Double Consolidation Loophole: Parent PLUS Loan Payment Relief

The double consolidation loophole is a financial strategy tailored for Parent PLUS Loan borrowers looking to significantly reduce their monthly loan payments by accessing President Biden’s new income-based repayment plan, SAVE.

This strategy leverages a two-step consolidation process with different loan servicers.

Here are the basic steps:

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

2. Second Consolidation Loan: After the first consolidations are complete, consolidate the new loans again.

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

By using 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.”

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• 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?

Parent PLUS Loans are a unique type of federal student loan. Unlike other student loans, they are taken out by the parent rather than the student. This distinction leads to some special characteristics that can make Parent PLUS Loans more complicated and challenging to handle compared to other types of student loans.

Here’s what you should know:

• 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 (ICR) plan after consolidation.

• Potential for Forgiveness: Once on ICR, borrowers who work for the government or nonprofit may pursue Public Service Loan Forgiveness. But the consolidation loan process 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 what it is and why it works.

The Parent Plus Loan Double Consolidation Loophole 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 (IDR) plans.

Why It’s Effective: The key to this strategy is 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, lowering your monthly payments.

Here’s what we are ultimately trying to do, read on for the step by step.

Step 1 – Divide Your Parent PLUS Loans into Two Groups:

Ultimately, you need two direct consolidation loans to then consolidate for this to work. You can do this with as few as two Parent PLUS loans, or one Parent PLUS loan and one other federal loan. But you must have two loans. Regardless of how many loans you have: 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 Separately but 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: Initiate the final consolidation online or using a paper application (I prefer paper) combining Groups A and B.

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

Important Application 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.

Table: Loan Servicers for Double Consolidation

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 soon. 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.

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

• The double consolidation loophole is closing. As mentioned, 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.

Related: Can Parent PLUS Loans Be Consolidated With Other Student Loans?

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?

While there are pros and cons to this 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 into a consolidation loan but may limit certain benefits, especially if it results in a weighted average of your existing interest rates. Unlike 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.

This is referring to the termination of the ‘double consolidation’ loophole that we’ve been talking about. As mentioned, you’ve only got until the end of June, 2025 to double consolidate and reap the benefits of doing so. After that date hits, parent borrowers will confront a severe shrinkage in relief options post-2025 due to exclusion from Income-Driven Repayment (IDR). This limitation also includes the discontinuation of access to the newly instituted SAVE plan under the Biden Administration.

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.