Department of Ed FFEL Joint Consolidation Rules Arbitrary & Punitive

Not that long ago I wrote an article, “This is One Way to Get FFEL Spousal Consolidation Loans Forgiven” in which a reader was looking for a way to deal with her previous FFEL spousal joint consolidation loan with her ex-husband.

She wanted to move forward in a positive way in dealing with her student loan debt that was originally taken out with her spouse.

The couple subsequently divorced and she is now stuck in this old FFEL spousal joint consolidation loan without apparent options to seek loan forgiveness under a program she would otherwise be eligible for.

In the article I pointed out there did not appear to be any specific regulation that would prevent the reader from seeking a new Direct Consolidation Loan since public information did not exclude a new loan to replace the old spousal loan. In fact, documentation seemed to show it would be possible.

Following the story I heard from some people who said the conventional wisdom was it was not possible. So after a Freedom of Information Act request from the Department of Education, I now have some additional information.

FFEL Consolidation Loans – Purgatory

The situation is a terrible one that the Department of Education should cleanup and clarify to create a better outcome for divorced spouses. Prior to July 1, 2006, spouses could consolidate together their individual student loan debt into a FFEL joint consolidation loan.

The problem arises when the spouses go their separate ways and have you seen our national divorce rate!

In essence, the Department of Education holds the couple hostage and effectively will not allow one spouse to accept individual responsibility for the FFEL spousal consolidation loan so they can be in control of the debt.

I completely understand how joint debts are not separated by divorce. A divorce decree is an agreement between spouses about who is going to pay what debt. If the spouse who says they will pay decides to stop paying. The creditor will go after the other joint party regardless of the divorce decree.

But if one spouse takes out a new loan and the old joint debt is paid off, it will release the other spouse and the bond can be broken.

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So in the case of the FFEL spousal consolidation loan where one person wants to take over the loan, such as in the reader example of making it eligible for the Public Service Loan Forgiveness program, the Department of Education says they can’t get a Direct Consolidation Loan to pay off the FFEL spousal consolidation Loan.

No Official Policy to Prevent This

But information released to me by the Department of Education appears to contradict this unofficial position about not letting one person consolidate a previous joint debt.

The Department of Education has told me, “There are no specific regulations or other official written policies explicitly stating that one of the borrowers of a FFEL joint consolidation loan may not individually re-consolidate that loan into a new Direct Consolidation Loan for which he or she would be solely responsible.”

They then go on to say, “However, the statutory and regulator terms and conditions that applied to joint consolidation loans don’t allow for this.” The Department of Education cites the issue of a joint debt remains a joint debt following a divorce.

But what the Department of Education does not say is there is nothing that appears to restrict one person from taking out a new loan to satisfy the old FEEL joint consolidation loan in their name alone.

Public information says, “A borrower in repayment who wishes to consolidate a FFEL with other federal education loans (no Direct Loans) and has been unable to obtain a Federal Consolidation Loan is eligible for a Direct Consolidation Loan.” – Source

So if one spouse would be ineligible for rolling a FFEL joint consolidation loan into an individual FFEL consolidation loan, would they not be eligible for a new Direct Consolidation Loan? It appears they would.

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Direct Consolidation Loan Reality is Different Than Assumed

According to the promissory note for the Direct Consolidation Loan there is nothing that says the new Direct Consolidation Loan would inherit the underlying characteristics of a loan it paid off. It would be a new loan by a borrower which pays off an old obligation. If the borrower wanted to accept individual responsibility for the loan, I can find nothing that would prevent that.

The promissory note says, “My Direct Consolidation Loan will, to the extent used to pay off loans made under the Federal Family Education Loan (FFEL), Direct Loan, and Federal Perkins Loan (Perkins Loan) programs…” And, “I promise to pay to the ED all sums disbursed under the terms of this Note to pay off my prior loan obligations…” And, “I understand that ED will send funds to the holders of the loans that I want to consolidate to pay off those loans.” – Source

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So clearly a Direct Consolidation Loan would pay off the old loan and create a new loan which only one party could be obligated for. There is no regulation I can find that would require more than one person to be obligated for a Direct Consolidation Loan.

The Department of Education says, “Nothing in the law or regulations allowed for one of the borrowers of a joint consolidation to individually re-consolidate the loan.” But the flip side is nothing in the law prevents them from doing it either.

