Double Consolidation Loophole: Parent PLUS Loan Payment Relief

Discover how the double consolidation loophole can dramatically lower your Parent PLUS Loan payments—before it’s phased out in 2025.

The double consolidation loophole is a financial strategy tailored for Parent PLUS Loan borrowers looking to significantly reduce their monthly loan payments. This strategy leverages a two-step consolidation process with different loan servicers, making you eligible for more favorable repayment plans.

Here are the basic steps:

1. First Consolidation: Consolidate one or more federal student loans with a servicer like Nelnet. Repeat this with another servicer like Aidvantage.

2. Second Consolidation: After the first consolidations are complete, consolidate the new loans with a different servicer.

3. Final Steps: Submit a final consolidation application and request an income-driven repayment plan to reduce your monthly payments.

By utilizing this strategy, you can unlock better repayment options and lower your monthly payments. For a more detailed guide, scroll down to the section titled “How to Double Consolidate Parent PLUS Loans.”

You may also like:

• Can I Transfer My Parent PLUS Loan to My Spouse?

• Are Parent PLUS Loans Eligible for Income-Based Repayment?

• Are Parent PLUS Loans Forgiven After 10 Years?

Now, before you jump in and submit your consolidation papework, a word of caution:

• The double consolidation loophole is closing. As of July 1, 2025, this method will no longer be recognized. While it’s not illegal, it does exploit a technicality in the legal framework governing student loans.

• There are ethical considerations. Some view this as student loan borrowers exploiting a system not designed to accommodate this strategy. Others see it as a valid way to access more favorable repayment plans.

• Time is of the essence. If you complete the double student loan consolidation before the closure date, this method can help you access the new student loan repayment plan, lowering your monthly payments significantly.

Double consolidation operates on a clever nuance in federal loan rules, allowing you to obtain a new consolidated loan that hasn’t directly paid off a Parent PLUS Loan. This effectively bypasses restrictions that normally prevent Parent PLUS Loans from qualifying for more budget-friendly repayment plans.

In essence, you’re taking advantage of a loophole in the system to qualify for repayment options that are generally more favorable than those available to Parent PLUS Loan borrowers. This is achieved by consolidating your loans twice, each time with a different servicer, leading to a new loan that doesn’t carry the Parent PLUS label, thus making it eligible for income-driven repayment plans.

Why It’s Effective: The key to this strategy is the fact that the loan type ‘Parent PLUS’ gets lost during the double consolidation process. Without this label, the new consolidated loan becomes eligible for more advantageous repayment options, effectively lowering your monthly payments.

Parent PLUS Loans stand out in the world of federal student loans, presenting unique features and challenges that often make them more complex and demanding to manage:

• Borrowed by Parents: Unlike other student loans, parents take out these loans to pay for their children’s college education as undergraduate students.

• Higher Costs: Parent loans have higher interest rates and origination fees than other types of federal student loans.

• Repayment Schedule: Repayment begins 60 days after disbursement unless you defer Parent PLUS Loan payments until after your student graduates. This option must be arranged with the servicer.

• Unsubsidized Nature: Parent PLUS Loans are unsubsidized, meaning they accrue interest during deferment periods. This interest capitalizes when deferment ends, adding to the interest-bearing principal.

• Limited Repayment Options: Fewer income-based payment plans are available. Plus, Parent PLUS Loans only qualify for the Income-Contingent Repayment plan after consolidation.

• Potential for Forgiveness: Once on ICR, borrowers who work for the government or nonprofit may pursue Public Service Loan Forgiveness. But consolidation resets any progress you may have made towards loan forgiveness, which means you’ll have to wait at least a decade to get the new consolidation loan forgiven. Note: The IDR Waiver is an exception to that rule, but that account adjustment ends later this year.

These distinct characteristics can make Parent PLUS Loans harder to pay off compared to other federal loans, demanding more attention to repayment strategies and potential loopholes like the double consolidation method.

• No Automatic Forgiveness: Unlike some loans, Parent PLUS Loans don’t have automatic student loan forgiveness opportunities. This limitation can make repayment daunting for many borrowers.

• Stricter Credit Requirements: Qualifying can be more demanding, potentially causing difficulties for some applicants.

• Lack of Flexibility: With fewer repayment plans, borrowers might find themselves stuck in unfavorable terms.

But there’s hope.

The Parent PLUS double consolidation loophole can significantly lower your student loan payments, providing much-needed relief. This approach may even lead to loan forgiveness for those working in public service or carrying the debt for two decades.

Let’s talk about why it works.

The ‘Parent Plus Consolidation Indicator’ flag doesn’t automatically bar you from the SAVE repayment plan. Betsy Mayotte, President of The Institute of Student Loan Advisors, affirms that applying directly through your servicer usually results in approval.

 

This sentiment is echoed by NPR Reporter Cory Turner, who recently advised Parent PLUS borrowers to take advantage of the loophole during an interview. Further bolstering this stance, the Massachusetts Office of the Attorney General recently published a blog post outlining the ‘double consolidation loophole’ as a viable way to access the SAVE plan.

Related: Are Parent PLUS Loans Eligible for the SAVE Plan?

The double consolidation loophole allows Parent PLUS loan borrowers to get lower payments through income-driven plans like Income-Based Repayment (IBR), Revised Pay As You Earn (REPAYE), and the new Save on a Valuable Education Plan (SAVE). These plans calculate payments based on your discretionary income, leading to potentially significant savings.

