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 FFEL Joint/Spousal 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 the 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 December 31, 2024, the separation of loans has begun.
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:
- Any borrowers who requested to have their Direct Joint/Spousal consolidation loans placed in forbearance while waiting for the separation process to be implemented were automatically removed from forbearance on April 1, 2025, unless a separation application was submitted by April 1, 2025.
- Direct Joint/Spousal Consolidation Loan borrowers who meet all other PSLF requirements have been credited with any earned progress toward PSLF based on the One-Time IDR Adjustment.
- For FFEL Joint/Spousal Consolidation Loan borrowers, the Adjustment has already been applied, but you must apply to separate your loan and have it consolidated into a Direct Consolidation Loan to be eligible for PSLF.
- All Joint/Spousal Consolidation Loan borrowers who want to benefit from the Adjustment must apply to separate their loan by June 30, 2025.
- Any separation applications submitted on or after July 1, 2025, will receive a weighted average of PSLF-eligible or IDR-eligible payments that were applied to the Joint/Spousal Consolidation Loan.
- If the Joint/Spousal Consolidation Loan is a FFEL Joint/Spousal Consolidation Loan, no payments will be credited for PSLF, and a weighted average of certain payments will be credited towards IDR forgiveness.
- Payments from the Adjustment won’t be credited to the new Direct Consolidation Loan until after June 30, 2025.
- The Education Department (ED) has stored a record of borrowers who took steps to take advantage of the Limited PSLF Waiver. These borrowers must apply to separate their loan by June 30, 2025, and the benefit will be applied after the payment count adjustment occurs.