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In a divorce, figuring out how to divide assets acquired and debt incurred during the marriage can be a daunting and uncomfortable task. You may have been working as a team to tackle student loan debt, but now that your marriage is ending, you have to settle on who pays what separately.
How student loans are divided during a divorce can depend on where you live, when you took out the student loans and the financial circumstances of each partner. Read on to find out how divorce affects student loans and payment options to consider if student loan payments become unmanageable after you split households.
What Happens to Student Loan Debt in Divorce?
Student loans you and your partner bring into the marriage are considered personal debt that you each have to pay back once divorced. However, if you took out student loans during the marriage, state law will dictate how debt is divided up if you can't come to your own agreement.
Most states are equitable distribution states, where marital assets and debt are divided by the court considering factors like the length of your marriage, each partner's income and other financial circumstances. If both partners benefited from the loans and the education obtained from borrowing, the spouse who isn't on the loan could still be responsible for part of the repayment. However, what the court decides is a fair split might not necessarily be a clean-cut 50/50.
In community property states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin—courts decide what is communal debt, and that debt is split down the middle. If joint funds were used to pay off student loans for one spouse during the marriage, the other spouse could even get repaid for half the money used to pay down that debt.
An exception to state law is if you have a prenuptial agreement that outlines how student loans should be handled. In this scenario, the division of assets would follow the contract you established before walking down the aisle.
Who Is Responsible for Student Loan Debt in Divorce?
While no two divorces are the same, below is an overview of who's typically responsible for student loan debt in different scenarios.
- Loans taken out before marriage: Loans taken out before marriage are considered personal debt and are the responsibility of the borrower to pay back.
- Loans taken out after marriage: Loans taken out after marriage could be considered marital debt that may be the responsibility of both spouses to pay back. In certain community property states, debt could be split down the middle. However, most states are equitable distribution states where debt is divided in a way that considers factors like each person's income and how much each party benefited from the education obtained.
- Loans cosigned by a spouse: A spouse that cosigns on a loan for their partner will still be financially responsible for the loan even after marriage since divorce doesn't relieve someone of cosigner duties. Future late payments on the loan can still affect the cosigner's credit, and if the borrower stops paying the loan entirely, the lender could come after the cosigner to collect the unpaid debt.
- Consolidated federal loans: If you and your partner consolidated federal loans through a now-defunct federal consolidation program that allowed couples to combine student loans, there isn't a way to split those loans just yet. You both will still be responsible for consolidated loan payments after divorce. However, a bill recently passed the Senate that proposes an application allowing borrowers to separate federal loans consolidated with a partner.
- Refinanced student loans: Like other student loans, how refinanced loans are handled during a divorce can vary. A refinanced loan in a community property state may be split evenly between spouses if it's considered a communal debt, while the division of debt in an equitable distribution state could depend on your financial circumstances.
How to Manage Student Loans After Divorce
Going from a dual-income household to a single-income household can drastically change your budget and ability to afford a monthly loan payment. If you struggle to make student loan payments after divorce, here are some payment arrangement options to consider.
Recalculate Your Payment Under an Income-Driven Repayment Plan
Income-driven repayment (IDR) plans set payments to a percentage of your discretionary income, and if your spouse's income was previously used to calculate your payment, updating your income could reduce your monthly bill. There are four IDR payment plans—Revised Pay As You Earn (REPAYE) plan, Pay As You Earn Repayment (PAYE) plan, income-based repayment (IBR) plan and income-contingent repayment (ICR) plan. Payments under each plan range from 10% to 20% of your discretionary income, and after paying under a plan for 20 or 25 years, the balance of your loan may be forgiven.
Apply for Forbearance or Deferment
If you're experiencing economic hardship, private student loans and federal loans may qualify for forbearance or deferment, which can give you a break from payments. Speak with your loan servicer to find out what your payment relief options are and how to apply. Also, consider that interest may accrue during payment breaks, and making at least interest-only payments on your loan can keep your balance from growing while payments are paused.
Refinance Your Private Student Loans
Private student loans don't qualify for the same payment plans as federal loans, but you could consider refinancing private loans to lower your payment. Choosing a longer loan term or qualifying for a lower interest rate could reduce your payments and make them more manageable. If you have a low income or less-than-perfect credit, applying with a cosigner could help you get approved for student loan refinancing with a competitive interest rate.
The Bottom Line
A divorce is a legal process in which many factors can impact how assets and debts are divided. While you're not required to have an attorney (and may not need one in an uncontested divorce), having an advocate representing you in the proceedings could better protect your financial interests. If you or your partner borrowed money for school during the marriage, consider consulting with a lawyer to get advice and help in negotiating a settlement.
Because your divorce comes with a whole host of new financial challenges—finding somewhere to live and losing a portion of the income you're used to, for example—it's more important than ever to keep an eye on your credit. Signing up for credit monitoring from Experian can help you keep track of any changes to your credit report and credit score as you navigate a new financial future.