This particular mistake is so severe because it is permanent. There isn’t a mechanism currently available for borrowers to undo this consolidation.

There should be.

More importantly, there can be — if the government is sufficiently motivated to make it happen.

The Need to Separate Parent PLUS Loans from Other Consolidated Loans

The problem with combining Parent PLUS loans with other federal student loans in a single consolidation loan boils down to eligibility.

Most federal loans are eligible for a range of income-driven repayment plans, including the new SAVE plan. Monthly payments can be as little as 5% of a borrower’s discretionary income, and forgiveness can take as little as 10 years.

The only income-driven repayment plan for Parent PLUS loans is the ICR plan. On ICR, forgiveness takes 25 years, and borrowers must pay 20% of their discretionary income. Making matters worse, the discretionary income definition is different for the ICR plan, meaning a larger portion of a borrower’s income is subject to student loan payments.

When a Parent PLUS loan gets added to a consolidation loan, it acts as a poison pill. The entire consolidated loan loses eligibility to all of the income-driven repayment plans except ICR. This means larger payments each month and a longer wait until forgiveness.

The Need to Undo Federal Consolidated Loans

Outside of taking advantage of a temporary loophole or utilizing the one-time IDR Count Adjustment to fast-track forgiveness, borrowers shouldn’t be combining their Parent PLUS loans with their other federal loans.

Unfortunately, it still happens all the time.

In many cases, it is a student loan servicing issue. Sometimes, borrowers make this mistake on their own. Other times, they make the mistake under the guidance of their servicer. Either way, there should be protections in place to prevent this mistake from happening.

The Blueprint to Unconsolidate Loans

For decades, a consolidated loan was final. It is a new loan; it paid off the old loans in full, and there was no going back.

Recently, legislation was passed to allow spouses to separate Federal Joint Consolidation loans. Though Joint Consolidation loans haven’t been available for years, many couples were stuck with limited repayment options for massive loans. The fix for Joint Consolidation is complicated,q and implementing it has taken a lot of time.

Nonetheless, a process is being created. What was once a large consolidated loan can soon become separate student loans.

When the Joint Consolidation Separation process is finalized, it could serve as a blueprint for separating Parent PLUS Loans from other loans in federal direct consolidation loans.

Hope for Borrowers with Parent PLUS Loans Looking to Separate Their Consolidation Loan

There appears to be an understanding with many in the federal government that student loan servicers have sometimes failed borrowers.

To correct these failures, government programs have been created to assist borrowers who may have been negatively impacted. For example, the Limited Waiver on PSLF helped borrowers who might have received inaccurate guidance about the Public Service Loan Forgiveness Program. Likewise, the one-time IDR Count Adjustment allows borrowers who were directed to deferments, forbearances, and balance-based repayment plans when they would have been better off signing up for an income-driven repayment plan.

If the government becomes aware of the severity of the Parent PLUS loan consolidation issue, they might finally take action to help this group of borrowers.

Sherpa Thought: My focus today has been to advocate for a pathway for borrowers to consolidate or separate their consolidation loans.

Another fix for this particular Parent PLUS loan issue would be to make Parent PLUS loans eligible for the SAVE plan. Thus far, the Department of Education has refused to expand SAVE eligibility to Parent PLUS loans.

The Necessity of Borrower Action

Policymakers are often pretty far removed from the day-to-day experiences of borrowers.

Many don’t fully understand student loan policy or how borrowers have been negatively impacted by the servicers contracted by the government to help borrowers.

The key to getting this problem fixed is to shine a spotlight on the issue.

Impacted borrowers can take three steps to make it known that they are unfairly stuck with Parent PLUS loans in a consolidated loan.

I’d encourage borrowers to do all of the following:

• File a Complaint with the CFPB. The Consumer Financial Protection Bureau does a great job of tracking and documenting borrower issues. Past borrower complaints to the CFBP have led to lawsuits against servicers and policy changes. Filing a complaint with the CFPB is an easy process for borrowers.
• File a Complaint with the Department of Education. If you want the Department of Education to fix a problem, they must know it exists. The more people who leave a complaint with the Department of Education, the more severe the problem will appear to be and the more likely it is that the government will take action.
• Call and Email Members of Congress. Student loans have become a politically charged topic, but the Joint Consolidation Separation Act is a good example of how Congress can fix a problem when needed. Here again, the more calls and complaints that elected officials receive, the more likely they will be to act.

