Wednesday, July 29, 2015
How should marriage affect legal determinations of ability to pay, and therefore obligation to pay? These are questions that tax scholars have long debated. Similar issues are now being debated in higher education circles because of the growth of income-based student loan repayment plans.
In the context of Federal Income Taxation, marriage can either be a financial boon for the taxpayer or a financial burden, depending on the relative incomes of the two spouses and other complexities. Policy makers generally wish to avoid penalizing marriage, but also wish to avoid being unduly harsh toward those who are single. The current system reflects a messy compromise.
In the context of income contingent repayment of student loans, married debtors may be harshly penalized if Department of Education proposed regulations remain unchanged. This is bad policy and a misreading of Congressional intent according to Professor Philip Schrag of Georgetown, a notable expert on income based repayment plans. Schrag argues that the proposed regulations and definitions of Income adopted by the Department of Education for the REPAYE program should be revised to more closely parallel the Income Taxation approach. Schrag's comment on the DOE regulations is available here.