It looks like the marriage penalty, or a version of it, might be coming to the student lending program.
At the moment, the Department of Education is in the process of creating an expanded version of Pay As You Earn, the repayment plan that caps what student-loan borrowers owe each month at 10 percent of their discretionary income, and forgives the balance after 20 years. As I wrote Wednesday, this program has become more popular in recent years, especially among graduate students, thanks to the Obama administration’s efforts to promote it. The new edition will be open to anybody who has taken out loans directly from the government, including older debtors who previously didn’t qualify, and includes a few reforms meant to better aim the benefits at needier borrowers.
One of those tweaks is designed to make sure married couples pay their fair share by requiring them to hand over 10 percent of their combined discretionary income, which the government defines as any earnings over 150 percent of the poverty line. As the Center for American Progress explains, it’s meant to close a bit of a “loophole” in the current system:
Under other plans, married borrowers can file individually, thus capturing only one income while claiming their spouse when reporting their household size. This substantially reduces the monthly payment amount on the individual’s loan. REPAYE would eliminate this loophole by basing monthly payments on combined income and household size—a more accurate measure of an individual’s ability to repay their loans.
Sound policy? Absolutely. It also probably won’t cause too much havoc: According to the government’s data, only 8 percent of married borrowers on income-driven repayment plans file separately today (though that might in part be because of caps, which the new version of PAYE would remove, that limit payments to what one would owe on a standard 10-year plan). But it does mean at least a few households are going to be forced to hand over a significant additional chunk of change to the government each month. So mark my words: In six to seven years, there will be a New York Times trend piece about three couples in New York who decided not to get married because of their student loan math.