September 27, 2022

Unitranche

Supportive Business Potential

Married Couples Blocked From Student-Loan Forgiveness After Combining Balances

  • Decades ago, married couples were told combining their student loans would be the best option for them.
  • But law makes it impossible to separate the loans, meaning those who would otherwise be eligible cannot enroll in forgiveness programs.
  • Insider spoke to borrowers with spousal loans who view a new law as the only way out of debt.

Russell and Kate Case were told that consolidating their student loans would be the best option for them.

The practice allows married couples to combine their student-debt loads into one loan, allowing them to make just a single monthly payment with one interest rate. The idea is that it’s a more affordable option.

But there’s a big catch: Doing so has now barred them from getting their debt forgiven under a program specifically for public servants like themselves. Now 52 and 51 years old, respectively, Russell and Kate hold a joint $330,000 student-debt balance from their pair of graduate degrees.

While their incomes are sufficient to support themselves and their families, the public-service work is not generally high-paying, to the point that monthly student-loan bills cut into spending on other basic necessities.

“I understand people need to pay back their debt. I get that part,” Russell told Insider. “But if the government promises debt forgiveness for public servants after ten years, and we find out after the fact our loans don’t qualify, that’s my biggest problem.”

Congress shuttered the spousal joint consolidation loan program in 2006 after 13 years. When the Public Service Loan Forgiveness (PSLF) program — which forgives student debt for public servants after ten years of qualifying payments — was created in 2007, those in public service with spousal loans did not know they would be barred from that relief. 

That’s because in order to qualify for PSLF, the loans must be consolidated into a federal direct loan. But law prohibits the separation of spousal loans that would be the first step in applying for the program — meaning unless a new bill is passed, these people won’t get relief afforded to those who have identical financial profiles, but are unencumbered by spousal loans.

It’s 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’re holding out some hope that those like them will be noticed by lawmakers, leading to a change in the law.

“It’s good to see people in the same boat that we are because it’s not like you’re on an island by yourself,” Russell said. “It’s that island of misfit toys. Everyone’s wanting to get excited because you think something’s going to change, and then it doesn’t and the rug gets pulled out, and then it gets to be a little like, why even try?”

‘We’ll be okay, but we’ll be in debt forever’

Rebecca LeRoy, 47, is in a similar situation to Russell and Kate. With a current $47,000 student-debt load from spousal consolidation back in 2003, LeRoy has worked at a Washington state nonprofit for over a decade, with her husband doing the same for nearly two decades. Not only does she not qualify for PSLF, she’s also looking at taking out parent PLUS loans for her kids once they go to college, and the monthly $460 payments she’s making right now are already a financial strain.

“We called our loan company a couple times to talk about PSLF, and we managed to get really high up in the chain before we were finally told to stop applying, because it’s not something that we’re ever going to be eligible for,” LeRoy told Insider.

LeRoy, like the Cases, does not live beyond her means. She is simply unable to adequately service her debt load at her current salary.

Of the 26,526 unique consolidated spousal loans out there, just 776 borrowers are still in repayment, according to data obtained by the Student Borrower Protection Center and provided to Insider. Given it’s such a small portion of the 45 million student-loan borrowers out there, those burdened by spousal loans argue it should be easy for the government to lend them a hand, as they have done with other larger groups of borrowers.

“We’ll be okay, but we’ll be in debt forever,” LeRoy said. “This group represents a really small fraction of what they have already forgiven for other people, so it shouldn’t take that much to give us all some relief.”

The only way out is with legislation

Some lawmakers are aware of the challenges with spousal loans — not only when it comes to PSLF, but also regarding the inability to separate loans upon divorce or in the case of domestic violence. 

That’s why Virginia Sen. Mark Warner and North Carolina Rep. 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 liable for their potentially abusive or uncommunicative former partner’s portion of their consolidated debt,” he added. “With no legal options for relief, as in the case of my constituent, this debt can be crippling. My colleagues and I were pleased to reintroduce this common-sense, bipartisan legislation, and are hopefully we can soon move the bill towards its long-overdue passage into law.”

There is a bit of a time constraint for passing this legislation — the Education Department recently announced a PSLF waiver that runs through October 31 that would allow any past payments to count toward forgiveness, and those with spousal loans are hoping they can separate their loans in time to access the waiver and get 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, essentially, because you’re a married couple, you’re now being penalized.”