Are you a parent struggling to juggle multiple student loans?  The Parent PLUS Double Consolidation Loophole might be the answer you’ve been looking for.  This comprehensive guide will break down this little-known loophole that could save you time and money.

For many parents, managing multiple loans, each with their own interest rates and repayment terms, can be overwhelming and confusing.  The Parent PLUS Double Consolidation Loophole offers a unique opportunity to merge your Parent PLUS loans into a single consolidation loan and lower your repayment by 50%.

The biggest problem is that this loophole is scheduled to expire on July 1, 2025, but it takes 4 to 6 months to complete.  This processing time makes the deadline closer to Q4 of 2024.  This rule change was part of the President’s June 30, 2023 announcement.  It was part of the IDR rule changes announcement that included the new SAVE repayment plan. 

Whether you have just started to borrow or are struggling with multiple Parent PLUS loans, this guide is packed with valuable information.  It provides practical tips to help you make informed decisions about your student loan consolidation and forgiveness options.  So, let’s dive in and unlock the potential of the Parent PLUS Double Consolidation Loophole.

How the Parent PLUS double consolidation loophole work

The Parent PLUS Double Consolidation Loophole is a strategy that requires a parent with more than one Parent PLUS loan to consolidate them twice.  The consolidation requires that it be done in a specific sequence to eliminate the Parent PLUS tag on the consolidated loans.

The benefit of these extra steps is substantial.  It can lower a Parent’s payment amount by over 50%.  Under the standard Income-Driven Repayment (IDR) rules, Parent PLUS can only use the Income Contingent Repayment (ICR) method, which uses 20% of the borrower’s income in the calculation.

By correctly completing the Double Consolidation process, the borrower now makes the other IDR methods available.  These other IDR methods use a 10% factor in their calculations and have a higher income deduction amount than ICR.

After July 1, 2025, the double consolidation process will be eliminated, and Parent PLUS loans consolidated after that date will only have the ICR method available to Parent PLUS borrowers.  Under the wording of the rule, the double consolidation will need to be fully completed by the date.  As stated above, this requires a series of transactions that must be completed correctly for the borrower to maximize the benefit.

Pros and cons of utilizing the double consolidation loophole

Utilizing the Parent PLUS Double Consolidation Loophole has its own advantages and disadvantages.  Let’s explore the pros and cons:

Pros:

1. Significantly reduces loan repayment: The elimination of the Parent PLUS tag gives the borrower access to the 10% IDR methods, which usually are not available under a single Parent PLUS Loan Consolidation.
2. Potential for qualifying for Public Service Loan Forgiveness (PSLF): To be eligible for PSLF, the borrower must use an IDR method, along with other rules. Having the other IDR methods available allows the borrower to have a lower payment and a higher amount forgiven.
3. Better retirement cash flow: As we see more Parent PLUS loans being carried into retirement. Completing the double consolidation and the proper tax planning could reduce payment amounts while in retirement.

Cons:

      1 Complex process.: This is a series of steps that the loan servicers can only provide a limited amount of advice.  It usually requires organizing the loans properly, a paper consolidation, an electronic consolidation, an initial payment, proper tax filing planning, and a revision to the payment method.

2. Deadline of 7/1/2025: Unlike many other Department of Education(DOE) changes, the process only needs to be started. Since this program requires multiple steps, the entire process must be completed by the deadline rather than just started.  It normally takes 4 – 6 months to complete.
3. Proper advice providers: Getting the right advice is critical and challenging to find. The right advice providers are limited since the process requires both student loan repayment knowledge and tax planning.  Be careful of the scams that are likely to be promoted.  Here is a list of our advisors who are training in these strategies.
4. Legal Responsibility: Many parents need to fully understand the legal responsibilities of Parent PLUS loans. These loans can only be transferred to your children if they are refinanced through a personal loan in your child’s name.  Parent PLUS loan default could result in wage and social security garnishment.
5. Electronic Consolidation Limit: The DOE system only allows electronic consolidation every six months. The process requires completing at least one paper consolidation to complete it faster.

