From 1993 to 2006, married couples could consolidate their student loans into a Joint Consolidation Loan (also known as a spousal consolidation loan) at a lower interest rate, making each parties are legally responsible for each other’s debts. Problems quickly arose, as divorced couples could not split the debt again, making them liable for the debt of their ex, even if they were the victim of abuse.
That can be difficult for a number of reasons, including one spouse stopping paying off the debt altogether. The other person is then fully responsible for the monthly payments on their debt and that of the ex, potentially leaving them financially in hot water.
Under applicable law, the General Consolidation Loan inseparable for any reason, or amalgamated into the Direct Loan program. Not only does that make them currently ineligible for Biden’s relief program, it also makes Public Service Loan Forgiveness (PSLF) and income-based debt repayment.
Invoice, that is passed by the Senate in June and enjoys bipartisan support in both houses of Congress, currently at the top of President Joe Biden’s desk. If the president signs the bill into law, existing borrowers will be able to split their debt into two different Direct Loans held by the federal government — eligible for a $10,000 relief to $20,000, assuming they meet income requirements.
Borrowers will be able to apply to the U.S. Department of Education and share their debt “Correspondingly based on the percentage that each borrower initially put into the loan.” The two new loans will have the same interest rate as the general consolidation loan. Borrowers can also switch to an income-based repayment plan or apply for a PSLF, if they meet other criteria.
Both spouses will need to submit an application to be eligible, except under certain circumstances. For example, a single spouse can apply to split the debt if they have been the victim of economic or physical abuse.
The passage of this measure “ends a decades-long story and provides light at the end of the tunnel for struggling borrowers – including economic and family abuse survivors – who have been trapped by these joint loans,” said Persis Yu, deputy executive director of the Student Borrower Protection Center, said in a statement.
Some Republicans in the House and Senate voted against the bill, arguing that the government was off-limits because the loans were now held by private companies.
Assuming Biden signs the bill into law, qualified borrowers will want to do it quickly. Applications for Biden’s forgiveness effort will be released in a few weeks; The sooner applicants fill out the online form, the sooner they will receive relief.
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