In Minnesota, as in other states, when a married couple divorces, each person takes their own student loan debt with them. Student loan debt is generally considered non-marital debt and, as such, is not equitably divided upon divorce as marital debts and assets would be. The idea behind this general rule is this: the student received the ongoing benefit of their education and will, presumably, continue to reap the rewards after divorce, so that same individual should also be solely responsible for the debt incurred to receive that benefit.
Dividing a couple’s student loans during divorce is usually straightforward if each spouse holds their own student loans under their own name—Spouse A is responsible for the loans under their name; and Spouse B is responsible for the loans under their name. There is no need to split or combine accounts, nor to place the loans under a different named borrowed.
Things can get very messy where the couple has refinanced separate student loans into joint consolidation loans. For many years, student loan consolidation was offered by the government for federal student loans. Though this is no longer the case,[1] a lot of married couples completed this process of combining their student loans into a single joint loan under both spouse’s names. There isn’t a rule on how to divide the consolidated loan in a case like this.
Imagine Spouse A borrowed $30,000 for higher education and Spouse B borrowed $150,000. They refinanced their student loans into a single consolidated loan and continued paying down the debt; six years later, they divorce. In the eyes of the law, the debt is both of theirs. The student loans are intermingled. Because Congress never provided a way for consolidated student loan debts to be severed in divorce, divorcing couples either must work out a fair payment scenario together and cooperate in carrying out their agreement, or they will both continue to be on the hook for the same loan. And, sadly, the joint loan could outlive the marriage by decades.
The results can be devastating. Imagine you are Spouse A in the scenario above and Spouse B is financially abusive or simply unresponsive and irresponsible. Spouse B simply stops contributing anything to pay down the joint student loan debt. In that case, the lender is still owed payment and will collect it all from Spouse A. So, Spouse A will be legally responsible to pay off $180,000 in student loans. Not fair.
The inequity of this situation is what the Joint Consolidation Loan Separation (JCLs) Act of 2021 is aimed at addressing. See H.R. 2460 — 117th Congress: Joint Consolidation Loan Separation Act. The Act, if passed into law, will allow two borrowers to submit an application to the U.S. Department of Education to split the JCL into two separate federal student loans (one under Spouse A’s name and one under Spouse B’s name).
The Act would also allow just one borrower to submit their own application to split the JCL where they are the victim of domestic or economic abuse or where they have been unable to reach or access the loan information of the other borrower. The two new federal direct student loans created after a JCL is split would each have the same interest rate as the JCL. If the Act is passed into law, it will ease a huge burden on divorcees that are saddled by JCLs with uncooperative exes. Until then, it is a good idea for JCL borrowers who are divorcing to work with a knowledgeable family law attorney who can help negotiate a fair and equitable division of student loan debt. A good family law lawyer should be well versed in finding creative solutions and minimizing risk.
[1] Some private lenders to this day will still allow married couples to complete a spousal student loan consolidation.
