How to Split Up Your Joint Spousal Consolidation Student Loan

Student loan borrowers bound together by joint spousal consolidation will be able to split their debt thanks to a new bill that President Joe Biden signed into law Oct. 11.

Joint spousal consolidation loans haven’t been made since 2006. The program, which originated in 1993, allowed married couples to consolidate their debt to have a single monthly payment and 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 separate the legal obligation even in extreme circumstances.

The problems with joint spousal consolidation loans

The new policy is expected to solve a problem that borrowers with these niche consolidation loans have long held: the inability to sever loan debt from one another even in cases of a divorce, an uncommunicative partner, domestic violence or financial abuse.

Joint spousal consolidation loans also make receiving benefits more difficult.

For example, to receive Public Service Loan Forgiveness, or PSLF, both spouses must meet employment requisites. That means both must be working full time for an eligible public service employer while together making 120 payments on an income-driven repayment plan. PSLF is already notoriously difficult to achieve, and it’s even tougher for both borrowers to meet.

And those eligibility requirements apply only to borrowers who have Direct Loan Program debt; Family Federal Education Loan program, or FFELP, borrowers with a joint consolidation loan can’t consolidate into a direct loan and qualify for Biden’s debt relief or PSLF.

Having a joint consolidation loan also likely means a higher repayment amount when borrowers apply for income-driven repayment. Both spouses must apply separately and request the same income-driven repayment plan and, regardless of how they file taxes (jointly or separately), the income-driven payment amount is determined by combining their income and debt amounts.

How can we separate our loans?

The policy to separate joint consolidation student loans is new. The Department of Education is expected to release more information on how borrowers can apply to split their loans.

The loan will be split proportionately to how much you originally owed as an individual, and you’ll retain the same interest rate you had with the joint consolidation loan, according to the new legislation. Basically, the new total you owe will be based on a percentage of the total loan that each borrower originally brought in.