Let’s give two examples to help explain how it helps:

Example 1: Single Consolidation (Ted in Texas)

Ted, a married father in Texas, owes $100,000 for 8 Parent PLUS loans he borrowed for his two children. He and his wife have a combined annual income of $85,000 and a family size of 2. If Ted chooses to do a single consolidation, his options are limited to the Income-Contingent Repayment (ICR) plan. This could result in a monthly payment of around $700 (depending on factors like the interest rate) for the new Direct Consolidation Loan.

Example 2: Double Consolidation (Ted in Texas using SAVE)

Ted can significantly lower his payments if he picks the double consolidation loophole and the SAVE plan. Using the formula for the SAVE plan:

• AGI (Adjusted Gross Income) = $85,000

• PL (Federal Poverty Level for a family size of 2 in Texas) = $19,720 (as of 2023)

The calculation would be:

• Monthly Payment = (($85,000 – ($19,720 x 2.25)) x 0.05) / 12

• Monthly Payment = $285.31

With double consolidation, Ted’s monthly payment under the SAVE plan could be reduced to $285.31. This is significant savings compared to the $700 he would pay under the ICR plan had he done just a single consolidation.

Multiply that by the next several years, and the savings become substantial.

If Ted qualifies for one of the Parent PLUS Loan Forgiveness Programs, he could save thousands of dollars simply by using the double consolidation strategy.

These programs may vary based on his employment, public service, or other specific criteria, offering additional opportunities for relief.

Before diving into the step-by-step guide on how to implement the double consolidation strategy, it’s crucial to understand why this method stands out among other options for Parent PLUS Loans:

Refinancing Into Private Student Loans

While this option may lead to a lower interest rate, it comes with significant risks — especially compared to the double consolidation strategy.

Student loan refinancing costs you federal protections and benefits, including access to income-driven repayment plans. This can limit flexibility in challenging financial times and may not even be an option if you have a high loan balance or poor credit score.

Unlike double consolidation, refinancing with a private lender doesn’t align to help reduce payments through specific federal programs.

Federal Consolidation

This offers a way to combine loans but may limit certain benefits, especially if it results in a weighted average of your existing interest rates. U

nlike the double consolidation loophole, federal consolidation alone might not grant access to the more favorable income-driven plans, like REPAYE or IBR.

Income-Contingent Repayment

An option under federal consolidation, though typically less favorable than other income-driven plans. ICR often requires higher payments and offers less generous forgiveness terms compared to what might be achieved through double consolidation, making it less ideal for those seeking to minimize monthly costs.

Step 1 – Divide Your Parent PLUS Loans into Two Groups: Create two distinct groups, Group A and Group B, ensuring at least one loan in each. This division sets the stage for simultaneous consolidation.

Step 2 – Submit Paper Consolidation Applications for Both Groups Simultaneously:

• Consolidate Group A Using Paper Application: Fill out a paper application to consolidate the loans in Group A.

• Consolidate Group B Using Paper Application: Use a separate paper application to consolidate the loans in Group B.

• Choose Different Servicers for Both Groups: Pick distinct servicers for Group A and B to prevent mixing. For example, pick Nelnet for Group A and Aidvantage for Group B.

• Print and Note Details for Both Groups: Keep records of loan numbers, servicers, and other pertinent details for both groups.

• Stop Paying Loans You’re Consolidating: Your servicer will put your account into an administrative forbearance while the consolidation process wraps up.

Step 3 – Consolidate Both Groups Together After Confirmation:

• Wait for Confirmation: Verify on StudentAid.gov that both consolidations are complete before starting the second round of consolidation.

• Start the Final Consolidation Online: Initiate the final consolidation online, combining Groups A and B.

• Choose Servicer and IDR Plan: Pick any servicer (MOHELA for PSLF) and select the income-driven repayment plan that fits your needs.

Important Notes

• For PSLF: Follow specific instructions if you’re going for Public Service Loan Forgiveness.

• Paper Applications for First Round: Mail your applications with certified mail to ensure delivery.

• Certify annually: Don’t forget to recertify your income and family size yearly to maintain your IDR plan eligibility.

Choose a different servicer for each step. Choose MOHELA for the final step if pursuing PSLF.

The double consolidation loophole is set to end. Announced in the final regulations for the new SAVE plan by President Biden’s administration, the loophole will be phased out by July 1, 2025. This change won’t impact existing arrangements, but it will apply to all Direct Consolidation loans made on or after this date.

• The loophole is closing in two years. If you complete the process of consolidating twice before July 1, 2025, you can still access the new REPAYE/SAVE plan. Miss that date, and you’ll be restricted to paying 20% of your income on ICR with a minimal deduction, equal to 100% of the poverty line.

• The loophole is closing because it’s exploiting a technicality. The loophole’s closing stems from its manipulation of a technicality in student loan administration and the legal framework governing repayment options.

• Parent PLUS loans were only intended for the ICR plan. Parent PLUS loans or Direct consolidation loans that repaid a parent PLUS loan were never meant for other plans.

• The Department of Education aims to align loans with their intended purpose. By sealing the loophole, the Department seeks to realign these loans with the overarching purpose of the student loan repayment system.

• Act now if you’re considering the double consolidation strategy. After the cut-off date, this option will no longer be available, and alternative paths may be less beneficial.

Using the Parent PLUS double consolidation loophole, you can notably lower your monthly loan payments and tap into better repayment options offered by the Department of Education. Though complex, the financial gains are worth the effort.

Parent PLUS double consolidation can be tough, but with guidance and persistence, a more manageable financial future awaits. Consider expert help from a skilled student loan lawyer to assist you through the process.

Take the first step towards a brighter financial future by booking a call for help with your Parent PLUS Loans.