Student Loans And Divorce: Why Pays?
By Lauren Davidson
The question of what happens to student loans after a divorce isn’t something most college students have historically concerned themselves with. With the numbers of non-traditional students with jobs and families rising and student loan obligations stretching out far into adulthood, however, the question is becoming far more pertinent for a large number of students.
Divorce itself is a tough topic; often the emotional and psychological toll it carries tends to eclipse one of the more tangible aspects of divorce – its effects on personal finance. Student loan repayments are a big part of the financial picture for many Americans, and so when students or graduates go through a divorce, student loans can become part of the battle.
Each state tends to differ in how it addresses finances in a divorce. Some states are community property states, meaning that both parties share ownership of both assets and debts regardless of who actually purchased or incurred them. In these states, everything is split 50-50. In an equitable distribution state, the court looks at each debt and asset, and decides what a fair portion is for each party. Other states look at assets and liabilities as being separate for the purposes of divorce; each asset or liability ‘belongs’ to the person who incurred it.
According to the National Legal Research Group, the key point in determining what happens to a student loan in a divorce is two-fold. The operative questions are when the debt was incurred, and what the debt was used for.
In most cases, the student loan incurred before the marriage is the responsibility of the person who took out the loan – regardless of whether they still owe it at the time of the divorce. The Wall Street Journal explains that it’s a common misconception to consider all debt to be jointly held in a marriage; generally educational debt brought into the marriage stays with the originator, even after a divorce. In many cases this means the debtor needs to make new payment arrangements after the end of the marriage in order to keep up.
It gets much more complicated if the student loan originated during the marriage. Sometimes the primary wage earner isn’t the party with the most student loan debt; this is especially true if one party went to school but then could not find a job after graduation. In these cases, the courts look at what the loan was used for, and if the spouse benefited significantly from that loan – or the degree that came of it.
While most people assume that student loans are for tuition, books, and other educational expenses, they may also be used to support the spouse or family while the student is in school. If one spouse stayed home or put off their own education to care for children, for example, they may be able to argue that they contributed in a non-monetary way to the spouse earning a degree. The situation gets much trickier if the couple combined their student debt balance through consolidation. The court would then need to work to break apart balances within a greater loan. In many cases, what the loan was actually used for is a factor in how the courts split up the debt in the divorce.
Once a degree is obtained, some states such as New York and California, consider the degree to be marital property because of the heightened earning power of the degree holder. This means that all debt incurred to procure that marital property will be considered marital debt – and the person who incurred the debt may not be the only person paying it off after the divorce. If one spouse took on the burden of supporting the student spouse during their education, however, the courts may also look at that when considering who will be paying back the loans – or if they will both have to contribute to the debt. In short, if the student spouse and the non-student spouse both benefited from the education and higher earning power, then they may both be responsible for the debt.
How debt is divided in a divorce can be a source of much contention, stress, and anxiety even in cases where a student loan is not present. Having educational debt can make things even more complex. Adding to that complexity is the knowledge that every state – and situation – may be different. The best way to avoid the stress entirely is to come to an amicable agreement with your spouse about who will pay what student loans. If that’s impossible, it’s best to talk to a licensed attorney in your state, who can advise you on the specific laws for your area, and what you can expect in the divorce process.
Lauren Davidson is a soon-to-be graduate from the University of Pennsylvania with majors in English and Communications. As she shifts into the “real world” she hopes to start a freelance writing side hustle to help pay down her student loan debt.