Congress on Wednesday passed a bill that would allow divorced couples to separate their consolidated federal student loan debt, potentially making some of them eligible for President Joe Biden’s student loan forgiveness program.
Until 2006, married couples were allowed to consolidate their federal studies borrowing debt into a single joint loan. The idea was to simplify repayment by allowing the couple to make a single monthly payment.
But it also made the couples jointly responsible for the debt, and there was no way for the couples to separate their student loans later, even in the event of divorce or domestic violence.
“Spousal consolidation loans have been a terrible burden on borrowers who have since divorced or who have experienced domestic violence, as these loans handcuff them financially to their ex-spouses or abusers,” said Kyra Taylor, attorney for the student loans staff at the National Consumer Law Center. , in a report.
Couples’ consolidated loans are also excluded from some federal student loan relief plans like the Public Service Loan Forgiveness Program, which forgives some public sector workers’ outstanding balances after making 10 years of qualifying payments.
Consolidated loans are also ineligible for the next forgiveness announced by Biden in August, which will provide up to $10,000. debt cancellation for people who earn less than $125,000 per year and married couples or heads of households who earn less than $250,000 per year. Eligible borrowers who also received a Pell grant while enrolled in college can qualify for student loan forgiveness of up to $20,000.
The bill passed Wednesday would allow borrowers with a joint consolidation loan to jointly submit a request to the Department of Education to split their debt into two separate loans. The loans would be split proportionately based on the original loan amounts, according to a statement of support for the bill from the White House.
The bill would also allow victims of domestic violence or economic exploitation, or borrowers who cannot reach the other borrower, to submit an individual application.
Once the debt is separated, each borrower will have a Direct Consolidation Loanwho may be eligible for student loan forgiveness under Biden’s new plan – as long as the borrower also meets the income qualification and the underlying loans were first disbursed on or before 30 June 2022 – according to Department of Education.
The Biden administration is expected to release the student loan forgiveness application in early October. Borrowers will have until December 31, 2023 to apply.