Spousal student loan consolidation is something you might be considering, or perhaps it’s something you’re keen to get out of.
Either way, there are some key details about this particular loan situation that are important to know.
I’m going to briefly outline what spousal student loan consolidation is, why you might want to do it, why you might want to avoid it, and ways to change it if you have this kind of loan.
Note: The federal government ended the spousal loan consolidation program. In September 2022, Congress passed legislation to allow couples to separate their spousal consolidation loans, but it's still waiting President Biden to sign it. After that point, it will take time for the Department of Education to create a process to unwind these loans.
What Is Spousal Student Loan Consolidation?
Spousal student loan consolidation is when you combine your student loan or loans with that of your spouse into a joint loan that bears both of your names. This process was previously offered by the government for federal loans. While it’s no longer possible to federally consolidate your student loans with your spouse, a lot of people did so when the program was available and are still paying off those loans, for better or for worse.
However, some private lenders will consolidate a married couple’s loans, though the procedure would technically be considered a refinance. The two loans would be paid off by a single new loan in both your name and your spouse’s name. Some lenders may include federal loans in the consolidation; however, remember that refinancing federal loans into private ones sheds the myriad borrower protections — repayment and forgiveness options and deferment, forbearance, and interest benefits — that federal loans carry.
If you have federal student loans and are considering consolidating your and your spouse’s loans into a private joint loan, check out your other options first. If you need lowered payments, you might want to keep your federal loans and enter into a different repayment plan that is better suited to your income level.
A private spousal consolidation loan may simplify your life if you and your spouse have a confusing or unfavorable student loan landscape. By this, I mean you and your spouse:
If some or all of these are true, consolidating your loans into a single loan might seem attractive. However, you might want to consider refinancing your loans separately before you decide on a spousal consolidation loan.
Only if your combined credit scores and incomes would give you the most favorable loan terms and savings on interest should you consider a spousal consolidation loan.
A spousal consolidation loan locks you into a financial obligation with your spouse that may be very difficult or costly to get out of, especially if you decide to get divorced. If you have a true joint loan, both you and your spouse are equal borrowers in this debt and are equally responsible, no matter how much of the debt was originally yours.
You cannot release the name of someone on a joint loan. If you and your spouse have a loan where one of you co-signed, you can theoretically release a co-signer, but lenders are not always willing to do this.
The main drawback is the unpredictable nature of your financial situation and your relationship. If one or both change, you will need to negotiate with your spouse on how to repay this combined debt.
Changing Your Spousal Consolidation Loan
Many of you reading might feel like a warning is a moot point because you already have a spousal consolidation loan and want to split it—now. Maybe you are desperate to take advantage of a loan forgiveness program that’s impossible to access with a joint loan; maybe you’re getting divorced and the prospect of sharing debt with your ex for years to come is a very unpleasant one. Whatever the reason, you are in a tricky situation.
Here’s what we know about making changes to federal spousal consolidation loans.
First, if you want to convert your federal spousal consolidation loan into a different kind of federal loan, there are few, if any options. At least one expert says that there is not necessarily a law forbidding making a FFEL spousal consolidation loan into a Direct Consolidation loan. However, the Department of Education has been known to deny applications attempting to do so. It might take a change in law for the Department to change their practice, which is no small feat.
It’s also not clear if lenders are willing to refinance a federal spousal loan into a private loan. Refinancing an individual’s federal loans into private loans is definitely possible, but the spousal loan is a different story. If a lender is willing to do this, you and your spouse’s individual incomes and credit histories will be the determining factors in your ability to get a new private loan or loans to pay off the federal spousal one. If you find a lender you like, it can’t hurt to ask them about their refinancing options in regards to spousal loans.
Splash Financial - They are one of the few online student loan lenders that allows spouses to refinance a combined loan. Check out Splash Financial here >>
When refinancing, if you do find a lender who will split up the loan into private loans, you have to make sure you’re getting a good deal not just in terms of the portion of the debt you’re receiving, but the terms and rates of the new loan. While freedom from the spousal loan is the main goal, highly unfavorable terms may present a new unwanted challenge. The same goes for if you have an already-private spousal consolidated loan and decide you want to refinance it.
Whether you find a lender to refinance your loan and break up your debt or not, breaking up with your spouse will mean the debt needs to be apportioned somehow. If you’re getting divorced, a lawyer will likely have to hammer out the details with your ex’s lawyer. Whoever you choose to use to help you negotiate, it’s important to get in writing and in a legally binding document the responsibilities of each party in paying back the debt.
What To Do In The Meantime
If you’ve hit a roadblock with your spousal consolidation loan—perhaps you have not found a way to split it, or the payments are too high—you need to do what you can to stay in good standing. Delinquency or default on the loan would just exacerbate current problems.
If you have a federal spousal loan, you may be able to enter into an income-driven repayment program, based on both partners’ incomes and family size, and potentially get your monthly payment reduced. This is especially helpful if both you and your partner or ex-partner’s incomes are low.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
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