Student borrowers bound by joint spousal consolidation will be able to split their debt thanks to a new bill that President Joe Biden is expected to sign into law any day.
Joint-spouse consolidation loans have not been issued since 2006. The program, which began in 1993, allowed married couples to consolidate their debt to have one monthly payment and a lower interest rate. But it also meant that the couples were legally responsible for each other’s student loan debt no matter what.
Before the policy change, there was no way to separate the legal obligation, even in extreme circumstances.
The Problems of Joint Consolidation Loans
The new policy should solve a problem that borrowers with these niche consolidation loans have had for a long time: the inability to separate loan debt from each other even in cases of divorce, uncommunicative partner, domestic violence or family violence. financial abuse.
Joint consolidation loans also make it more difficult to receive benefits.
For example, to receive Cancellation of civil service loans, or PSLF, both spouses must meet the conditions of employment. That means both must work full-time for an eligible civil service employer while making 120 payments together on an income-based repayment plan. The PSLF is already notoriously difficult to achieve, and it is even more difficult for the two borrowers to meet.
And these eligibility requirements only apply to borrowers who have debt under the direct lending program; Federal Family Loan Program for Educationor FFELP, borrowers with a joint consolidation loan cannot consolidate into a direct loan and qualify for debt relief from Biden or PSLF.
Having a joint consolidation loan also likely means a higher repayment amount when borrowers apply for an income-contingent repayment. Both spouses must apply separately and apply for the same income-tested repayment plan, and regardless of how they file their taxes (jointly or separately), the amount of the income-tested payment is determined by combining their income and their debts.
How can we separate our loans?
The loan will be divided in proportion to what you originally owed as an individual and you will keep the same interest rate as you had with the joint consolidation loan, in accordance with the new legislation. Basically, the new total you owe will be based on a percentage of the total loan each borrower originally contributed.
Borrowers will apply for loan separation jointly through the Department of Education, but can submit on their own if they have experienced domestic or economic abuse or if their former partner cannot be reached.