Following the resumption of federal student loan repayments, parents are grappling with high levels of debt. However, a lesser-known approach known as “double consolidation” has emerged as a potential solution for alleviating the financial burden caused by Parent Plus loans. By combining their existing debt with new loans, parents can hide the existence of their Parent Plus loans and become eligible for more flexible repayment options, including President Biden’s newly introduced Saving on a Valuable Education (SAVE) plan.
Parent Plus loans were intended to assist parents with limited financial resources in supporting their children’s college expenses. However, these loans have faced criticism due to their high interest rates and limited repayment options. While students can choose from various repayment plans, parents are restricted to a single income-driven plan called Income-Contingent Repayment (ICR), which caps monthly payments at 20% of discretionary income. The recently introduced SAVE plan, capped at 10% of discretionary income, offers a more favorable alternative. Despite advocacy groups pushing for access, Parent Plus loans are currently ineligible for enrollment in the SAVE plan.
Through the double consolidation loophole, parents can take advantage of this strategy. By having at least two loans, such as two individual Plus loans or a Plus loan combined with loans taken out for their own education, parents can submit separate consolidation applications to different loan servicers. These loans are then consolidated again into a single loan, making them eligible for more flexible repayment options. However, proper sequencing is essential to avoid being limited to the less favorable ICR plan and render the strategy ineffective. The entire process typically takes around 4 to 6 weeks.
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While there are risks involved, such as potentially higher interest rates and a need for correct sequencing, state authorities and advocacy groups are encouraging parents to explore this option before the loophole is closed. The Education Department acknowledges the existence of the loophole and its impending closure but has decided against retroactively removing the benefit for borrowers currently on an income-driven plan.
Parents seeking to pursue double consolidation must meet specific deadlines. The temporary credit granted for loan forgiveness programs for consolidated student debt expires at the end of this year. After that, borrowers will have to wait until July 1, 2025, when the Education Department’s SAVE regulation goes into full effect and allows consolidation without forfeiting credit towards debt cancellation.
While the double consolidation strategy offers hope for parents like Michele Lloyd, who believes the current payment plans are financially unsustainable, it is not without challenges and uncertainties. Nonetheless, Lloyd remains optimistic that the process will proceed smoothly, alleviating the burden of her debt and providing her with a manageable repayment plan.
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