Student Loans and Divorce

Going through a divorce often involves a long and exhausting process of classifying marital assets from non-marital assets. Dealing with divorce and student loans, however, can further complicate things.

In Colorado, student loans can be rather difficult to divide depending on the situation. One common misconception on dividing student loan debt is that all debts obtained prior to getting married becomes marital or shared debt as soon as you are married—which is not always the case.

Legally speaking, student loan debts incurred prior to marriage are typically considered separate property, and should remain to be so after a divorce. It should not be the obligation of the other spouse unless stated otherwise in a prenuptial agreement.

Student loan debts obtained during the course of the marriage, on the other hand, are much trickier. Some courts assume that after marriage, student loans must be divided equally between the spouses. The argument behind this is since there is likely an increased income potential due to the student loan, the ex-spouse may benefit in the form of higher child support and alimony payments for years to come.

What about jointly consolidated student loans?

Congress declared that effective July 1, 2006, married couples can no longer jointly consolidate federal student loans. However, this change in policy did nothing for borrowers who consolidated their loans between 1993 and 2005. This may not be a problem if both parties are financially responsible and can afford to pay their respective share of the loan, but there may be a problem if either of the divorcing parties are broke or financially reckless.

While a divorce decree can order an individual to pay for the remaining balance of the student loan, it does not necessarily undo the signed contract that makes the other party responsible for repaying the loan.

This problem with jointly consolidated student loans among divorced couples is largely overlooked. Though only a small constituency is affected, the situation can seem utterly hopeless for these individuals bound to their former spouse’s debt long after their marriages have ended.

According to the Department of Education, federal law does not allow the division of old loans, irrespective of whether domestic violence is involved. Also, joint borrowers are not allowed to apply for any income-based repayment plans without providing financial information required from both parties—which can be extremely difficult for divorced couples.

Federal legislative action has already been proposed, and petitions on Change.org have been posted requesting Congress to address the issue. Specialists state that the problem continues partly because it only affects a small percentage of the population, even if there is an obvious need for divorced borrowers to be allowed to apply for repayment plans on their own if they are unable to contact or obtain the necessary information from their former spouse.

The U.S. Department of Education stated in an advisory that though the law does not allow joint consolidation loans to be split—even when domestic violence is involved—borrowers dealing with unique circumstances are encouraged to contact the Federal Student Aid Ombudsman in order to search for other options.

Of course, there are some exceptions. If a spouse becomes disabled or dies, then his or her portion of what was originally owed may be deducted from the loan balance.