Source: The College Investor
Spousal Consolidation student loans were offered until 2009 - when Congress finally realized this is actually a terrible idea. As of today, there are less than 1,000 spousal student loan consolidation victims left.
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, and President Biden signed it.
In October 2024, the application process for separating spousal consolidation loans was finally released.
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.
The Benefits
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.
The Drawbacks
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.
How To Separate Your Spousal Consolidation Loan
The process to separate a spousal consolidation loan will happen in two phases.
First, the borrowers need to fill out the Combined Application to Separate a Joint Consolidation Loan and Direct Consolidation Loan Promissory Note application.
This application has multiple parts, and you have to ensure that you're filling them out appropriately. There are three main reasons for separation:
- Joint Agreement, where you and your spouse (or former spouse) agree to separate your loans based on your original balance percentages.
- Joint Agreement due to Divorce or Separation Decree, where you and your former spouse will separate your loans based on a settlement agreement
- Separate Application to Separate Your Loans, where one spouse is attempting to separate their loans due to economic abuse or domestic violence, or the Department of Education allows for "other reasons". This isn't as clearly defined, but you should still apply if you need to.
This is important - you and your co-borrower both need to complete applications for reasons #1 and #2. This is spelled out here:
IMPORTANT: Regardless of which option you select to separate your joint consolidation loan, the co-borrower does not sign your Application/Promissory Note. If you and the co-borrower both want to separate the joint consolidation loan (as indicated by checking Item 18 or Item 19 in Section 10), you must each submit your own Application/Promissory Note and check the same item in Section 10.
Once you both complete the application, send the completed application(s) along with a copy of divorce decree if needed to the appropriate address:
Aidvantage
ATTN: ED Loan Consolidation
PO BOX 300005
Greenville, TX 75403-3005
Edfinancial
C/O Aidvantage
PO BOX 300008
Greenville, TX 75403-3008
MOHELA
C/O Aidvantage
PO BOX 300006
Greenville, TX 75403-3006
Waiting For Phase II
Once you submit your application, there is no timeline on "Phase II" or actually getting your loan separated. Phase II will involve creating a new loan for each spouse, and then sending the required documentation to them.
However, this phase has not been announced timing-wise.
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 toward 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, Wall Street Journal, Washington Post, ABC, NBC, Today, and more. He is also a regular contributor to Forbes.
Editor: Clint Proctor Reviewed by: Colin Graves