Tuesday, Acting Under Secretary Bergeron filed a corrected declaration with the court handling the AFT challenge.
“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,” reads the updated section.
The corrected declaration removes any reference to spousal income being factored into the payment calculation for a married student loan borrower applying for ICR, IBR, or PAYE who files taxes separately from their spouse. This means that, per federal law, spousal income should not be included in a borrower’s monthly payment calculation if the borrower and spouse file taxes separately. As a result, married borrowers who were concerned about their monthly payments dramatically increasing can breathe a little easier now.
In fact, the amended declaration suggests that some married borrowers could actually see their payments decrease. That’s because income-driven monthly payments are based not only on income, but also on family size. The larger the borrower’s family size, the lower the monthly payment would be. Under the SAVE plan regulations governing family size — which created a uniform treatment of family size across all income-driven repayment plans including ICR, IBR, and PAYE — a spouse was not included in a borrower’s family size if they file taxes separately. But with those regulations now enjoined by the federal appeals court, the calculation of family size is reverting to the pre-SAVE regulatory regime, which counted a spouse in the borrower’s family size, even if they filed taxes separately.
Where Things Stand With Legal Challenge Over Affordable Student Loan Payments
The Department of Education has indicated that application processing for the ICR, IBR, and PAYE plans will be resuming soon.
“Education directed its servicers to resume placing borrowers that apply for ICR, PAYE and IBR into their respective plans as soon as possible,” said Bergeron in the declaration. “At present, based on information provided by servicers, Education expects that servicers will be able to resume doing so by May 10, 2025.”
As a result, the court handling the AFT’s legal challenge denied the union’s motion for a temporary restraining order. Instead, the court scheduled a status conference for Thursday “to address the dispute between the parties regarding defendants’ forthcoming notice on the processing of income-driven student loan repayment applications.” It’s possible the AFT will want to keep the lawsuit alive for now with some level of court supervision to ensure that the Department of Education follows through on its assurances of ICR, IBR, and PAYE application processing.
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