What is a Joint ("Spousal") Consolidation Loan?
The joint spousal consolidation loan is this really uniquely terrible product... This was a very unique product that was created, and the fact that you can’t separate them—I’m not aware of any other product that is designed in this way... They stopped making these loans back in 2006, so these are really old loans at this point... Spouses became jointly liable, and they basically have no way out, even in the case where the couple gets divorced.
~ Persis Yu (Policy Director, Protect Borrowers)
A joint or spousal consolidation loan, today, is a living artifact of the Joint/Spousal Consolidation Loan product line that spanned 1992 through June 30, 2006. In 1992, Congressional amendments to the Higher Education Act instated these loans that allowed married couples to consolidate their loans together and be held equally and severally liable for the loan. For struggling couples this seemed like a good option because it simplified repayment into a single payment and allowed entrance to graduated, income-sensitive and income-based repayment plans.
The term 'severally liable' means that each spouse is a cowriter of the loan and, as such, both cowriters would be bound together by the loan, even in divorce. It instated equal responsibility despite portion of loan balance or change in marital status.
In June 2006, the 109th Congress struck Joint/Spousal Loans from the Higher Education Act to avert risk to the Department of Education, servicers, and investors due to high divorce rates, leading to high default rates on the loans. In this, however, they did not address existing loans, inform borrowers of how their loans terms were changing, provide a means to opt in or out, or address policy or procedure surrounding the existing loans. In effect, these loans have burdened borrowers with incredibly high risk with no latitude for remedy in a literal policy vacuum. Further, neither the Department of Education nor Federal Student Aid (FSA) have legitimate means to track spousal consolidation loans, making them a ghost amongst all other student loans, a relic from the past that is misunderstood and largely forgotten with tantamount documentation or evaluation over that past 15 plus years.
Today, spousal consolidation debtors (FFEL and Direct Loan) face a myriad of issues on top of the ones they share with the mainstream of student loan holders. These issues rise from issues born from being severally liable. In the case of domestic abuse, victims remain financially shackled to their former abusers only through these loans. Likewise, for divorced couples, an individual remains tied to their uncooperative spouse only through these loans. Neither lawyers nor courts can separate these loans in divorce cases or even bankruptcies.
Both parties in the loan must sign off on any income-based repayment and/or any forbearance. Each partner must share financial information and must agree on the phone if asking for deferments. In the case of domestic abuse victims, this is not only insane but also it is dangerous.
The term 'severally liable' means that each spouse is a cowriter of the loan and, as such, both cowriters would be bound together by the loan, even in divorce. It instated equal responsibility despite portion of loan balance or change in marital status.
In June 2006, the 109th Congress struck Joint/Spousal Loans from the Higher Education Act to avert risk to the Department of Education, servicers, and investors due to high divorce rates, leading to high default rates on the loans. In this, however, they did not address existing loans, inform borrowers of how their loans terms were changing, provide a means to opt in or out, or address policy or procedure surrounding the existing loans. In effect, these loans have burdened borrowers with incredibly high risk with no latitude for remedy in a literal policy vacuum. Further, neither the Department of Education nor Federal Student Aid (FSA) have legitimate means to track spousal consolidation loans, making them a ghost amongst all other student loans, a relic from the past that is misunderstood and largely forgotten with tantamount documentation or evaluation over that past 15 plus years.
Today, spousal consolidation debtors (FFEL and Direct Loan) face a myriad of issues on top of the ones they share with the mainstream of student loan holders. These issues rise from issues born from being severally liable. In the case of domestic abuse, victims remain financially shackled to their former abusers only through these loans. Likewise, for divorced couples, an individual remains tied to their uncooperative spouse only through these loans. Neither lawyers nor courts can separate these loans in divorce cases or even bankruptcies.
Both parties in the loan must sign off on any income-based repayment and/or any forbearance. Each partner must share financial information and must agree on the phone if asking for deferments. In the case of domestic abuse victims, this is not only insane but also it is dangerous.