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.
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2 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 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
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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 Jan 1, 2021 and may increase after consummation.
4 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 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. 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.