When I was 25, I went through a divorce. That meant we had to split up all our assets and debts. Dealing with student loans and divorce in particular is a bit more complicated and requires some additional knowledge beforehand.
Needless to say, going through a divorce can be a long and grueling process of untangling your commingled finances, especially when you have debt. If you’re married with student loan debt and are considering divorce, here’s how the process will affect you — and how to prepare.
Specifically, we’ll look at:
There are no simple answers when it comes to divorce. Student loans are one of many different factors that must be considered, so let’s start with the basics. Who is responsible for student loan debt in a divorce?
Know your state’s laws
When going through a divorce, you must divide all your assets and debts in accordance to the laws of the state in which you live.
Anything you jointly own is considered marital property and will be divided according to whether you live in a community property or equitable distribution state.
In a community property state, both spouses have equal ownership of all marital property and everything is split 50-50.
In an equitable distribution state, the division of marital property is more complicated since each spouse has a legal claim to a fair and equitable portion of any assets, which may or may not mean a 50-50 split. Most states are equitable distribution states, and the courts will have the final say.
At times, assets are divided among spouses differently than the debts are. Usually, however, they are divided using the same formula.
Student loan debt before marriage
If you and your spouse have an equal amount of student loan debt, divorce agreements are a little easier to work out. You each take responsibility for your own student loans and make the payments.
However, if one spouse has more student loan debt than the other, the couple and their legal counsel will have to come to an agreement for dividing up the debts and assets in an attempt to balance.
One of the most common misconceptions about dividing student loan debt is that all debt obtained before getting married becomes shared debt once you’re married. This is not always the case.
Legally, any student loan debt you incurred before getting married is considered separate property and remains so after the divorce (with the exception of a prenup stating otherwise). So if you borrowed $70,000 to attend law school before marrying your spouse, that debt is yours.
Student loan debt after marriage
The division of student loan debt becomes a bit trickier if the loans were obtained during the marriage.
In some cases, the spouse who has the student loan debt isn’t necessarily the one who’s the breadwinner or makes the loan payments. How this debt is divided, again, goes back to the state in which you live, as well as which spouse benefited from borrowing student loans.
If the student loan is solely in one spouse’s name and the lender didn’t take the other person’s credit into consideration when granting it, it’s possible the other spouse will be off the hook. Again, these factors are largely situational, so the outcome will vary by couple.
Dealing with student loans and divorce can be tricky. As you’re going through the process and must divide your student loan debt, here are three important questions to ask that will help determine a fair outcome.
1. What was the money used for?
In most cases, the funds from a student loan go toward paying tuition, school fees, books and other educational materials in the pursuit of a degree.
However, some of the money borrowed can inevitably go toward living expenses and other costs that benefit the entire family. This should be taken into consideration for purposes of repaying the debt and how each spouse benefited from the money.
2. What is the earning power of each spouse?
When calculating equitable distribution of assets and debt, take into account each spouse’s ability to support themselves and any dependents.
If one spouse has no significant income or earning potential on their own, the courts will be less likely to deem it fair for that spouse to incur part of the student loan debt responsibility.
3. Did the borrower earn a degree during the marriage?
If the student loan borrower did earn a degree as a result of the debt, it needs to be determined whether that degree is considered separate or marital property, and this is determined by where you live.
In some states, such as New York, a professional degree earned during the marriage can be considered marital property due to the lifetime earning potential. Any debt incurred while obtaining what’s considered marital property is most always categorized as marital debt. This means the student loan debt divorce agreement would deem both spouses responsible for repayment.
After a divorce, student loan debt is typically still the responsibility of the person who incurred it. However, there are exceptions depending on your personal situation and what the courts decide is fair and equitable division for both spouses.
Be sure to consider all the possibilities and consult with a lawyer before a divorce so you know what to expect. Divorce is never an easy process, but you can make it a little less painful by being financially prepared.
Laura Woods contributed to this report.
This report was originally published May 12, 2016.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
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5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.