How to Split Your Joint Spouse Consolidation Student Loan

Student loan borrowers linked through joint spousal consolidation can split their debt thanks to a new bill President Joe Biden is expected to sign into law any day.

Joint Spouse Consolidation Loans have not been issued since 2006. The program, created in 1993, allowed married couples to consolidate their debt to receive a single monthly payment and a lower interest rate. But it also meant couples were legally on the hook for each other’s student loan debt no matter what.

Before the policy change, there was no way to sever the legal obligation, even in extreme circumstances.

The problems with joint spousal consolidation loans

The new policy aims to solve a problem that borrowers have long had with these niche consolidation loans: the inability to separate loan debt, even in the event of divorce, a non-communicative partner, domestic violence, or financial abuse.

Joint spousal consolidation loans also make it difficult to receive benefits.

For example to get Government loan forgiveness, or PSLF, both spouses must meet the employment requirements. That means both must work full-time for a qualifying government employer while making 120 payments together under an earnings-related payback plan. PSLF is already notoriously hard to come by, and it’s even harder for both borrowers to meet.

And these eligibility requirements only apply to borrowers who have debt under the direct loan program; Federal Education Loan Program for Familiesor FFELP, borrowers with a joint consolidation loan cannot consolidate into a direct loan and qualify for Biden’s debt forgiveness or PSLF.

A joint consolidation loan is also likely to mean a higher repayment amount if borrowers apply for an income-contingent repayment. Both spouses must apply for the same income-related repayment plan and apply separately, and regardless of how they file taxes (jointly or separately), the income-related repayment amount is determined by the combination of their income and debt amounts.

How can we segregate our loans?

The loan will be split in proportion to the amount you originally owed as an individual and you will retain the same interest rate as the joint consolidation loan under the new legislation. Basically, the new amount you owe is based on a percentage of the total loan that each borrower originally brought in.

Borrowers apply for loan separations collectively through the Department of Education, but can file them themselves if they have experienced domestic or economic abuse, or if their former partner is unavailable.

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