September 29, 2022

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House to vote on bill to split joint spousal student loans

A short-lived federal program to combine the student loans of married couples has trapped scores of borrowers in loans that are ineligible for debt relief initiatives, including President Biden’s recently announced loan cancellation plan.

Now, House Democrats are a step closer to passing legislation to let borrowers split their joint consolidation loans, giving them a new path toward debt relief. The House is scheduled to vote Tuesday on the Joint Consolidation Loan Separation Act, which was approved by the Senate in June.

Sen. Mark R. Warner (D-Va.) and Rep. David E. Price (D-N.C.) have introduced the bill three times since 2017. While they have garnered bipartisan support over the years, some Republicans were concerned about allowing the Education Department to break a contract based on the word of one spouse without any legal documents to back their claims of abuse or neglect.

“We have some opposition, but this is basically a bipartisan, bicameral bill and it is satisfying to work it out on that basis,” Price said Friday. “This is kind of an object lesson in how hard it is to get things done that seem pretty obvious, and this one always seemed obvious to me.”

Price and Warner took up the issue several years ago after separate encounters with constituents desperate to disentangle their student loans from those of their former partners. Warner said he was contacted by a mother of two in McLean, Va., whose abusive ex-husband refused to pay his share of their joint loan, leaving her at risk of having her wages garnished as she struggled to keep up with the payments.

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For Price, the issue became a priority around 2014 after hearing from people who were also stuck in loans with abusive or irresponsible partners without any recourse. “We heard about cases of domestic violence that not only made reconciliation impossible but joint responsibility for these obligations impossible,” Price said. “The consequences were severe, with people’s credit being ruined, wages being garnished.”

More than 14,700 people combined their debt through the spousal consolidation program between 1993 and 2006, according to federal data obtained by the Student Borrower Protection Center. Couples agreed to be held equally liable for each other’s education debt in exchange for a single payment and a lower interest rate.

The shortcomings of the program became evident as borrowers realized there was no way to sever the joint debt, even in the event of domestic violence or divorce. Congress ended spousal consolidations in 2006 but failed to provide a way for people to exit the program. While many of the loans have been repaid over time, there are still about 770 loans remaining, according to federal data.

“There is not enough of us to impact an election, so there has not been a lot of political motivation to do anything,” said Lori Klein, 58, a single mother of two in Raleigh, N.C., who added, “anyone can see how crazy this situation is.” She has struggled to repay a spousal loan since she said her husband abandoned the family and moved to Turkey in 2006.

At the time, Klein was a stay-at-home mom with no source of income, $300 in savings and $68,000 in joint student loans. Her husband neither made payments nor provided child support. Klein postponed her loan payments as she tried to keep the family afloat. Interest accrued and drove the balance to more than $205,000 to date.

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“It was a blessing to get out of the relationship and not have my children grow up with someone like my ex-husband, but this debt has been a dark cloud hanging over me for years,” she said. “If I can get a handle on it, I could aggressively save for retirement.”

If the legislation is approved and enacted, borrowers like Klein could separate their loans based on the initial proportion they brought in. Since her education loans accounted for roughly 58 percent of the original obligation, she would be responsible for just that amount.

Under the bill, the two new federal direct loans would have the same interest rates as the joint consolidation loan. Each borrower would also be able to transfer eligible payments made on the joint loan toward the Public Service Loan Forgiveness program, which erases the balance for public servants after 10 years of payments and service.

That last benefit is especially appealing to Michelle Gladu, a social worker in Syracuse, N.Y., with $50,000 in student debt. Gladu, 55, discovered the limitations of spousal consolidation last year when she tried to take advantage of a temporary expansion of the loan forgiveness program.

Gladu had heard about people with loans from the defunct Federal Family Education Loan program consolidating their debt to take advantage of a waiver temporarily expanding access to the Public Service Loan Forgiveness program. But she learned she could not reconsolidate her joint loan to do the same.

“Being able to separate the loans would mean I could” apply for the Public Service Loan Forgiveness program “or even the other forgiveness Biden recently announced,” said Gladu, who has worked in the public sector for more than 20 years. “Not having this debt would be a big help as my husband and I get older.”