Should I file Married but Seperate?

you can file separately of course, but you do have some disadvantages doing so
you can also file an injured spouse form to separate the liabilities of each spouse while filing jointly
if you can refinance, of course, this would probably be your wisest go but to purposely delay repaying your student loans will likely not work–unless you renegotiate with the lender, their schedules are pretty much set in stone and if you default they will be offset with any tax refunds

Before jumping into this situation with both feet you really need to do some practice income tax returns both ways married filing joint and married filing separate and see if you can try and determine which way will be more beneficial for the two of you.
Usually it is more beneficial to file as married filing joint than it is to file as married filing separate. To answer your question you will have to prepare a return both ways using the right standard deduction for each filing status and if one itemizes the other should itemize also as the others standard deduction is -0-. If you do not itemize then the standard deduction for each is $ 5,700 for 2009.
For more in rank go to www.irs.gov and use the search boxes for the periodical and tax topic. Periodical 501, Exemptions, Standard Deduction, and Filing In rank Tax Topic 353, What is your filing status Periodical 504 , Divorced or Separated Individuals
And if you live in a community property state you could have other considerations to reckon about.

You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them. If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state. In a community property state, the deduction is, generally, divided equally between you and your spouse. For more in rank refer to Periodical 555, Community Property.
Hope that you find the above enclosed in rank useful and excellent luck to you.

The tradeoffs of the lower loan payment you may receive by filing a separate return versus the tax benefits of filing a joint return are not possible to determine without really running the numbers. Find out what your loan payment will be filing a separate return and filing a joint return. Then, find out the difference in tax from filing each way. Only then will you see which approach is better for you.

By filing a separate return, you cannot take any deduction for student loan interest. Your current joint income qualifies you to take a deduction for student loan interest up to $ 2,500. If you file separate and your spouse takes itemized deductions (which is likely because you will have a mortgage), your standard deduction is zero.

I would hesitate to refinance the house to retire your spouse’s debt. First, the IBR rules do take into consideration the case of a married couple with two loans, and coordinates the payment schedule in view of that, above all at your income level (under $ 100K). Once you pay off the spouse’s loan, you will lose the benefit of the IBR calculation for couples with two loans, and this may effectively force you to file separate even though you may lose tax benefits from filing a joint return (above all if you are saving for retirement or have children).

Second, you would be converting an unsecured loan into a secured loan. If something should happen where you could not make the payments, you could lose your home.

I agree that only your spouse’s loan should be repaid as quick as you comfortably can, and that you should pay only the minimum required for you, given that your loan is forgiven after 10 years of payments.

Married but separate is a higher tax and disallows many deductions. You should try your return both ways. It also matters if you are in a community property state.