Married couples locked out of student loan forgiveness after combining balances
- Decades ago, married couples were told that combining their student loans would be the best option for them.
- But the law makes it impossible to separate loans, meaning those who would otherwise be eligible cannot enroll in forgiveness programs.
- Insider spoke with borrowers with spousal loans who see a new law as the only way out of debt.
Russell and Kate Case learned that consolidating their student loans would be the best option for them.
The practice allows married couples to combine their student debt into one loan, allowing them to make one monthly payment with one interest rate. The idea is that it’s a more affordable option.
But there is a big catch: it now prevents them from obtaining the cancellation of their debt within the framework of a program specifically intended for civil servants like them. Now aged 52 and 51 respectively, Russell and Kate hold a joint balance of $330,000 in student debt from their pair of graduate degrees.
Although their income is sufficient to support themselves and their families, public service work is generally not well paid, to the point that monthly student loan bills reduce spending on other necessities. basic.
“I understand that people have to pay off their debt. I understand that part,” Russell told Insider. “But if the government promises debt forgiveness to civil servants after ten years and we find out afterwards that our loans are not eligible, that’s my biggest problem.”
Congress shut down the Spouse Consolidation Joint Loan Program in 2006 after 13 years. When the Public Service Loan Forgiveness Program (PSLF) – which forgives public servants’ student debt after ten years of qualifying payments – was created in 2007, people in the public service with spousal loans did not know that they would be excluded from this relief.
Indeed, to be eligible for the PSLF, loans must be consolidated into a direct federal loan. But the law prohibits the separation of spousal loans that would be the first step in applying for the program – meaning that unless a new bill is passed, these people will not benefit from the program. relief given to those who have identical financial profiles, but who are not bothered by spousal loans. .
It is now clear to Russell and Kate that consolidating their loans was not the best option for them, and they have since refinanced some of their debt into private loans with a lower interest rate. But they said they remained hopeful that those like them would be noticed by lawmakers, leading to a change in the law.
“It’s good to see people in the same boat as us because it’s not like you’re on an island all by yourself,” Russell said. “It’s this island of misfit toys. Everyone wants to get excited because you think something’s going to change and then it doesn’t and the rug is pulled out and then it gets kind of like, why even try?”
“It will be fine, but we will be in debt forever”
Rebecca LeRoy, 47, is in a similar situation to Russell and Kate. With current student debt of $47,000 due to spousal consolidation in 2003, LeRoy has worked at a Washington state nonprofit for more than a decade, with her husband doing the same for nearly two decades. . Not only does she not qualify for PSLF, but she also plans to take out Parent PLUS loans for her children once they go to college, and the $460 monthly payments she is making right now are already under financial pressure.
“We called our lending company a few times to talk about PSLF, and managed to get really high up the chain before we were finally told to stop applying, as it’s not something we will ever be eligible,” LeRoy told Insider.
LeRoy, like the Cases, does not live beyond his means. She is simply unable to adequately repay her debt with her current salary.
Of the 26,526 unique consolidated spousal loans, only 776 borrowers are still in repayment, according to data obtained by the Student Borrower Protection Center and provided to Insider. Given that this is such a small portion of the 45 million student borrowers, those burdened with spousal loans argue that it should be easy for the government to give them a helping hand, as they have done so with other larger groups of borrowers.
“We’ll be fine, but we’ll be in debt forever,” LeRoy said. “This group is a very small fraction of what they’ve already forgiven other people, so it shouldn’t take that much to bring relief to all of us.”
The only way out is legislation
Some legislators are aware of the challenges with spousal loans, not only with respect to the PSLF, but also with respect to the inability to separate loans in the event of divorce or domestic violence.
That’s why Virginia Senator Mark Warner and North Carolina Representative David Price introduced the Joint Consolidation Loan Separation Act of 2021, which would allow borrowers to apply to split their loans into two separate loans.
“The Joint Consolidation Loan Separation Act was created in direct response to my constituent’s experience with a damaging joint consolidation loan,” Price told Insider.
“Unfortunately, borrowers nationwide remain responsible for their potentially abusive or uncommunicative former partner’s share of their consolidated debt,” he added. “In the absence of legal options for relief, as in the case of my constituent, this debt can be crippling. My colleagues and I were delighted to reintroduce this common sense bipartisan legislation, and hope we can soon to move the bill forward to its long – belated passage of the law.”
There is some time to pass this legislation – the Department for Education recently announced a PSLF waiver which extends until October 31 which would allow all previous payments to be considered for cancellation , and those with spousal loans hope to be able to separate their loans in time to access the waiver and obtain relief.
“If divorce allowed us to separate our loans, we would absolutely divorce and then remarry,” Kate Case said. “Because it’s crazy to think, basically, because you’re a married couple, you’re penalized now.”