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.
As of December 2023, the Education Department (ED) has announced that the separation and new consolidation process will not be fully developed and implemented until late 2024 at the earliest.
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.
Limited PSLF Waiver & IDR Adjustment
Here are the steps that you can complete to take advantage of the Waiver and Adjustment:
- Certify your employment by submitting a PSLF employer certification form.
- Once you have a completed employment certification form instead of submitting it to MOHELA, the servicer who typically handles PSLF, you will submit it directly to FSA by filing a reconsideration request. Select the "incorrect payment count" option and provide the dates that you're referencing. Then, you'll need to upload the form you're referencing. If you have multiple forms, you may need to submit multiple requests.
- When completing the request, you should put the following in the description: “I am a borrower impacted by the Joint Consolidation Loan Separation Act.” This will indicate that your process will be slightly different and that you will have additional steps to take once loan separation becomes available.
- If you don't have an attachment, the Department of Education will likely reach out to you for more details. If you already have a completed employment certification form dated within the last 90 days, you can submit that through FSA’s reconsideration request tool.
- Reach out to the FSA Ombudsman Group to inform them that you intend to apply for separation of your Joint Consolidation Loan. This process should ensure that you’re notified when the application has been launched.
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.
- Once the application is live, the forbearance will automatically be removed for all Joint/spousal Consolidation Loan borrowers placed in forbearance, and they will be responsible for submitting the separation application.
- 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.