“It’s an abuse,” Lloyd, who lives in Detroit, said of the Parent PLUS loan program, which has $111 billion in unpaid debt owed by 3.7 million people. “The interest rates are predatory. The payments are high. And with my income, I can’t afford to pay what they want me to pay.”
Things started to improve a few weeks ago, when a support group told Lloyd about a strategy that could ease her debt burden: a long-standing but little-known loophole known as “double consolidation.” This will hide the existence of your Parent Plus debt under a layer of new, consolidated loans.That consolidated loan will make you eligible for even more loans. Flexible repayment options like the Savings for Valuable Education (SAVE) plan that President Biden is touting.
Consumer lawyers say: The “dual integration” strategy has grown in popularity since the advent of SAVE and the Department of Education. announced plans The loophole will be closed in July 2025 over the summer.
When asked about the existence of integration loopholes and the pending termination, the Ministry of Education said: Federal Register In July. In it, the agency said “limitations in the department’s data” may have allowed dual-consolidated Parent Plus loans to enroll in income-driven repayment plans.
“The Department does not adopt this clarification for borrowers because it does not believe it is appropriate to strip them of such benefits in this situation under current IDR plans,” the agency wrote. “At the same time, the Department recognizes that, following recent administrative actions, many borrowers have consolidated or are in the process of consolidating.”
“In an effort to end this practice, the department appears to be legally covering what was a technical loophole for the next year and a half,” said student loan attorney Adam Minsky. “I advise my clients that if they want to try it, go for it, but be aware that there is some risk involved.”
state authorities And advocacy groups are encouraging parents to take advantage of it before the deadline. However, it is a tedious process. One wrong move can ruin your efforts. And since there is no official policy regarding books,, Student loan servicers cannot guide borrowers through the process.
Still, Lloyd and other parents are seizing the opportunity to get out of Parent PLUS Loans, one of the most restrictive and costly forms of federal education debt.
This loan is designed to give parents with limited financial resources an easier way to help pay for their children’s college tuition. The federal government is more willing than private lenders to lend to low-income parents, but its terms are far less attractive than those offered to students.
Standard undergraduate loans have an interest rate of 5.5%, while Parent Plus loans have an interest rate of 8.05%. For students, there are a variety of repayment options, including plans that take income into consideration. You may eventually qualify for loan forgiveness.
However, there are only a handful of payment plans available to parents.
There is only one income-based plan available to parents: Income-based Repayment (ICR). This is not the most generous. To qualify, a parent must consolidate her Plus loan into a Direct Consolidation Loan. ICR caps monthly payments at 20 percent of a borrower’s discretionary income, which is defined as money earned above 100 percent of the federal poverty line ($14,580 for individuals).
The new SAVE plan, on the other hand, caps your payments at 10% of your discretionary income. Defined as 225 percent of the federal poverty line. If parents could sign up for her SAVE, the monthly bill would be much lower.
In finalizing the SAVE regulation, the Department of Education stated that Parent PLUS Loans are not covered because Congress never intended for parents to have broad access to repayment plans based on income. .Advocacy groups argue that because the new repayment plan stems from the same authority used to create the ICR, there is nothing to prevent the department from giving parents access. save. Despite efforts by the NAACP to address the issue, the department remained unmoved. prompted Education Secretary Miguel Cardona urged them to reconsider.
that leaf Double integration loophole.
Here’s how it works: Parent must have at least two loans on her. That is, two separate Plus loans, or a Plus loan and a loan that your parents took out for their own education. If you only have Plus loans, you can submit separate applications to two different loan servicers. Consolidate one of your Plus loans with one servicer and the rest with another servicer. Once this process is complete within 4-6 weeks, a final consolidation must be done to bring all the loans together.
Parents like Lloyd who owe money for their education can submit one application to consolidate all their Plus loans, wait up to six weeks for processing to complete, and then combine the new loan with their own. You can now begin the final consolidation of your loans.
The Massachusetts Attorney General’s Office has detailed instructions online Both scenarios include flowcharts.
There are risks. If you don’t follow the steps correctly, your strategy can be meaningless, says Legal Director Winston Berkman-Breen. of Student Borrower Protection Center, an advocacy group.
“You can’t consolidate everything. You have to get the order right so you don’t end up only having access to ICR plans after one consolidation,” he said.
Also, because interest rates are calculated by averaging different interest rates on the loan, consolidation may leave some borrowers with slightly higher interest rates.
Consolidating student loans typically also means borrowers lose credit for loan forgiveness programs, but the Department of Education is provisionally counting outstanding amounts through the end of the year. That means Parent Plus borrowers only have until Dec. 31 to take advantage of dual consolidation to get maximum credit on their loans, Berkman-Breen said.
He advises parents to wait until July 1 to begin a second debt settlement if they miss the deadline. From then on, the SAVE regulation will be fully implemented, allowing borrowers to consolidate their debts without jeopardizing their credit.
Lloyd said she is entering the dual integration with her eyes open to the risks and her heart open to the possibility of success.
“All I can do is hope,” she said. “We hope that everything goes well, that your application is received and processed, and that you are able to come up with a reasonable repayment plan, rather than having to choose between buying groceries and paying your bills.”
