In 1992, Congress tried to address student loan default rates by creating a statute in the Higher Education Act that enabled married couples to consolidate their debt with their spouses.
Nearly thirty years later, lawmakers are trying to pass a new law to fix the unintended consequence of some of those borrowers being divorced and squabbling over the consolidated debt.
A bipartisan group of lawmakers — including Representatives David E. Price (D-NC), Greg Murphy (R-NC), and Haley Stevens (D-MI) in addition to Senators Mark Warner (D-VA), Marco Rubio (R-FL), and John Cornyn (R-TX) — have now reintroduced the Joint Consolidation Loan Separation Act to help those borrowers.
“This bill is a direct response to my constituent’s experience with a damaging joint consolidation loan," Congressman Price stated in a press release. “I introduced this bill to provide relief to borrowers who are victims of abusive or uncommunicative spouses by allowing them to sever these loans. The impact on borrowers is often crippling and I’m grateful for the bipartisan support that this common-sense bill has received. Congressional action is long overdue.”
The unity between prominent Republican and Democratic lawmakers on an issue related to student loans — a contentious topic — was due to how serious they believed the issue to be.
“Survivors of domestic violence who are trying to sever financial ties with their abusive partner should be able to do so," Senator Rubio stated. "This bipartisan, commonsense bill will ensure that survivors no longer find themselves in a position of being liable for their abuser’s student loan debt. This legislation is long overdue, and I am hopeful that it will swiftly move through the Senate.”
Based on ED estimates, lawmakers think that up to 120,000 now-divorced couples had consolidated their loans under the original legislation.
'A married couple… may be treated as if such couple were an individual borrowing'
In 1992, with the country grappling with alarming default rates on student loans, Congress introduced a suite of consolidation programs to help borrowers with repayment.
"A married couple, each of whom as eligible student loans, may be treated as if such couple were an individual borrowing," the text stated, later adding that "if such couple agrees to be held jointly and severally liable for the repayment of a consolidation loan … and without regard to any subsequent change that may occur in such couple's martial status."
And so from January 1, 1993 to June 30, 2006, married borrowers could be jointly liable for loan repayment via the U.S. Department of Education.
Many borrowers decided to pursue consolidation at the time, believing that it could be beneficial to their personal finances. But debtors told Yahoo Finance that years later, they regret their decision.
“It’s a nightmare," Montana resident Honor Mann, who has seen her tax refunds seized and wages garnishes while struggling with her and her ex-husband's student debt for more than a decade, previously told Yahoo Finance. "Nobody will help us. Nobody will separate it so we don't have to deal with each other ever again.”
Congress ended the program in 2006 — but did not allow divorced borrowers to separate the loans.
“For 15 years, Congress has failed to fix an oversight that leaves domestic violence survivors footing the bill for their abuser’s student loan debt," Senator Warner stated. "We should make it easier, not harder, for domestic violence survivors to move on and heal, away from their former partners. … And with bipartisan support for this bill, I’m hopeful we can finally get something done.”
Price and other lawmakers first introduced the Joint Consolidation Loan Separation Act first in May 2019 to provide divorced spouses to separate their loans.
Specifically, the law would allow debtors to split their balance proportionally into two federal direct loans so that they’d be able to pursue repayment on their own.
A borrower could also submit a separation application for the debt if they're experiencing domestic, economic abuse, or is unable to reasonably reach the other borrower.
Monica McLaughlin, director of public policy at the National Network to End Domestic Violence, said that when "survivors escape abuse, they should be able to start over without the debts of their abusers." Consequently, she added, her organization supports the bill "for creating a solution for those survivors who consolidated loans either in good faith or under duress and are now rebuilding their lives."
After the loan is separated, borrowers would be able to transfer eligible past payments towards income-based repayment plans or towards the Public Service Loan Forgiveness Program.
Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.
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