On October 11, 2022, the Joint Consolidation Loan Separation Act (JCLSA) was signed into law. The JCLSA allows joint consolidation loan (JCL) borrowers who have either Direct Loans (DL) or Federal Family Education Loans (FFEL) to separate their joint debts into new, individual Direct Consolidation loans.
This electronic announcement explains how the U.S. Department of Education (the Department) plans to implement the JCLSA and provides guidance to FFEL loan holders and servicers on their responsibilities in the JCLSA implementation process.
Allowing Joint Consolidation Borrowers to Separate Their Loans
The Department will implement the JCLSA in two phases.
Phase I: Requesting a Separation
Starting on September 30, 2024, JCL borrowers may request a JCL separation by submitting a Combined Application to Separate a Joint Consolidation Loan and Direct Consolidation Loan Promissory Note (App/Note). The App/Note is available to all DL and FFEL borrowers as a downloadable paper application. There is no online application.
The App/Note will be processed and validated within 10 business days by the Consolidation Originator which manages the Consolidation Loan origination process for the Department. As part of the processing, the Consolidation Originator will confirm that the form is complete, all pages are submitted, and the App/Note is signed and dated. As part of this processing, the Consolidation Originator will contact the applicant if the Borrower section is incomplete. The Consolidation Originator will then hold the App/Note until processing begins during Phase II.
If a borrower sends their App/Note to a FFEL servicer or loan holder by mistake, the servicer/loan holder must send the App/Note by postal mail to the Consolidation Originator who will reach out to the borrower to choose a servicer.
Phase II: Separation
After the process outlined above, the Consolidation Originator will separate the borrower’s JCLs and re-consolidate them into individual Direct Consolidation Loans. If there is additional documentation missing, the Consolidation Originator will follow up when Phase II starts.
The Department will update borrowers who submitted the App/Note when Phase II begins.
Application Options
There will be two application options: joint application and separate application.
Joint Application
Each JCL co-borrower will submit a separate App/Note to the Consolidation Originator to create a new, individual Direct Consolidation Loan for each co-borrower. Once the separation and re-consolidation are complete, the co-borrowers will no longer have a JCL debt obligation.
Separate Application
An applicant may complete an App/Note separately and without regard to whether or when the other co-borrower of the JCL applies if they certify on the App/Note that they:
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have experienced domestic violence by the other co-borrower;
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have experienced economic abuse from the other co-borrower; or
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are unable to reasonably access the other co-borrower’s loan information.
The Department will also permit separate applications if it otherwise determines that this would be in the best fiscal interest of the federal government.
For separate applications, once the applicant’s portion of the JCL is separated, the loan holder must notify the remaining borrower who does not complete an App/Note of their sole responsibility for the remaining balance of the JCL. In this situation, the FFEL loan holder should also inform the non-applicant of their ability to also complete the App/Note to consolidate the remaining portion of the JCL into an individual Direct Consolidation Loan to gain access to additional borrower benefits, such as Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR) plans.
If the remaining JCL co-borrower does not complete an App/Note, the FFEL loan holder must continue the appropriate servicing and/or collection activities on the remaining portion of the JCL.
Forbearance
The Department requests that all FFEL loan holders offer forbearance or payment suspension for all commercially-held FFEL JCL borrowers who request a forbearance or payment suspension until Phase II is implemented, and the JCL is separated. The forbearance guidance is outlined in the July 19, 2023 Electronic Announcement: LOANS-23-06.
Contact
Please contact Jerry Wallace at Jerry.Wallace@ed.gov or Charee Champ at Charee.Champ@ed.gov for questions related to JCL FFEL loans and the JCLS process.