Joint Consolidation Loan Separation Act: A Guide for Borrowers

Updated on January 23, 2024

Struggling with shared student debt from a dissolved marriage?

You’re not alone. Many face the burden of spousal consolidation student loans, with no way to separate them — until now.

Welcome to our comprehensive guide on the Joint Consolidation Loan Separation Act (JCLSA), a revolutionary solution offering a pathway to break free from shared student loan debt.

Dive in to learn how to navigate this new law and reclaim your financial independence.

What is the Joint Consolidation Loan Separation Act?

On October 11, 2022, a significant change occurred in the student loan system. President Biden enacted the Joint Consolidation Loan Separation Act, a landmark legislation. Developed by Sen. Warner (D-VA) and supported by three cosponsors, this law specifically targets one major issue:

Irrevocable Nature of Joint Student Loans: Prior to this Act, couples who consolidated their student loans were bound by shared financial obligations until the balance was paid in full.

The Impact of the New Law

The significant law has far-reaching implications, providing:

Independence from Partners’ Financial Obligations: The Act allows for the separation of joint spousal consolidation loans. This provides borrowers with independence from their former partners’ debts.
Access to New Relief Initiatives: The separation also enables borrowers to access new student loan relief initiatives launched during the pandemic.

Addressing a Legacy Issue

The Act is a significant reform, offering relief to those burdened by joint consolidation loans, a holdover from the now-discontinued Federal Family Education Loan (FFEL) program.

The FFEL Program: Before its discontinuation in 2006, the FFEL program allowed married couples to merge their federal student debt into a single loan, aiming to lower their payments.
The Issue of Joint Liability: Unfortunately, many couples didn’t realize that this merger resulted in joint liabilities that couldn’t be separated. This created significant challenges, especially in cases of divorce, domestic abuse, or an uncooperative former spouse.

Now, with the JCLSA, those struggling with joint consolidation loans finally have a path toward financial independence and the potential for greater debt relief.

Why Was the JCLSA Necessary?

Between 1993 and 2006, the FFEL program saw more than 14,700 couples combining their debt, despite potential issues. Congress terminated the program due to multiple issues — none greater than the legal obligation for divorced or separated borrowers to repay their former spouse’s debt.

Approximately $2 billion in joint consolidation loans lingered, leading to a 16-year-long quest for borrowers to separate their loans.

The JCLSA has been introduced to Congress three times since 2017 by Sen. Warner and Rep. David E. Price (D-N.C.).

Despite initial opposition, the bill was eventually passed by both the Senate and the House with a 232-193 vote.

What Does the JCLSA Actually Do?

The Joint Consolidation Loan Separation Act offers significant advantages to borrowers with joint consolidation loans. Here are its key provisions:

Loan Splitting: Borrowers can apply to the Department of Education to divide their consolidated loan into two separate loans. The division is based on the original loan amounts each partner contributed.
Interest Rates: The new federal direct loans maintain the same interest rates as the original joint consolidation loan.
Public Service Loan Forgiveness: Borrowers are allowed to transfer eligible payments made on the joint loan towards the Public Service Loan Forgiveness program.
Special Provisions: For borrowers affected by domestic violence or economic abuse or those who can’t contact their former partner, the Act provides provisions to apply for loan separation independently.

The JCLSA aims to separate the approximately 770 loans still remaining from the discontinued Federal Family Education Loan program. This Act paves the way for these borrowers to achieve financial independence.

Why Isn't the JCLSA Working Yet?

Since the Joint Consolidated Student Loan Act was signed into law on October 11, 2022, the Education Department has struggled to implement the much-needed provision for separating combined student loans of married couples.

This delay, largely attributed to severe budgetary constraints, has sparked significant frustration among affected borrowers and escalated into fervent advocacy on social media platforms.

The Budget Constraint

The Office of Federal Student Aid (FSA), tasked with managing the colossal $1.6 trillion federal student loan portfolio, has been grappling with a stagnant budget amidst increasing responsibilities. The funding remained flat despite:

A call for a one-third increase to FSA’s $2 billion budget for the current fiscal year.
Last year’s budget negotiations ensured none of the FSA’s budget could be allocated to President Joe Biden’s proposed student loan forgiveness program.
The FSA is also tasked with rolling out new regulations for improving student loan repayment programs in higher education.

The Strain of Financial Limitations

The lack of financial flexibility has had severe consequences on the Department’s capabilities. These financial constraints have:

Impacted Borrower Relief Measures: The Department’s ability to implement essential borrower relief measures, like the loan separation process outlined in the JCSLA, has been severely hampered.
Pushed Relief Measures Down the Priority List: Measures like separating combined student loans are now lower on the priority list. This leaves unpaid interest on these loans to keep accumulating for many married borrowers.
Questioned Implementation Timelines: Given the current financial constraints, it’s uncertain if the Education Department can implement these regulations within the projected timelines.

Proposed Solutions Amid Ongoing Challenges

To address these issues, several solutions and measures have been proposed:

Considering Grace Periods: The U.S. Department of Education is contemplating grace periods for repayments and added flexibility for at-risk borrowers.
Need for Increased Budget: However, without a budget increase, the speed at which measures such as separate joint loans under the JCSLA can be implemented remains uncertain.
Bipartisan Concerns: Both Republicans and Democrats have expressed concerns. Lawmakers from both parties are calling for an additional $620 million for the FSA’s budget in fiscal year 2024 to prevent “catastrophic consequences for millions of student loan borrowers.”

In the meantime, those affected by student loan debt must continue making their monthly payments and navigate the current student loan system as best as they can, until a resolution is reached.

How Do You Apply for Loan Separation Under the JCLSA?

The JCLSA provides two distinct pathways for applying for loan separation:
Joint Applications:

This route requires cooperation from both borrowers. Here’s what you need to know:

Both parties need to submit a complete application and promissory note specifically for loan separation.
The process of splitting the joint loan and creating new individual Direct Consolidation Loans only proceeds once both parties have submitted their completed applications.

Separate Applications:

This alternative route allows a single borrower to apply independently. Here’s how it works:

One borrower can apply to separate their share of the debt into a Direct Consolidation Loan.
The other borrower remains responsible for their share of the original joint consolidation loan.
This option is available under specific circumstances, such as instances of domestic violence, economic abuse, or if the other borrower is unreachable.

Keep in mind that these procedures are complex, and full implementation is expected by late 2024.

In the meantime, borrowers can express their intent to apply for loan separation by contacting the Federal Student Aid Ombudsman Group.

Could You Get Loan Forgiveness?

The JCLSA allows borrowers to receive a one-time Income-Driven Repayment account adjustment. Also, it credits any earned progress toward Public Service Loan Forgiveness forgiveness, provided they meet all other PSLF requirements.

Once the separation process is completed, these benefits will be applied retroactively.

Furthermore, the Department of Education has stored a record of joint consolidation loan borrowers interested in the Limited PSLF Waiver.

The department will contact these borrowers separately, and their PSLF-eligible payment counts will be retroactively adjusted after completing the necessary steps to separate their loans.