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 wondering how to manage student loans and divorce, here’s how the process will affect you — and how to prepare.
- Dealing with student loans and divorce
- 4 important questions to ask
- Other considerations about student loans when splitting up
- Paying off student loans before or after divorcing
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 loans in a divorce?
When going through a divorce, you must divide all your assets and debts in accordance with the laws of the state in which you live, unless you have a legally-binding prenuptial agreement (more on that below).
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.
Community property states include: AZ, CA, ID, LA, NV, NM, TX, WA and WI.
|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 (unless a prenup states 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 — via cosigning or spousal loan consolidation — it’s possible the other spouse will be off the hook. Again, these factors are largely situational, so the outcome will vary by couple.
|Survey about student loans and divorce|
|● About 35% of respondents with student loans delayed divorce because they couldn’t afford it.
● About 13% who had student loan debt entering marriage said that it caused their marriage to end.
● About 58% of divorcees with student loans took on additional debt to cover the costs of divorce proceedings.
|See the full 2018 survey results here|
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 earned 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.
You might think of prenups as a way for wealthier couples to determine how to divide their income upon a split. These contracts can also settle matters of student loans and divorce.
Review your prenuptial agreement, if you have one, ideally with the lawyer who helped you originally draw it up. It’s possible your prenup stipulated who would be responsible for education debt upon a breakup of the marriage. If so, it could override whether or not you live in a community property state. (If you haven’t gotten married yet, you might consider a prenuptial agreement to formalize responsibility.)
If divorce proceedings leave you and your ex wondering how to fairly divide education debt, one creative solution could be student loan refinancing. This process would allow you to consolidate federal and private loans, assign it to one borrower and ideally lower the new loan’s interest rate.
Keep in mind that you might not want to refinance federal loans because they’d be stripped of government-exclusive benefits like income-driven repayment (IDR).
In fact, if you and/or your soon-to-be-ex currently repay federal loans under an IDR plan, let your loan servicer know about the divorce. Your monthly payment could decrease if you had previously filed taxes jointly and are expected to have a lower income as a result of the split.
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 student loan 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.
And if you have outstanding balances besides student loans, check out or guide to debt and divorce.
This report was originally published May 12, 2016.
Andrew Pentis and Laura Woods contributed to this report.
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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 May 4, 2022.
2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.
Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Apr 22, 2021 and may increase after consummation.
4 Important Disclosures for SoFi.
Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
5 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 April 29, 2021. Information and rates are subject to change without notice.
6 Important Disclosures for Navient.
7 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 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay.
8 Important Disclosures for PenFed.
Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.