It appears the situation which is trapping people with these old FFEL consolidation loans is one created by assumption by the Department of Education and not one based in law or an official policy.

If you have found yourself in this spot, I would suggest you write your congressional representatives and ask them for help to extract you from what seems to be a non-official purgatory with your old loan. Feel free to include a link to this article in your request.

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13 thoughts on “Department of Ed FFEL Joint Consolidation Rules Arbitrary & Punitive”

  1. It is absurd..my spouse and I consolidated in 2005…before the PSLF program. We are now being told we are not eligible…even after the latest announcement from the Dept. of Ed., because our loan is considered a “FFEL Spousal Consolidation”, which is no longer allowed. So, we are being punished for a decision we made in 2005 and cannot take advantage of a program meant to reward folks working in the public sector? Our loans do not need to be severed because we BOTH work in the public sector…frustrating.

    • It is a grossly unfair situation that could be dealt with by just changing the procedure guidance at the Department of Education. You are going to have to push your valid arguments forward to the Department of Education. This is the best time to do this while ED is trying to clear up the mess. If you want to discuss this situation with a knowledgeable attorney consider contacting https://thestudentloanlawyer.com/

    • Jay. My spouse and I have the exact same problem as you. We consolidated in 2004. There are bills in both houses of congress that address these loans: “joint consolidation loan separation act” but so far nothing much has happened. Department of Ed may be a great place to get this dialogue happening. Good luck.

  2. Hi Steve,

    I have been attempting to get my joint consolidation loan split since my divorce in 2005. At that time, I was told by my lender and servicer that it would be impossible to split the loans. However, in 2015 my ex passed away and after submitting the death certificate, the Department of Education removed his portion of the loan. However, that still didn’t fix the whole problem. They will not change the coding and claim it is impossible to do so, which still leaves my loan in a “Joint Consolidation Status” (even though it is not), and makes it impossible for me to consolidate. I am a public school teacher, raising our daughter as an only parent and would qualify for the PLFP program, if they would remove the false loan status. The only loans standing are mine since the government separated the consolidation and forgave his debt. Any advice on where else I can turn?

    Natalie Hartman

  3. Young and clueless about the ins and out of student load repayments my wife and I were talked into doing a spouse consolidation of our student loans. The pitch made it sound like my lower interest rate would help off set her higher interest rate making the payments more manageable and payoff easier. What it did was create a high principal balance for the interest to feed on.. And it appears that the interest is all front load so all of my monthly payment is going to interest and I have not seen my principle lower in years.

    I have been trying to figure out how we can separate our loans and am continuing being told its not possible as the lenders would not be able to determine who should get a what balance.. Note my wife and I are not divorced.. The fix for this mess should not be one person gets stuck with the bill but rather the loans should be able to be split out.. If leaders are unable (which I don’t believe) to determine the starting balance of each spouses loan then at least do a 50/50 split…..

  4. Somehow I managed to get a Direct Consolidation loan that payed off an FFEL joint spousal loan but it is still handled as a joint spousal consolidation. The loan is in my name but we both have to sign for everything related to it and we are both still responsible. BUT it does appear we are eligible for PSLF. Our biggest complaint is that the Direct Loan Consolidation also paid off a very small (2K) Parent Plus Loan so now our Consolidation loan is not eligible for IBR or REPAYE – only ICR. It is a huge loan with a large payment under ICR and that stupid 2K loan we threw in there before any of these programs came on line is preventing us from getting any real help with this.

  5. I have this very same problem. The loan servicing company is trying to tell me that I cannot qualify for a public service loan forgiveness consolidation, but Direct Loans is trying to process this for me. The problem is that the loan servicing company gets to decide who is allowed out of the spousal consolidation trap or not. They even admitted to me on the phone that some go through, and some don’t. I’ve been paying interest only on my loans since 2007, and I could be three years away from being done paying them if I had been allowed to use this program. It’s a huge scam, a major shame, and just wrong to treat help out some student loan holders, yet punish anyone with a spousal consolidation…. I’m writing Congress and the White House. I suggest everyone in this situation should do the same so we can get some attention to a serious and unjust problem. How can I be paying my student loans for 15 years and the principal is still greater than when I started? I feel so trapped and angry. I hope something changes soon.


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