A little over a decade ago, the federal government acted to prohibit joint consolidation of loans. However, for couples who opted to consolidate their loans, often to get a better interest rate, prior to that, separating out who owes what in a divorce can be difficult and sometimes impossible.
One spouse can get stuck paying far more than he or she owes individually, particularly if the other spouse declares bankruptcy or doesn’t have the means to contribute to the repayment. With student loans, that can run into the tens of thousands and possibly hundreds of thousands of dollars.
Paying off one’s own student debt can take decades. However, if your name is on a consolidated loan, you could end up paying your ex-spouse’s debt or risk harm to your credit score.
Some people have urged federal legislation that would allow student loans consolidated before such consolidation was banned to be split. However, even though this could impact thousands of people, experts say that’s likely not enough for legislators to consider it worth the time and effort to address the problem.
People with joint consolidation loans can apply for repayment plans based on each person’s income. However, that requires the cooperation of both spouses, who must provide financial information. Estranged spouses may not want to cooperate if it would mean more money out of their pockets.
In relationships where there has been domestic violence, the victim may well not want to have any contact with his or her abuser. According to the U.S. Department of Education, people with “unique circumstances, such as domestic violence” can contact the Federal Student Aid Ombudsman to seek options for “mitigating the issues.” Of course, that could change with the new administration coming into the White House.
One attorney who deals with student loan law says that it wouldn’t be difficult to amend the law to allow joint consolidated loans to be split or reconsolidated. Another possibility is that borrowers could be allowed to apply for repayment plans individually if they can show that their ex-spouse refused to provide necessary financial information or couldn’t be reached.
The division of debts, just like the division of assets, is an important aspect of most divorce proceedings. It’s essential to have sound legal and financial advice to deal with both strategically.
Source: Boston Globe, “Until debt do us part: When shared bills outlast the relationship,” Shelly Murphy, Dec. 27, 2016