A reader is worried her husband will pay the price for her student loans.
Question: I have a percentage withheld from my wages for my student loans. Will all our taxes be withheld for my student loans if I file with my husband, too?
– Shaena in Michigan
Andrew Pentis, certified student loan counselor at Student Loan Hero, responds…
Unfortunately, filing taxes jointly with your husband means that both your tax refunds could be garnished.
As you know, defaulting on federal student loans can lead to the garnishment of your wages and tax refund. If your student loans are in default, the IRS could intercept your returns to collect.
That said, the IRS should inform you of its intent to garnish your tax refunds before scooping up your money. Hopefully, you’ll at least get advanced notice if you and your spouse’s tax refunds will be redirected toward your student loans.
Some good news (sort of)
Now that we’ve gotten the bad news out of the way, here’s a piece of good news: You can save your husband’s tax refund by filing taxes separately. If you don’t file together, the tax refund for your spouse’s income won’t be affected by your student loans.
However, choosing the “married filing separately” status could mean you lose out on the perks of those who are “married filing jointly.” Married couples are able to snag a number of tax deductions and credits that single filers can’t. For example, joint filers are able to claim a much larger standard deduction than single filers. If filing separately would cause you to lose out on important benefits, it might not be worth the trouble.
Compare both options to see which would make more financial sense for your situation. You might use a free tax filing service such as TurboTax, or you could consult with a tax professional for their guidance.
Once you’ve figured out the best way to file your taxes this year, you might benefit from getting your student loans back into good standing.
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Try student loan rehabilitation
As you’ve experienced, student loan default comes with a number of nasty consequences. Not only can the government garnish your wages and tax refund, but it can also dip into your Social Security benefits . Defaulting drags down your credit score, and you might have had debt collectors ringing your phone off the hook.
Luckily, there are a couple of ways you can get your student loans out of default. One is through applying for student loan rehabilitation.
With rehabilitation, you agree to make nine on-time payments, which typically amount to 15 percent of your monthly discretionary income. This process can take 10 months, but it could mean your default is removed from your credit report.
Or student loan debt consolidation
The faster way to resurrect your student loan status is through consolidation. All you have to do is apply for a Direct Consolidation Loan through the government and agree to pay your loan back on an income-driven repayment plan.
An income-driven plan – such as IBR or PAYE – will adjust your monthly payments in proportion to your income, so hopefully, they won’t be too burdensome. And if you keep up with payments each month, any remaining balance could be forgiven after 20 or 25 years.
Alternatively, you could agree to make three on-time monthly payments and then apply for consolidation. In this case, you wouldn’t have to choose an income-driven plan, but you could go with whatever repayment plan best fits your budget.
The consolidation process only takes 30 to 90 days, so you could be out of default within the next few months. But unlike with loan rehabilitation, your default will remain on your credit report. Not only could you save your wages from future garnishment, but you would no longer have to worry about an offset of your and your husband’s tax returns.
The bigger challenge would likely be keeping your student loans out of default. Hopefully, your monthly payment on an income-driven plan will be reasonable, and you’ll be able to afford it.
But if you do find yourself struggling, speak with your loan servicer about your options. Your servicer might be able to adjust your monthly bills again to make them more affordable. By finding a manageable student loan payment, you can avoid default, stop wage garnishment and save your future tax returns.
I hope this information helps you and your husband, and best of luck as you overcome the challenges of paying off your student debt.
Rebecca Safier contributed to this response.
Published by Debt.com, LLC