Congress passed a bill Wednesday that would allow divorced couples to separate their consolidated federal student loan debt, potentially making some of them eligible for President Joe Biden’s student loan forgiveness program.
The bill now heads to Biden’s desk for his signature, after the Senate approved the bill in June. The Biden administration has said it supports the legislation.
Until 2006, married couples were allowed to consolidate their federal student loan debt into a single joint loan. The idea was that it could make repayment simpler by allowing the couple to make a single monthly payment.
But it also made couples jointly responsible for the debt, and there’s been no way for couples to separate their student loans later on, even in the event of divorce or domestic abuse.
“Spousal consolidation loans have been a terrible burden for borrowers who have since divorced or been subject to domestic abuse, as these loans financially handcuff them to their former spouses or abusers,” said Kyra Taylor, student loan staff attorney at the National Consumer Law Center, in a statement.
Couples’ consolidated loans are also excluded from some federal student loan relief plans like the Public Service Loan Forgiveness program, which cancels outstanding balances for some public sector workers after they make 10 years of qualifying payments.
The consolidated loans are also ineligible for the forthcoming forgiveness announced by Biden in August, which will provide up to $10,000 of debt cancellation for individuals who make less than $125,000 a year and married couples or heads of households who make less than $250,000 annually. Those qualifying borrowers who also received a Pell grant while enrolled in college are eligible for up to $20,000 in student loan forgiveness.
The bill passed Wednesday would allow borrowers with a joint consolidation loan to jointly submit an application to the Department of Education to separate their debt into two separate loans. The loans would be split proportionately based on the original loan amounts, according to a statement of support of the bill from the White House.
The bill would also allow survivors of domestic violence or economic abuse, or borrowers who are unable to reach the other borrower, to submit an individual application.
Once the debt is separated, each borrower will have a Direct Consolidation Loan, which can be eligible for student loan forgiveness under Biden’s new plan – as long as the borrower also meets the income qualification and the underlying loans were first disbursed on or before June 30, 2022 – according to the Department of Education.
The Biden administration is expected to release the application for student loan forgiveness in early October. Borrowers will have until December 31, 2023, to apply.