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Kiss Your Ex-Spousal Consolidation Loan Goodbye

A glimmer of hope for all the good people trapped in those old horrid federal government Spousal Consolidation Loans for student loan debt.

Kiss Your Ex-Spousal Consolidation Loan GoodbyeThese loans have been a shame for many years. The Department of Education allowed spouses to put their individual loans together into one new loan but never provided people a way out.

I’ve seen far too many cases where a couple gets divorced and is stuck together by loans. Or when a spouse dies and the surviving spouse must repay all the debt. And then there is the tragic situation where a couple may be trapped in a cycle of domestic abuse but welded together by a Spousal Consolidation Loan.

A bipartisan bill titled the Joint Consolidation Loan Separation Act of 2021 has just been approved by the Senate. However, don’t get all excited just yet. It still has to pass the House before the President can sign it into law.

The suggested law was put forward by U.S. Senators Marco Rubio (R-FL) and Mark Warner (D-VA).

“Survivors of domestic violence should never have to pay the debts of their abuser,” Rubio said. “This bill would provide financial independence to those survivors who previously consolidated their student loan debt with their partner. I am grateful that the Senate passed this important legislation and I urge the House to do the same so that we can deliver much needed relief to these individuals.”

“The Senate passage of this commonsense legislation is a huge step for survivors of domestic violence and financial abuse who have spent decades fighting for their financial freedom,” Warner said. “By finally allowing individuals to sever their joint consolidation loans, this bill will provide needed respite to vulnerable individuals who are being unfairly held responsible for the debt of a former partner. I urge my House colleagues to act with urgency and send this bill to the President’s desk as soon as possible.”

The Joint Consolidation Loan Separation Act would allow borrowers to submit an application to the Department of Education to split the joint consolidation loan into two separate federal direct loans. The joint consolidation loan remainder – the unpaid loan and accrued unpaid interest – would be split proportionally based on the percentages that each borrower originally brought into the loan. The two new federal direct loans would have the same interest rates as the joint consolidation loan. Additionally, the bill would enable borrowers to access student loan relief programs, such as the Public Service Loan Forgiveness (PSLF) Program and income-driven repayment programs for which they were previously ineligible due to their joint consolidation loans.

I’m hopeful but not seeing this needed change become law is not a given considering this was first proposed in 2017 by Senator Warner and it is still not law.

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Copy of S 1098 Text As Of June 24, 2022

To amend the Higher Education Act of 1965 to authorize borrowers to separate joint consolidation loans.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE

This Act may be cited as the “Joint Consolidation Loan Separation Act”.

SEC. 2. SEPARATING JOINT CONSOLIDATION LOANS

(a) In General.—Section 455(g) of the Higher Education Act of 1965 (20 U.S.C. 1087e(g)) is amended—

(1) by striking “A borrower” and inserting the following:

“(1) IN GENERAL.—A borrower”; and

(2) by adding at the end the following:

“(2) SEPARATING JOINT CONSOLIDATION LOANS.—

“(A) IN GENERAL.—

“(i) AUTHORIZATION.—A married couple, or 2 individuals who were previously a married couple, and who received a joint consolidation loan as such married couple under subparagraph (C) of section 428C(a)(3) (as such subparagraph was in effect on June 30, 2006), may apply to the Secretary, in accordance with subparagraph (C) of this paragraph, for each individual borrower in the married couple (or previously married couple) to receive a separate Federal Direct Consolidation Loan under this part.

“(ii) ELIGIBILITY FOR BORROWERS IN DEFAULT.—Notwithstanding any other provision of this Act, a married couple, or 2 individuals who were previously a married couple, who are in default on a joint consolidation loan may be eligible to receive a separate Federal Direct Consolidation Loan under this part in accordance with this paragraph.

“(B) SECRETARIAL REQUIREMENTS.—Notwithstanding section 428C(a)(3)(A) or any other provision of law, for each individual borrower who applies under subparagraph (A), the Secretary shall—

“(i) make a separate Federal Direct Consolidation Loan under this part that—

“(I) shall be for an amount equal to the product of—

“(aa) the unpaid principal and accrued unpaid interest of the joint consolidation loan (as of the date that is the day before such separate consolidation loan is made) and any outstanding charges and fees with respect to such loan; and

“(bb) the percentage of the joint consolidation loan attributable to the loans of the individual borrower for whom such separate consolidation loan is being made, as determined—

“(AA) on the basis of the loan obligations of such borrower with respect to such joint consolidation loan (as of the date such joint consolidation loan was made); or

“(BB) in the case in which both borrowers request, on the basis of proportions outlined in a divorce decree, court order, or settlement agreement; and

“(II) has the same rate of interest as the joint consolidation loan (as of the date that is the day before such separate consolidation loan is made); and

“(ii) in a timely manner, notify each individual borrower that the joint consolidation loan had been repaid and of the terms and conditions of their new loans.

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“(C) APPLICATION FOR SEPARATE DIRECT CONSOLIDATION LOAN.—

“(i) JOINT APPLICATION.—Except as provided in clause (ii), to receive separate consolidation loans under this part, both individual borrowers in a married couple (or previously married couple) shall jointly apply under subparagraph (A).

“(ii) SEPARATE APPLICATION.—An individual borrower in a married couple (or previously married couple) may apply for a separate consolidation loan under subparagraph (A) separately and without regard to whether or when the other individual borrower in the married couple (or previously married couple) applies under subparagraph (A), in a case in which—

“(I) the individual borrower certifies to the Secretary that such borrower—

“(aa) has experienced an act of domestic violence (as defined in section 40002 of the Violence Against Women Act of 1994 (34 U.S.C. 12291) from the other individual borrower;

“(bb) has experienced economic abuse (as defined in section 40002 of the Violence Against Women Act of 1994 (34 U.S.C. 12291) from the other individual borrower; or

“(cc) is unable to reasonably reach or access the loan information of the other individual borrower; or

“(II) the Secretary determines that authorizing each individual borrower to apply separately under subparagraph (A) would be in the best fiscal interests of the Federal Government.

“(iii) REMAINING OBLIGATION FROM SEPARATE APPLICATION.—In the case of an individual borrower who receives a separate consolidation loan due to the circumstances described in clause (ii), the other non-applying individual borrower shall become solely liable for the remaining balance of the joint consolidation loan.”.

(b) Conforming Amendment.—Section 428C(a)(3)(B)(i)(V) of the Higher Education Act of 1965 (20 U.S.C. 1078–3(3)(B)(i)(V)) is amended—

(1) by striking “or” at the end of item (bb);

(2) by striking the period at the end of item (cc) and inserting “; or”; and

(3) by adding at the end the following:

“(dd) for the purpose of separating a joint consolidation loan into 2 separate Federal Direct Consolidation Loans under section 455(g)(2).”.

Passed the Senate June 15, 2022.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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2 thoughts on “Kiss Your Ex-Spousal Consolidation Loan Goodbye”

  1. So, I would have to get divorced, or abuse my wife to qualify for this? I see a lot of potential for unintended consequences of this as written. Why not just allow all spousal student loan holders to separate the loans into individual direct consolidation loans? I mean, why is that so hard?

    Reply

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