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Spousal Consolidation Student Loans Divorce: All You Need To Know

A Joint Spousal Consolidation Loan is impossible to separate under the law, but relief for borrowers with spousal consolidation loans may be on the way soon. 

This program permitted married couples to consolidate their federal student loan debt in order to receive one monthly payment.

The Biden administration’s temporary student loan reform could also provide a way for them to get their debt forgiven.

Public employees and others who had been subjected to forbearance steering may now seek forgiveness more easily thanks to the waivers. 

What Is Joint Spousal Consolidation?

Spousal Consolidation Loans often referred to as Joint Consolidation Loans, permitted 2 married borrowers of federal student loans to combine their debt into a single loan.

Married borrowers were given permission by the federal government to consolidate their federal student loans into a single loan as part of the Higher Education Amendments of 1992. 

Couples agreed to share responsibility for their spouse’s debt with this new loan. 

In return, they were given access to repayment programs with a variety of options, including the Graduated, Income-Sensitive, and Income-Based Repayment plans.

If passed, the Joint Spousal Consolidation Act will allow the 776 borrowers who have these sorts of loans to divide the debt into two federal Direct Loans. 

To be eligible, at least one individual must attest that they have experienced either domestic or financial abuse or They have no practical way to get in touch with or view the other spouse’s loan information.

Once authorized, the new Direct Loans’ interest rates will be the same as those of the combined loan.

Additionally, each spouse is eligible for credit toward forgiveness under the IDR Waiver, Limited PSLF Waiver, Income-Driven Repayment Forgiveness, and PSLF Program.

Is the spouse responsible for student loans after divorce? Yes, for example, the spouse will now bear 50% of the responsibility of the spouse’s contribution to the student loan was 50%.

What Issues Do Joint Consolidation Loans Have?

The issue with joint consolidation debts after divorce is surviving spouse would be responsible for making the whole amount if the other ex-spouse refused to contribute to the monthly payment. 

Similarly, if the former couple wished to make their student loan payments through an IBR plan, both spouses would have to pay the debt through the same plan and supply their financial information. The payment plan would not be available to them both if one of them didn’t comply.

As a result of these concerns, Congress repealed combined consolidation loans in 2006. Even in cases of marital violence, financial abuse, or an uncooperative spouse, it did not provide a way to cancel existing obligations.

What Are The Impacts of Joint Spousal Consolidation Loans?

Many spouses attempted to split the sums via their divorce order because the federal government would not enable them to divide their loan debt.

The student loan servicer won’t let one of the ex-spouses out of the consolidation debt, regardless of what the couple decides in their divorce. According to federal legislation, it is not possible to drop a spouse from the loan.

If one spouse gets a court order telling them to refinance the debt in their name alone, it will be quite difficult to get rid of a former spouse from the loan. 

If they aren’t taken off the loan, their ex-spouse could try to have them held in contempt of court.

However, the spouse who is required to refinance the loan frequently does not have many choices.

The US Department of Education would not enable them to consolidate the debt under their name. On the other hand, the spouse must have good credit to refinance with a private lender.

Assume they have a low credit score, negative blemishes on their credit report, or inadequate income. In that case, student debt refinancing is out of the question.

The spouse is limited to making loan payments on the combined loan as their sole option.

However, if they want a repayment choice depending on their income, deferral, or forbearance, they must enlist the assistance of their ex-spouse.

Can You Get Student Loan Forgiveness In Case of Divorce on Joint Spousal Consolidation Loans?

Yes, federal loan forgiveness programs are available for combined spousal consolidation loans. But getting approved for them might be challenging for certain borrowers.

For example, if one or both spouses are employed by the government, they may be eligible for the Public Service Loan Forgiveness Program.

However, individuals need to have a Direct Consolidation Loan in order to be qualified for this student loan forgiveness program.

They are not qualified for PSLF if they took out a spousal consolidation loan via the Federal Family Education Loan Program (FFEL).

They can’t consolidate again. They are also not permitted to convert the FFEL loan into a Direct Consolidation Loan.

After 20 to 25 years of payments, joint consolidation loan debtors may be eligible for residual balance forgiveness under an income-based repayment plan. 

However, to remain in that plan, former spouses must maintain communication with one another and agree to exchange financial information. 

Staying in touch for 20 years can be the last thing you want, depending on how your marriage ended. The truth is that there aren’t many ways to avoid paying back these loans.

What Are Your Bankruptcy Options for Joint Consolidation Loans?

Bankruptcy can provide relief for borrowers who are dealing with debt from credit cards, medical expenses, mortgages, and other consumer problems. 

However, unless they can demonstrate that paying down their debt would put them and their family through undue hardship, their student loan debt would remain.

The Brunner Test, which considers the debtor’s past, present, and prospective income and payment history, has historically been used by bankruptcy judges to evaluate instances involving excessive hardship. 

Under that measure, a borrower does not face undue hardship if they can maintain a basic level of life while repaying their debts. They will not be able to get their college loans discharged.

However, since Congress didn’t specify what constitutes an “undue hardship,” a debtor may wonder if she can prove that, even if she had the means to pay back the loan, she is being forced to repay the debt of a violent ex-spouse.

Frenqaly Asked Questions