Matty Jacobson
As the clock ticks down on a legal loophole, Parent PLUS student loan borrowers are scrambling to secure loan forgiveness. With the highest interest rates and exclusion from Biden’s relief programs, these borrowers are turning to a last-ditch effort known as “double consolidation.” But time is running out, and many are still unaware of this fleeting opportunity.
The Plight of Parent PLUS Borrowers
Parent PLUS loan recipients have long been among the most disadvantaged federal borrowers, facing high-interest rates and exclusion from President Biden’s debt forgiveness and income-driven repayment (IDR) relief plans. Many parents take on these loans to spare their children from debt, only to find themselves struggling to make payments and jeopardizing their retirement savings.
Despite their financial hardships, Parent PLUS borrowers have been left out of the relief programs designed to help other student loan holders. However, a legal loophole known as “double consolidation” has emerged as a potential lifeline for these struggling parents.
The Double Consolidation Loophole
The double consolidation loophole allows Parent PLUS borrowers to hide the origin of their loans and become eligible for more generous IDR plans, such as Biden’s SAVE plan. By consolidating their loans twice, parents can significantly reduce their monthly payments, sometimes by more than 50 percent.
Finance expert Michael Ryan emphasizes the importance of this loophole, stating, “It can mean the difference between staying afloat or drowning in payments.” However, the Department of Education has announced that this opportunity will disappear on July 1, 2025, leaving borrowers with limited time to act.
The Race Against Time
With the double consolidation loophole set to close in 2025, Parent PLUS borrowers are in a race against time to secure the relief they desperately need. The process can take up to six months to complete, making it crucial for borrowers to start as soon as possible.
Fred Amrein, founder and CEO of PayForEd, urges parents to take advantage of this opportunity now, as the rising cost of college continues to be a major problem. “This is the largest purchase decision we make on our own without a third-party approval,” he notes.
Navigating the Complex Loan System
The federal loan system’s complexity has inadvertently created the double consolidation loophole, which was never intended for Parent PLUS loans. Chris Keaveney, co-founder and CEO of Meritize, suggests that the real issue at play is whether these loans should be eligible for reduced payment programs.
Despite the loophole’s accidental nature, it has become a crucial lifeline for struggling Parent PLUS borrowers. As the Department of Education moves to close this opportunity, the question of how to support these borrowers remains unanswered.
Step-by-Step: The Double Consolidation Process
To take advantage of the double consolidation loophole, Parent PLUS borrowers must follow a specific process. First, they must divide their loans into two groups using the National Student Loan Data System and consolidate each group separately.
Next, borrowers must complete a paper consolidation form, applying for two different consolidations from different servicers. After the original consolidations are processed, borrowers can then apply for a final consolidation, combining the two new direct consolidation loans into one.
Eligibility for IDR Plans and SAVE
Once the double consolidation process is complete, Parent PLUS borrowers become eligible for various IDR plans, including the SAVE option. These plans require borrowers to meet certain income criteria, with the best SAVE option allowing loan holders to pay just 5 percent of their discretionary income each month.
SAVE also ensures that unpaid interest won’t exceed the required minimum, allowing borrowers to pay off their debt more quickly. However, it’s essential to use the paper form when applying for these plans, as the online process doesn’t easily accommodate the “loophole” option.
The Consequences of Closing the Loophole
As the Department of Education prepares to close the double consolidation loophole, experts warn of the potential consequences for Parent PLUS borrowers. Alex Beene, a financial literacy instructor for the state of Tennessee, notes that while there are no real drawbacks to consolidation, the movement away from the loophole makes Parent PLUS loans an even worse proposition than before.
Beene cautions parents against taking out Parent PLUS loans if their children are struggling to pay for college, as there will no longer be an easy way to make the loans more affordable over time. This leaves many parents in a difficult position, forced to choose between their children’s education and their financial stability.
The Need for Comprehensive Student Loan Reform
The impending closure of the double consolidation loophole highlights the urgent need for comprehensive student loan reform. While the loophole has provided temporary relief for some Parent PLUS borrowers, it is not a long-term solution to the broader issues plaguing the federal loan system.
As college costs continue to rise and more families find themselves struggling with student debt, policymakers must address the root causes of the problem. This may include measures such as increased funding for higher education, more affordable repayment options, and targeted relief for the most vulnerable borrowers.
The Psychological Toll of Student Debt
Beyond the financial burden, student debt can take a significant psychological toll on borrowers and their families. Parent PLUS borrowers, in particular, often feel a sense of guilt and shame for taking on debt to support their children’s education, only to find themselves in a precarious financial situation.
The constant worry about making payments and the fear of defaulting can lead to anxiety, depression, and other mental health issues. As the double consolidation loophole closes, many Parent PLUS borrowers may feel even more hopeless and trapped by their debt.
Exploring Alternative Solutions
With the double consolidation loophole set to disappear, Parent PLUS borrowers must explore alternative solutions to manage their debt. Some options may include seeking loan forgiveness through other programs, such as Public Service Loan Forgiveness or Teacher Loan Forgiveness, if eligible.
Borrowers may also consider refinancing their loans through private lenders, although this option comes with its risks and limitations. It’s crucial for Parent PLUS borrowers to thoroughly research their options and seek guidance from financial professionals before making any decisions.
The Importance of Financial Literacy
The Parent PLUS loan crisis underscores the importance of financial literacy, both for parents and their children. Many families take on student debt without fully understanding the long-term consequences or exploring alternative funding options.
By promoting financial education and encouraging open conversations about college costs and debt, families can make more informed decisions about financing higher education. This may include saving early for college, exploring scholarships and grants, and considering more affordable schools or career paths.
Advocating for Change
As the double consolidation loophole closes, Parent PLUS borrowers and their allies must continue to advocate for change. This may involve contacting elected officials, sharing personal stories, and supporting organizations that fight for student loan reform.
By raising awareness about the unique challenges faced by Parent PLUS borrowers and demanding action from policymakers, advocates can help build momentum for lasting, systemic change in the federal loan system.
A Call to Action
With time running out on the double consolidation loophole, Parent PLUS borrowers must act quickly to secure the relief they need. Whether by starting the consolidation process, exploring alternative repayment options, or advocating for change, every action counts.
As the nation grapples with the student debt crisis, we must come together to support the most vulnerable borrowers and work towards a more equitable and sustainable system of higher education financing.
The Final Countdown
The clock is ticking for Parent PLUS borrowers, as the double consolidation loophole that has provided a lifeline for so many is set to close in 2025. With limited time remaining, these borrowers face a daunting challenge: navigating a complex and often confusing loan system to secure the relief they so desperately need.
But even as the loophole closes, the fight for student loan reform continues. By raising our voices, sharing our stories, and demanding action from those in power, we can work towards a future where no parent has to choose between their child’s education and their financial ability. The road ahead may be difficult, but together, we can create a more just and equitable system for all.
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