Student loan borrowers who have been left out of President Joe Biden's relief programs might have a legal loophole, but it's set to disappear by 2025.
Parent PLUS student loan recipients remain among the most disadvantaged federal borrowers. This type of loan offers some of the highest interest rates and isn't included in any of Biden's debt forgiveness or income-driven repayment (IDR) relief plans.
The borrowers, parents who took on the debt for their children to attend college, might have one last-ditch loophole to get their loan payments lower, but it's going to be gone on July 1, 2025.
The Department of Education will only allow borrowers to use the "double consolidation" loophole until 2025, but many are still unaware that this applies to them.
Many parents choose to take on Parent PLUS loans because they'd prefer their children's school debt be in their name instead, believing they may be more financially secure to pay off the debt quickly. But many of these parents also have low incomes and quickly see the payments threaten their monthly budgets and even retirement savings.
"The Parent PLUS loophole has been a real lifeline for countless families struggling with the crushing weight of student loan debt," finance expert Michael Ryan, founder of michaelryanmoney.com, told Newsweek. "Being able to double consolidate and access more generous income-driven repayment plans like the SAVE plan? That's huge. It can mean the difference between staying afloat or drowning in payments."
Read more: Federal PLUS Student Loans
Under a typical Parent PLUS loan, the only IDR plan is the income-contingent option, but the benefits pale in comparison to Biden's SAVE plan.
To get a better option, though, parents can double consolidate their loans to hide their origin as Parent PLUS, then apply for another IDR plan.
According to Fred Amrein, founder and CEO of PayForEd, parents' payments can be reduced by more than 50 percent through this process. But in order to take advantage, they need to get started on the process now because it could take up to six months to complete, he said.
"The rise of college cost is the major problem," Amrein told Newsweek. "This is the largest purchase decision we make on our own without a third-party approval."
Chris Keaveney, co-founder and CEO of skills-based education platform Meritize, said the Parent PLUS loans were never intended to be eligible for the reduced payment programs, but the loophole largely occurred by accident due to the complexity of the federal loan system.
"Whether or not Parent PLUS should be eligible for these programs seems to be the real issue at play here and with the changes set to occur in 2025 it seems that the Department's view is that they should not," Keaveney told Newsweek.
How the Loophole Works
To get your Parent PLUS loans in the new SAVE plan, you must first go to the National Student Loan Data System and divide your Parent PLUS loans into two different groups. This way, you can consolidate each separately.
There's then a paper consolidation form that allows you to apply for two different consolidations from the different servicers. It might take a couple of months for your consolidation to be processed fully, so the earlier you act, the better.
After the original consolidations go through, you can then apply for a consolidation again for both of your new direct consolidation loans in one application.
After this final piece goes through, you will now be eligible for the other IDR plans, including the SAVE option.
Keep in mind, the IDR plans, including SAVE, require you to meet certain income criteria. The best SAVE option available for borrowers allows loan holders to pay just 5 percent of their discretionary income each month.
SAVE also ensures that any unpaid interest won't go beyond the required minimum and will allow you to pay off your debt more quickly due to this.
Read more: Student Loan Forgiveness Updates and FAQs
The trick to get in these new payment plans, however, is to use the paper form because the online process doesn't make it easy to complete the "loophole" option.
Alex Beene, financial literacy instructor for the state of Tennessee, said there are no real negatives in taking on a double consolidation if you're a Parent PLUS borrower, but there could be ramifications for the move away from the loophole in the coming years.
"There's no real drawbacks to consolidation, but the movement away from the loophole does make Parent PLUS loans a worse proposition than they already were," Beene told Newsweek. "The fact is if your children are struggling to pay for college, you want to be careful about taking out this type of assistance because there will no longer be any type of easy way to make it a more affordable over time option."
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Suzanne Blake is a Newsweek reporter based in New York. Her focus is reporting on consumer and social trends, spanning ... Read more
