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.