All student loans are a pain. Some student loans have special rules that make repayment more complex and more expensive. Parent PLUS loans are notoriously complicated. However, one federal loan reigns supreme as the worst possible loan: FFEL Joint Consolidation.
The joint consolidation loans were created with good intentions. In an effort to combat growing default rates, in 1993, Congress started allowing borrowers to consolidate student loans with their spouses.
Fortunately for borrowers, this mess of a program was discontinued. However, many borrowers are still stuck with the devastating consequences of FFEL Joint Consolidation Loans.
What Makes FFEL Joint Consolidation Loans so Bad?
There are two fundamental issues with FFEL Joint Consolidation Loans.
One Student Loan for Two Borrowers
The first problem is that the debt is combined with your spouse. These loans are often called FFEL Spousal Consolidation Loans for this reason. Combining debt with your spouse might seem reasonable, but the devastating consequences of a divorce heavily outweigh any slight advantages.
The root problem for former couples is that the joint consolidation loan survives even if the marriage does not. A divorce decree cannot remove one spouse from the debt, nor can any other agreement. As far as the Department of Education is concerned, both people are legally responsible for the debt.
This issue becomes especially problematic for couples that have an ugly divorce or in circumstances where one spouse refuses to make payments. The Department of Education offers no help to borrowers dealing with a vindictive or deadbeat ex.
Limited Options to Eliminate Debt
The other big issue with FFEL Joint Consolidation Loans is that options for repayment and forgiveness are limited.
Spousal loans often slip through the cracks when the government creates new programs to help borrowers. For example, the recent PSLF expansion excludes borrowers with FFEL Joint Consolidation Loans.
Making matters worse is the fact that there are not that many FFEL Joint Consolidation borrowers. When a problem doesn’t impact a large number of Americans, Congress is less likely to take action to fix it.
The end result is that FFEL Joint Consolidation borrowers continue to get ignored, and borrowers face devastating outcomes.
FFEL Joint Consolidation Repayment Plans
Over the last decade, the federal government created several different repayment plans to help borrowers manage their debt. These plans are Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and IBR for New Borrowers. Unfortuantely, FFEL Joint Consolidation loans are not eligible for any of these plans.
Borrowers with individual FFEL loans have the option of consolidating their loans into a federal direct loan. Those who use this path can sign up for the REPAYE plan and get considerably lower monthly payments.
Unfortuantely, borrowers with FFEL Joint Consolidation Loans cannot consolidate into a direct loan. The Department of Education will not consolidate FFEL joint loans.
Thus, the best repayment plan for couples with FFEL joint consolidation loans is Income-Based Repayment (IBR). Enrollment for couples can be a bit complicated because both borrowers must request the same income-driven repayment plan. If your spouse or ex makes a mistake on the form or refuses to fill one out, payments default to the standard repayment plan.
FFEL Joint Consolidation Forgiveness
Borrowers with FFEL Joint Consolidation loans face a long path to student loan forgiveness.
For starters, Public Service Loan Forgiveness is not an option. Borrowers with individual FFEL loans can usually consolidate into a direct loan to qualify for PSLF. However, because borrowers cannot consolidate FFEL Joint loans into a direct loan, borrowers cannot gain eligibility for PSLF.
Thus, the most realistic path for most FFEL couple loans is Income-Based Repayment Forgiveness. After making 25 years’ worth of IBR payments, the remaining balance gets forgiven.
Sherpa Tip: I’ve heard of a few cases where borrowers with joint consolidation loans were able to successfully consolidate into a federal direct joint consolidation loan.
Even though the Department of Education makes it clear that consolidating joint loans into a direct loan isn’t permitted, it could still be worth a try.
Separating FFEL Spousal Loans
If FFEL Joint Consolidation loans are such a headache, the obvious solution is to separate the loans.
Unfortunately, this option is not currently available.
If there is one bit of good news for FFEL Joint Consolidation couples, it is the fact that there is bipartisan support for allowing couples to separate their student loans.
The Joint Consolidation Loan Separation Act hasn’t been passed in Congress yet. However, this is an issue where a few phone calls and emails could influence Congress to make something happen.