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There is no question but the fact that student loan problems continue to plague many Americans. One recent study showed that more than 600,000 people who had student loans and entered repayment in 2010 had defaulted on them by 2012. While this may not surprise you, the biggest share of the defaults at 46% were students who attended for-profit schools, which actually enrolled only 13% of students nationally. In addition, for-profit colleges had a 21.8% default rate compared to 13% at public and 8.2% at nonprofit colleges.
The highest student borrowing rates
For-profit schools had the highest student-borrowing rate by far when compared to other types of schools. They also showed the biggest percentage of borrowers that defaulted. What’s more, some for-profit schools are routinely putting borrowers into forbearance instead of helping them develop a reasonable repayment plan. And many borrowers have reported that they were pressured or “forced” to apply for forbearance and were never informed that there were other options such as an income-based repayment plan or deferment.
If you’re typical
For young couples today getting married can mean more than honoring, loving and cherishing one another. It can also mean that one of you is taking on the other’s student loan debts. This not only makes life together tougher for some couples, it can lead to very nasty surprises if you end up in divorce. And the current generation may be more vulnerable than past ones. If you’re typical and took out a loan to earn a bachelor’s degree, you probably graduated in 2012 owing about $29,400 in educational debt. Of course, if you earned an advanced degree, you’re probably on the hook for even more. Multiply this by the two of you and you’ll see that student loan debts could easily outlast your marriage.
If you fall into the category of having a huge pile of student loan debt and are either going through a divorce or contemplating one, you may be asking yourself the question “who is responsible after divorce for student loan debt?”
The most common misconception
Legal experts say that probably the biggest misconception about dividing student loan debt in the case of a divorce is the belief that any debt incurred before a marriage becomes shared debt once you’re married. The fact is that any student loan debt that you incurred before you were married is legally considered to be a separate property and barring some prenup, it stays that way after your divorce. In short, if you borrowed $50,000 to get a law school degree, that debt will be forever yours.
Expect a similar outcome
If the two of you took out student loans while you were single but were living together, you can expect a similar result. It’s sort of like roommates. Even if the two of you were sleeping together, your roommate doesn’t pick up your student loan debt. It’s all yours.
What happens when you’re married and rack up student loan debts?
If you incur student loan debts after you were married, things can get tricky. This is because the person who is accountable for paying the debts isn’t necessarily the person whose name is on them. In fact, how that student loan debt is divided will depend largely on where you live and which of you benefited from borrowing the money.
Different states = different laws
When it comes to divorce law, there are two different types of states – community property and equitable division states. If you live in a community property state such as California any debt that was incurred after you married will be split – at least theoretically – 50/50. However, in equitable division states, the divorce court will try to divide marital property including debt in a holistic way. What this means is that if your student loan debt is considered to be marital property, the court might have the option of taking into account circumstantial issues, such as each of your ability to pay it off. This means that while student loan debts generally go to the person who incurred them, there can be exceptions.
Here is an example of this. Suppose that you will have a high-income job after divorce but your spouse will probably have to struggle to make payments on the debt. In this case, you might be required to provide some temporary spousal support to help cover the ex’s debt payments. Of course, if it’s your about-to-be-ex that will have the higher income, he or she may be required to provide you with temporary spousal support.
Dividing debt including student loan debt is complicated and can vary depending on whether your state uses equitable-distribution, community property or marital-property rules. This means in some circumstances your student debts could be split right down the middle even if one of you has a much different financial situation than the other after your divorce. For that matter, in a few states such as New York, if you earned a professional degree during your marriage, this can be considered marital property. This could actually lead to a situation where you as the degree earner would have to compensate your spouse for supporting your educational pursuits. This spousal support could include time spent driving you to the campus, cooking meals or even delaying his or her own education. There are cases where courts have awarded more property to the person who did the supporting to offset the value of his or her partner’s degree.
How to head off problems
If you want to avoid surprises related to student loan debt, there are two things you should do. First, make sure you get a prenuptial agreement and that it clearly states how you and your partner will divide any student loan debt incurred during your marriage. Second, make sure you ask your partner about how much he or she is in debt and be honest about your debts. The problem is that when discussing money, many couples focus too much on the assets but forget there’s often quite a lot of debt. You just wouldn’t want to file for divorce only to find that your partner has $50,000 in student loan debts that he or she had never told you about. While you may swear, “till death do you part,” it’s important to have honest conversations about student loan debt upfront so that it doesn’t become “till debt do you part.”
Dealing with student loan debt is hard, and it becomes even harder when dealing with a divorce as well. Use these tips tog et your finances back on track and get rid of your student loan debt.