If you endure in silence, unnecessarily paying extra each month, things may never change.

The post Consolidation Undo: Seperating Parent PLUS Loans from Consolidated Loans appeared first on The Student Loan Sherpa.

After many years of missing out on the best repayment plans and forgiveness options, borrowers with spousal consolidation loans finally have a path forward.

The Problem with FFEL Spousal Loans and Joint Consolidation Loans

Prior to July 2006, married couples were given the option of combining their federal debt into a giant spousal consolidation loan. Many servicers encouraged borrowers to utilize this program.

Unfortunately, these loans presented significant issues in divorce and domestic violence cases. Even for spouses who remained happily married, joint consolidation loans caused logistical problems. Congress wisely chose to terminate the troubled program.

Sadly, when Congress ended spousal loans, they didn’t address what would happen to the borrowers who already had spousal loans.

As the years passed by, these borrowers fell through the cracks. Qualifying for forgiveness under a joint consolidation loan was difficult, if not impossible. The spousal loans were not eligible for the best repayment plans, and there was no way to fix the loan eligibility issues.

This site called FFELP Joint Consolidation Loans the absolute worst federal loan.

The Joint Consolidation Loan Separation Act

In a September surprise, Congress passed a bill allowing borrowers to get out of joint consolidation loans.

Couples with spousal loans will be able to apply to separate their combined loan into two individual direct consolidation loans. This means that borrowers can gain eligibility for preferred repayment plans and forgiveness opportunities.

The full text of the legislation provides two methods of separation. The preferred approach appears to be for a joint application signed by both parties. However, an individual can apply for separation in cases of domestic violence, economic abuse, or when the borrower cannot reasonably reach the other individual on the original loan.

The new direct consolidation loans will have the same interest rate as the original spousal loan.

How the Debt Gets Split in a Joint Consolidation Loan Separation

Each individual in a joint consolidation loan gets assigned a percentage of the debt. For example, suppose you have a total balance of $100,000 (including principal and interest) on your joint consolidation loan. If you are assigned 59% of the debt, your new federal direct consolidation loan will have a balance of $59,000. Your spouse’s, or ex-spouse’s, balance will be the remaining $41,000.

There are two ways to determine what percentage each individual is assigned.

Option 1: Original Loan Balances – If you had 37% of the debt when the loans were combined, you get 37% of the debt when the loan is separated.

Option 2: Formal Agreement – If you have a divorce decree, court order, or settlement agreement, the loans can be split according to the terms of the document.

It’s worth noting that payments made during the time of the joint consolidation loan don’t impact who gets what debt. The split is determined entirely by the original loan balances or the formal agreement between the individuals.

The Department of Education will issue final rules for servicers to use once President Biden signs the legislation.

Sherpa Thought: My hope is that the joint consolidation separation process serves as a blueprint for separating other consolidated federal student loans.

A Win for Advocates and Borrowers

As more information becomes available on the Join Consolidation Loan Separation Act, we can dig deeper into the eligibility rules and application procedure.

For now, it’s worth taking a moment to celebrate a big win for an overlooked group of borrowers.

For over 15 years, borrowers with joint consolidation loans were overlooked. New programs created to help borrowers often didn’t include joint consolidation loans. Even though the situation was objectively unfair to the affected borrowers, the group of people impacted was small enough that Congress didn’t feel the need to take action.

Having spoken with many readers of this site who have joint consolidation loans, I know that many of you reached out to your elected representatives demanding action. These calls put this issue on their radar.

Now borrowers just need to wait for the Department of Education to finally make the Separation Application available.

The post Congress Passes Legislation to Separate Spousal Joint Consolidation Student Loans appeared first on The Student Loan Sherpa.

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.

The post Meet the Absolute Worst Federal Student Loan: FFEL Joint Consolidation appeared first on The Student Loan Sherpa.