From 1993 to 2006, married couples were able to consolidate their student loans into joint consolidation loans (also called spousal consolidation loans) with a lower interest rate, making each spouse legally responsible for the other’s debt. Problems soon arose, as couples who divorced were unable to re-share the debt, leaving them responsible for their ex’s debt, even though they were abused.
This can be difficult for a number of reasons, including if one spouse stops paying their debt completely. Then the other is fully responsible for the monthly payments for his and his ex’s debt, which could land them in hot water financially.
Under current law, joint consolidation loans cannot be separated for any reason or consolidated into the Direct Lending Program. This currently makes them ineligible not only for Biden’s relief package, but also for Public Service Loan Forgiveness (PSLF) and income-based repayment.
The bill, which passed the Senate in June and received bipartisan support in both houses of Congress, is now heading to President Joe Biden’s desk. If the President signs the bill, affected borrowers will be able to split their debt into two different direct loans held by the federal government, qualifying them for relief of $10,000 to $20,000, assuming they meet the requirements of revenue.
Borrowers will be able to submit a request to the U.S. Department of Education and have their debt split “proportionately based on the percentages each borrower originally contributed to the loan.” The two new loans would have the same interest rate as the joint consolidation loan. Borrowers could also be transferred to an income-based repayment plan or apply for PSLF, if they meet the other conditions.
Both spouses will need to submit applications to be eligible, except in certain circumstances. For example, a single spouse can file for debt splitting if they have been the victim of economic or physical abuse.
The passage of this bill “ends the decades-long saga and offers light at the end of the tunnel for struggling borrowers – including survivors of domestic and economic abuse – who have been trapped by these joint loans” , Persis Yu, the deputy executive director of the Student Borrower Protection Center, said in a statement.
Some Republicans in the House and Senate voted against the bill, arguing the government is overstepping because loans are currently blocked by private companies.
Assuming Biden signs the bill, eligible borrowers will want to do so quickly. Biden’s Pardon Effort Requests Expected to Go Live in Weeks; the sooner applicants complete the online form, the sooner they will receive assistance.
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