Whether you’re separated and considering next steps or finalizing a divorce, learning how student loans are handled in divorce is an important step. Although divorces are less common than they used to be — the divorce rate was 6.2 per 1,000 people in 2022, down from 8.2 in per 1,000 people in 2000 — it’s still an issue that can have significant financial impact.
How your student loans will be handled in a divorce depends on the type of loans you have, when the loans were taken out and your state of residence.
6 Potential Effects of Divorce on Student Loan Debt
A divorce can be emotionally draining, but it also presents financial challenges. You’ll have to adjust to a life without your partner’s income and, depending on your situation, you may also have to budget for alimony and child support while still managing your student loans.
As you go through divorce proceedings, you could experience the following effects:
1. Your Income-Driven Repayment Plan Payment Amount May Change
If you have federal student loans and are enrolled in an income-driven repayment (IDR) plan, your payment amount may change after your divorce is finalized. Most IDR plans, which use a percentage of your discretionary income to set your monthly payments, take your spouse’s income into consideration. Without your ex-partner’s income, you may be eligible for a smaller monthly payment.
However, the change isn’t automatic. You’ll have to re-certify your income and update your marital status and income to qualify for a payment adjustment.
2. If You Co-Signed a Loan, You’re Still Responsible for Repayment
Most private student loans are co-signed, meaning that a spouse, parent or relative commits to repaying the loan if the primary borrower falls behind on their payments. If you co-signed a loan for your ex-spouse, your divorce doesn’t end your legal obligation for the loan; as a co-signer, you remain responsible for its payments until it’s paid in full, and it continues to appear on your credit report.
Some lenders offer co-signer releases after the primary borrower has made several years of payments on time, but the primary borrower has to meet the lender’s income and credit requirements for the co-signer release to occur. Another option is to refinance the loan solely in your ex-partner’s name, but that process requires their consent.
3. Your Location Affects Your Legal Responsibility
Student loan incurred before you were married is considered separate property and stays that way after the divorce unless there is an agreement to other terms under a prenuptial agreement. But student loans taken out after you were married are handled differently.
In some states, you share responsibility for any debt incurred during your marriage, including student loans. If you live in a community property state — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin — you’re legally obligated to repay any student loans your spouse took out while you were married.
If you live in equitable distribution states, it can be more complicated; rather than splitting the debt and assets 50/50, the court will decide how to fairly distribute the liabilities and assets, so you may end up paying more or less than your ex-spouse.
4. Missed Payments Could Affect Your Credit
If you co-signed a loan or live in a community property state and have an ex-spouse who took out loans, you can be held responsible for the loan payments. If your ex-partner falls behind on the payments, the lender can contact you for repayment. And if you don’t make the payments, the missed payments will be reported to the credit bureaus. Missed payments can significantly damage your credit, and your account could be sent to collections.
With negative activity on your credit report, it will be more difficult to qualify for other forms of credit on your own, such as credit cards, car loans or even mortgages.
5. Divorce May Impact Your Eligibility for the Student Loan Interest Tax Deduction
The student loan interest tax deduction allows you to deduct up to $2,500 of the interest you paid toward your student loans during the tax year. However, the deduction is only available if your modified adjusted gross income (MAGI) is below a certain level.
When you were married filing a joint return, the IRS looked at your combined MAGI. But once your divorce is complete, only your own MAGi is considered, so you may qualify for the deduction even if you didn’t previously.
6. Your Loans Could Affect Your Divorce Settlement
What student loans you have could affect the terms of your divorce. For example, if you took out loans, but your degree could result in a higher paying job later, you may be on the hook for a higher alimony payment. And though student loans aren’t usually considered in child support calculations, attorneys can argue that student loan payments make the designated child support payments unaffordable, and could successfully reduce the payment amount.
What to Do In Case of Impending Divorce
When it comes to student loans, divorce can make things even more complicated. How student loans are handled depends on several factors, including where you live and when the debt was taken out.
Work with an experienced divorce attorney who is familiar with student loan regulations to advocate for your well-being. If you and your ex-partner come to an agreement on how to handle outstanding student loans, get the agreement in writing.
Keep in mind that even if your spouse agrees to make the payments on the loans, it doesn’t change the loan contract; if your spouse falls behind and the loans are in your name or you’re a co-signer, you’re still legally responsible for them. Refinancing and transferring them into your partner’s name may be a better solution.
