Joint spousal consolidation loans originated in 1993 so that spouses could combine their student loan debt into a single consolidated loan. This allowed them to have a single monthly payment, however, it also meant that spouses were responsible for each other’s debt.
In 2006, this loan type was discontinued but the government failed to provide a way for borrowers to separate their consolidated loans, even in the face of extreme circumstances such as domestic or financial abuse.
Joint spousal consolidation loans can be federally held or commercially held. If they’re commercially held, they are called “FFEL Consolidation Loans.” Individuals with a joint spousal FFEL consolidation loan have historically had trouble pursuing Public Service Loan Forgiveness (PSLF) since they couldn’t consolidate their joint FFEL Consolidation loan into an eligible Direct Consolidation loan.
In October 2022, Congress passed the Joint Consolidation Loan Separation Act which allows borrowers to submit a joint application to the Education Department (ED) to split their consolidated loan back into separate loans under each person’s name. Not only will separating the loan make it easier to pursue PSLF, but it will also allow individuals to officially sever financial ties and obligations to previous partners that may no longer be a part of their lives.
For borrowers who have experienced domestic or financial abuse from the other borrower and/or are unable to reasonably access the individual’s loan information, a separate application may be submitted. If a borrower receives a separate consolidation loan due to those circumstances, the other individual borrower must become solely responsible for the remaining balance of the Joint/spousal consolidation loan.
The Education Department (ED) announced that there will be two phases to separate Joint/Spousal Consolidation Loans. The first phase is to submit the separation application and promissory note to have your individual loans re-consolidated into a new Direct Consolidation Loan. The second phase will be when the loans are actually separated and a new loan is created. As of October 2024, only Phase 1 has been implemented.
Separation Loan Details
The separated loan will be an amount equal to the current outstanding balance of the Joint/spousal Consolidation Loan, multiplied by the percentage of that outstanding balance attributable to the individual loans of each borrower that were repaid by the Joint spousal Consolidation Loan unless there is a divorce decree, court order, or other settlement agreement that specifies otherwise.
Each new Direct Consolidation Loan will initially have the same interest rate that was in effect for the Joint spousal Consolidation Loan.
A few things that are important to know as you navigate this process:
- Borrowers with Direct Joint/spousal consolidation loans can contact their servicers to request that their loans be placed in forbearance until the separation process is implemented.
- Borrowers with FFEL Joint/spousal Consolidation Loans can request forbearance from their servicers but approval is up to the discretion of their servicer.
- This non-capitalizing forbearance, for which only one borrower is responsible for applying, will be applied and automatically renewed one year at a time until the separation is implemented.
- Direct Joint/spousal Consolidation Loan borrowers will receive the One-Time IDR Adjustment when it occurs.
- For FFEL Joint/Spousal Consolidation Loan borrowers, the Adjustment will be retroactively applied to whoever applies to consolidate the remaining loan into a Direct Consolidation Loan.
- The Education Department (ED) has stored a record of borrowers who took steps to take advantage of the Adjustment and will contact those borrowers in a separate communication once the borrower has pursued loan separation.