The U.S. Senate has approved legislation that would allow borrowers to separate joint consolidation loans taken out with their spouses, which would be a lifeline for many borrowers who are stuck with tens of thousands of dollars in debt that they didn’t take out for their own education. Here’s what to know about this week’s student loan news.
1 current trend within student loans for the week of June 20, 2022
1. Senate approves bill that would let borrowers separate their consolidated loans
Last Wednesday, the Senate approved the Joint Consolidation Loan Separation Act, which would allow current or former spouses the ability to separate their consolidated student loans into two separate loans. Married borrowers were able to consolidate their federal student loans up until 2006, but since the program closed there hasn’t been legislation that allows borrowers to separate their joint loans.
If passed, the bill would allow borrowers to split the total unpaid loan amount, including accrued interest, based on the percentages that each borrower contributed when they originally consolidated. For instance, if the couple consolidated $10,000 in debt from one spouse and $30,000 from the other, the Joint Consolidation Loan Separation Act would make the first spouse responsible for 25 percent of the remaining unpaid balance and the second spouse responsible for 75 percent.
How this affects student loans
If the legislation passes, borrowers could see several benefits. For one, it would give borrowers a way out of financially harmful situations, like having to share the loans with a former spouse who refuses to make their monthly payments. This is particularly significant for spouses who contributed an unequal amount of debt to the consolidated loan; as of now, some borrowers may be stuck paying for tens of thousands of dollars of their former spouse’s debt to avoid going into default. Should the legislation pass, responsibility for that debt and the consequences of not paying would be shifted back to the original borrower.
As an added benefit, this legislation could also help more borrowers qualify for Public Service Loan Forgiveness. Under current regulations, both borrowers with a joint consolidated loan must meet the extensive criteria to qualify for PSLF, but the new legislation would allow a single borrower to pursue PSLF on their own. Eligible past payments on the joint consolidation loan could also potentially be counted as PSLF progress.
As of now, the bill has been passed by only the Senate. In order for borrowers to benefit, it must also be passed by the House of Representatives and signed by President Biden. While there is no expected timeline, senators are urging the House to act quickly to get the legislation signed.
Here’s how you can get prepared
Whether you’re new to student loans or well into repayment, it’s wise to stay informed about how your student loan rates could change. During 2022, more opportunities for cheaper loans or loan forgiveness could open up; keep an eye on the Bankrate student loans news hub for the latest trends.