Student Loans in Divorce: Where Does the Debt Go?

During a divorce, marital property — the bank account, the house, stock portfolio, and other assets — gets fairly divided either through an agreement made by the couple or the court. Debt is also divided fairly, with a few exceptions, and student loans are one of those exceptions.

Just as with marital property, division of the debt may not always mean evenly split. If one spouse is at fault or earns significantly more income than the other, that spouse may end up with a larger load. Chances are that the larger load may not include the other spouse’s student loan debt.

When Student Loans Don’t Get Divided

Debts acquired by each spouse prior to marriage generally don’t get counted as marital property. Also excluded are gambling debts accumulated during the relationship, restitution for crimes committed by a spouse, and student loans.

Regardless of whether the student loans were taken out before or after the couple married, they stay separate if they only paid for one spouse’s education.

When Student Loans May Be Split

When students take out student loans, the loan proceeds often go toward expenses beyond tuition and books.

A student living on campus uses loan funds to cover the cost of room and board and meal plans or off-campus housing plus utilities and groceries. They’ll also be used for transportation needs, equipment — such as a laptop and software, childcare, and some personal school-related expenses.

A spouse enrolled in college full-time may not have an income from employment. They may take out a student loan and use those funds — after paying for tuition, books, and fees — to pay for food, rent, and other household expenses, as well as childcare costs. If the funds also supported the other spouse, the debt may be marital debt.

In some situations, the type of loan may play a part, too. While a Federal Direct Stafford Loan doesn’t require a cosigner, applying for a Federal Direct PLUS Loan may demand an endorser if the student has bad credit. Like a cosigner, the endorser becomes responsible for the loan should the borrower be unable to repay it.

If a spouse is the endorser, they may still be liable for the loan, no matter how a court divides the debt. The same applies to a private student loan cosigned by the other spouse. A divorce may not take them off the hook.

Separating a Joint Consolidation Loan

Up until 2006, married couples had the option of combining their individual student loans into a joint consolidation loan. This made each spouse jointly responsible for paying back the debt, even if one spouse owed a larger amount than the other.

In 2022, federal legislation was enacted to allow borrowers to separate their joint consolidation loans. If a divorcing couple took out such a loan, they should consider separating it.

If a couple can’t agree on how the marital assets and debts should be divided, the court will settle it for them. Although each spouse may walk away with only what they individually owe in student loan debt, there’s a chance the court might shift some of the balance to the other spouse.

Are You Facing a Divorce?

If you’re getting divorced, contact Gucciardo Family Law for a consultation. Our skilled Michigan family law attorneys are prepared to guide you through the process. That includes helping you to forge an amicable marital property settlement agreement with your spouse.