This post was originally published on Forbes Jul 5, 2015
The joy over the Supreme Court's decision in Obergeffel et al v Hodges, Director, Ohio Department of Health should not obscure an important point, which I addressed in one of my earliest posts - Just Because They Won't Let You Do it Doesn't Make it a Good Idea. Marriage is not an unmitigated financial blessing, particularly when it comes to taxation. So now Professor Victoria J. Haneman will be pointing out another downside in an unreleased article The Collision of Student Loan Debt and Joint Marital Taxation.
Favoring student loan debt through a student loan deduction, in combination with unqualified access to borrowed funds, is nothing more than the congressional recycling of policies applied in the context of home mortgage borrowing. Unlike mortgage debt however, all student loan debt (including debt borrowed from private, for-profit lenders)falls within a very narrow category of debt that is nondischargeable in bankruptcy
In some ways it is really hard to get excited about the program as being a big help. It's like reducing the minimum payment on your credit card. If your IBR payment does not cover the interest, you are, in effect borrowing more money and as my first managing partner, Herb Cohan, used to say "You'll never get out of debt by borrowing".
If Robin and Terry file jointly, Terry has to make full payment on the student loans. If Terry files separately no student loan payments are required. President Obama's 2016 budget proposal would change that. Professor Haneman tends to think that the existing option to treat the student loan debts of couples separately is more consistent with contemporary views of marriage.
I believe that allowing a borrower to qualify for income-based repayment and loan forgiveness on the basis of income stated on a separately filed tax return represents a step towards a contemporary model of marriage—in which two individuals, rather than being merged into a single indivisible unit, are instead treated as each retaining their own economic identity. It was the intent of Congress that student loan borrowing be marriage neutral, and that a borrower's payments under the income-based repayment plans not increase purely based upon the fact of marriage.
While the long-term effects of such a change remain to be seen, I believe that it will serve as an assault upon the institution of marriage to require married borrowers to include their spouse’s income in the income-based payment calculation . Data suggests that the younger generations are already deeply divided on the role of marriage in modern society. We may see this change to student loan policy causing borrowers to buck traditional norms in favor of more modern arrangements (e.g. cohabitation over marriage).
if such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.
Some Thoughts From An Activist
1. The Department of Education has no desire or intentions of making good on the forgiveness through this, or any other repayment programs (including the public service loan forgiveness program), and will use every tool to kick as many borrowers out of the program as possible. This will leave them, usually, owing far, far more than when they entered. Getting married, and the joint income that comes with it is only one of many mechanisms the Department will use to thin out the borrowers prior to having to forgive the debt. Credit card teasers enjoy a miniscule 15% success rate. I suspect the results for IBR won't be much different from this, but the stakes are much, much higher.
2. Those lucky few who DO make it through the end of the repayment term with IBR will be hit with a MASSIVE tax burden based upon the amount forgiven (which could be many times the amount they owed when they entered the program). For these people the tax liability alone would make the entire process a wash, at best, financially.