Student Loans and the Marriage Incentive Problem

How the Repayment Assistance Plan changes incentives for married couples and couples considering marriage

Introduction: The 2025 tax bill introduced a major overhaul of the federal student loan system through the creation of the Repayment Assistance Plan (RAP). The RAP plan begins in 2026, becomes the dominant repayment option by 2028 when it replaces most income-driven repayment plans with a single income-based framework.

The structure of the new program also changes how student loan payments interact with household income. In particular, RAP introduces financial incentives that did not exist under previous repayment systems for borrowers who are married or considering marriage.

This note explains how the RAP program works and how its design alters repayment incentives for couples. A series of case studies will examine how different combinations of income, debt levels, and tax filing choices can significantly affect student loan payments under the new system.

The Transition to RAP: RAP replaces several existing income-driven repayment programs, including SAVE, PAYE, and Income-Contingent Repayment (ICR). Several design features distinguish RAP from earlier repayment programs.

From discretionary income to total income:

Under earlier income-driven repayment systems, borrowers typically paid a fixed percentage of discretionary income, defined as income above a protected threshold tied to the federal poverty level. Typically, between 150 percent and 225 percent of the poverty line was excluded from repayment calculations.

RAP instead calculates payments using total household adjusted gross income (AGI). No portion of income is automatically shielded from repayment calculations.

A graduated payment scale:

RAP introduces a sliding payment rate tied to income. The repayment percentage begins at 1 percent for income above $10,000 and gradually increases to 10 percent for income above $100,000.

Unlike earlier systems, this percentage is applied to total income rather than incremental income above a protected threshold.

Minimum payments:

RAP requires a minimum payment of $10 per month even for borrowers with very low income. Earlier income-driven repayment plans frequently produced $0 required payments.

Interest waivers and principal matching:

If a borrower’s payment does not fully cover accrued interest, the government waives the remaining interest and may apply up to $50 toward the loan’s principal balance. This provision ensures that loan balances decline even when payments are relatively small.

Forgiveness timelines:

Any remaining balance is forgiven after 360 months of verified payments. Earlier payment plans allowed discharges after fewer payments.

Elimination of payment pauses:

RAP removes the traditional “safety valve” of long-term forbearances. For loans disbursed after July 2027, unemployment and economic hardship deferments are eliminated, and general emergency forbearances are now capped at a maximum of 9 months within any 24-month period, down from the previous 36-month limit.

Negative amortization protection:

RAP provides protection against negative amortization. When a borrower’s required payment does not cover interest, the government will cover the difference, and the Department of Education will assure that any payment reduces principal by at least $50 per month. The decision to marry and how to file, jointly versus separately, impacts the availability of these credits.

Dependent credits:

RAP allows a $50 monthly payment reduction for each dependent. As a result, decisions about which spouse claims dependents on tax returns may influence repayment obligations and the availability of the credit.

Spousal debt allocation:

When both spouses hold RAP loans and file a joint return, the total household payment is allocated between their loans based on the relative size of their balances.

These features mean that decisions about marriage, tax filing status, and repayment plans can significantly affect household finances and lead to one spouse subsidizing the student loan payment of the other spouse.

Why Marriage Matters Under RAP: Many of these RAP loan features result in the student loan in marriage impacting payment obligations, the availability of subsidies, household liquidity, and the rate of repayment of student loans. The most important RAP feature, the one that leads to an immediate discernible effect, is the impact of the higher repayment obligation when a couple gets married.

The simplest example involves the marriage of two people both earning $49,000 a year, one with a RAP student loan and one without any student debt. The student loan payment obligation goes from 4.0 percent of $49,000 to 9 percent of $98,000 for the borrower if they file a joint tax return. In this case, the monthly student loan obligation will increase from $163 to $735.

The RAP law allows the student borrower to file a separate return and maintain current student loan payment obligations. However, in this instance where both spouses earn the same amount per year, the decision to file separately instead of jointly will likely result in a substantially higher tax bill.

The higher student loan payment would lead to a quick repayment of the student loan but for most couples who get married and are starting a family, moving to a new home and maybe even purchasing a home, the bigger problem is liquidity, not immediate debt reduction.

The liquidity problem caused by higher student loan payments after marriage can often be solved by converting RAP loans to a conventional federal student loan or by refinancing into a private loan. The decision to switch from a RAP loan to a federal student loan does not require good credit but does require the loan to be current. Any unpaid interest, which can still occur under RAP if the loan is not current, would be added back to the loan balance. The decision to refinance to a private loan does require good credit.

It is likely that the only affordable federal conventional loan would have a long maturity, 20 years or longer.

This option obviously requires some paperwork and the cooperation of a diligent, cooperative loan servicer.

A Case-Study Approach: The new RAP loan system creates a lot of decisions and challenges for couples who are either married or considering marriage. There is no one-size-fits-all solution to these challenges. The best way to examine these issues is through a series of case studies which examine how repayment and financial outcomes depend on marital status, tax filing status, and choice of student loan plans.

Links to case studies will soon be put here.