Steps to take advantage of the double consolidation loophole

Now that you understand the basics of the Parent PLUS Double Consolidation Loophole and its pros and cons let’s dive into the step-by-step process of utilizing this loophole:

1. Assess Your Federal Loan Data: Log into the Studentaid.gov site with your FSA ID. You can view the loan details and summary information.  You will need to download your loan data.  This download will give you a file called MyStudentData.txt.  You need this information to complete the consolidation.  Each loan has between 50 – 100 lines of details that you need to sort through.
2. Organize the Loans for Consolidation: A best practice is to organize and group the loans before submitting the complete form. You will need two groups of loans.
3. Download Paper Loan Consolidation Form: You must download the PDF form to submit the paper consolidation. You will also need the form instructions for completing the form.
4. Complete the First Consolidation: Our process typically involves paper submission first, but that is up to you. Take the two completed consolidation forms, mail one to the current loan service, and send the second to a different loan servicer.  You must use two different loan servicers to complete the double consolidation correctly.
5. Include Payment Request Form and Cover Letter: The paper consolidation requires the borrower to select a repayment method.  A repayment method must be chosen for the consolidation to be processed.  Include a completed Payment Plan Request form with a cover letter.
6. Wait for the First Consolidation to be Completed: You will receive various emails about the consolidation.  You must wait until each consolidation appears on the studentaid.gov website before moving on to the next steps.
7. Submit the Second Consolidation: Once the two or more consolidated loans appear on the StudentAid.gov website, you can then do the electronic consolidation. This consolidation is the easiest of the two.  You also need to select your loan servicer.  If you are pursuing PSLF, then it will default to the MOHELA.
8. Make Initial Payment Using ICR: With the second consolidation, you will still be limited to the ICR method. You will need to make the first month’s payment using ICR.
9. Change to Repayment Method after the first ICR payment: Contact the loan service you have selected, and after the first payment has been processed, change the Repayment method to one of the other IDR methods. You can also use the Income-Driven Repayment Request form.  You will need to supply some form of income verification.
10. Proper Tax Planning: Any IDR methods will require proper tax planning. Typically, only one Parent has the loans.  In these cases, the married couple may need to file their taxes as married and separate since the payment will be based on the tax return that is on file.  If you file married and joint, the benefit of the double consolidation is eliminated since it will use both incomes when there is only one borrower.  This tax filing decision will be tax-effective, but the loan repayment amount should offset the tax increase.  It would help to have someone with this insight to provide the best advice.
11. Annual Income Verification: As part of the IDR methods, your consolidation date will establish an IDR anniversary date. Currently, this process still allows the borrower to use a manual process.  With the new IRS integration, this process will become automated shortly and require borrowers to have the proper planning done.  The loan servicers cannot legally provide this advice.

Potential loophole risk

While the Parent PLUS Double Consolidation Loophole can offer significant benefits, it is essential to consider the potential risks and drawbacks before proceeding:

1. Process of Form Submission: This is a complex process, and every person’s situation is unique. Understanding the time of each step is difficult since it includes both the financial aid process and taxes.
2. Last Minute Submission: Understanding the deadline is 7/1/2025, people will think they will have plenty of time. We recommend starting in late Q3 2024, if not before, depending on the situation.  You risk the loan servicers being overrun with demand and needing help to complete the process.  You are at their mercy.
3. Expecting Loan Service Assistance: The loan servicers are a good resource for basic questions, but this is outside their standard view. In addition, they cannot give any tax advice, which is critical, especially now with IRS integration with the DOE systems.  This process is an advanced DIY project, and I recommend seeking professional advice.

Alternatives to the double consolidation loophole

If the double consolidation loophole is not the right option for you, there are alternative strategies to consider.  Explore refinancing options with private lenders to potentially secure lower interest rates and better repayment terms.  Remember, these are legally your loans.

If you should leave the federal loan repayment program, there are benefits you lose.  The federal loan program does offer loan forgiveness and various repayment options that the private lenders do not offer.  There are also death and disability features that federal loans do possess.

Case studies and success stories

To provide you with real-life examples of how the Parent PLUS Double Consolidation Loophole has benefited borrowers, let’s look at some case studies and success stories:

1. Janet’s Story: Janet, a parent with multiple Parent PLUS loans for two children, utilizing the double consolidation loophole, and we lowered her payment from $508 to $83 per month. She also qualified for PSLF, which is projected to result in an additional $192,000 in loan forgiveness.
2. Mark and Sarah’s Experience: Mark and Sarah are a married couple in their early 60s with significant Parent PLUS loan debt. Completed the double consolidation and payment went from $1,085/month to $460/month.  We were also able to project that once they were in retirement, their payment could be reduced further to $135/month based on their project taxable income at retirement.

Conclusion on Parent PLUS Loan Double Consolidation Loophole

Managing multiple Parent PLUS loans can be daunting, but the Parent PLUS Double Consolidation Loophole offers a potential solution.  Understanding how the loophole works, weighing the pros and cons, and following the necessary steps can simplify your repayment process and save you money.

However, carefully considering the risks and drawbacks associated with consolidation is crucial.  It is a complex process with a critical expiration date.  By staying organized and getting the right advice, this strategy could be a lifesaver for many parents.  If you need an expert to evaluate your situation, please get in touch with one of PayForED’s trained student loan repayment advisors.