Am I Stuck With My Ex-Wife Forever Because of Our Old Spousal Consolidation Loan?

Question:

Dear Steve,

I share $67k in Navient student loans with my ex-wife. My decreed portion is around $35k. Since our FFEL consolidation in 2001, I have paid it for 12-13 years. It has been on deferment the rest of the time.

I applied for PSLF through Navient. I will not qualify with her income. She is not my SPOUSE anymore. My credit was impacted greatly before I applied for deferment. It will be again when that runs out this fall.

Can I un-consolidate the loan and get on a IBR or PSLF program? I know the loan will default in October otherwise.

Lee

Answer:

Dear Lee,

The problem is only income contingent payments count towards the 120 payments required under the Public Service Loan Forgiveness (PSLF) program. So it looks like you certainly would not have any qualifying payments to date. PSLF has no income requirement. It is based on the performance of payments made under a qualifying repayment program that involves a Direct Loan and not an old spousal consolidation loan. And if were under one of those qualifying programs like the IBR or ICR and your payment was $0 per month, then that would qualify. Deferment does not qualify.

Whose name is actually on the loan? Did you sign for the consolidation loan is is it in her name alone? Since the loan is so old there might be a very remote possibility the loan is only in the name of one of you. I doubt it but it’s worth checking.

Just because the divorce agreement said you would pay some, doesn’t mean anything if you are not on the loan at all. Post your answer in the comments below.

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But generally, a spousal consolidation loan remains the joint liability of both people who consolidated their loans. You would both be 100 percent on the hook to repay the entire debt no matter what the divorce agreement says.

There is no process to unwind a previous consolidation but if you had another loan that was not included you could do a new consolidation with the old loan and enroll the new loan in the ICR (Income Contingent Repayment) program and those payments would count towards possible forgiveness moving forward.

Now the prevailing opinion is an old spousal consolidation loan would not be eligible for PSLF and could not be rolled into a new loan. I took a look at the documentation on that situation and what I discovered is either not clear or clearly does not support that common opinion. See This is One Way to Get FFEL Spousal Consolidation Loans Forgiven and Department of Ed FFEL Joint Consolidation Rules Arbitrary & Punitive.

But let’s say you go out and get an unsecured debt consolidation loan of $35,000 from someone like LendingClub.com that would release you from the portion of the loan you agreed to pay in the divorce but it would have no bearing on your liability for the remaining debt if you both signed for the consolidation loan. If you both signed then you are both on the hook for any balance till it is entirely paid off.

If you have any question about who is liable for the loan, you might want to login to the National Student Loan Data System and get more information on the loan.

So on face value it seems if you are jointly responsible for the debt, current opinion is the spousal loan would not be eligible for any income driven repayment plan (I disagree), and without getting into a repayment plan with PSLF qualifying payments then the loan can’t be forgiven under that program.