By Amy Czulada | October 26, 2023
One little-known option for Parent PLUS borrowers to have access to all of the income-driven repayment (IDR) plans—including the new SAVE plan—is something called double consolidation. Double consolidation is when a borrower consolidates their Parent PLUS loans twice in order to create a new Direct Loan that is eligible for all available IDR plans and Public Service Loan Forgiveness (PSLF). This blog will provide an overview of how the process works and address some things to consider if a borrower is planning to pursue double consolidation.
Changes to Income-Driven Repayment Plans
In August 2022, President Biden announced a new income-driven repayment plan, Saving on a Valuable Education (SAVE), that would significantly lower monthly payments for millions of borrowers. SAVE protects more of your income from being included in the calculation for monthly payments, allows one to exclude their spouse’s income from consideration if they file their taxes separately, and offers a shortened timeline for cancellation for borrowers with lower balances.
But one swath of borrowers who were left out and are not eligible to enter the SAVE Plan are Parent PLUS borrowers. Parent PLUS borrowers are borrowers who take out federal student loans in their own names but the loans are used to finance their children’s education. One of the main issues is that Parent PLUS borrowers are not able to access any income-driven repayment plans other than the Income Contingent Repayment (ICR) plan—the least generous of the IDR plans—but they must first consolidate. Parent PLUS borrowers’ exclusion from more affordable repayment options has left them in a lurch, having to pay exorbitant monthly student loan payments or spend more time in forbearance to make ends meet.
Here is How Parent PLUS Borrowers Can Become Eligible for SAVE (and More)
To work, borrowers must consolidate a previously consolidated loan that included a Parent PLUS loan with a non-Parent PLUS loan. That other loan could be another previously consolidated loan that included a Parent PLUS loan or any other eligible federal loan. It works like this: a borrower consolidates their Parent PLUS loans making sure to exclude at least one other non-Parent PLUS loan. If the borrower only has Parent PLUS loans, those loans can be consolidated separately in two groups. Once those initial consolidations are completed, the borrower can consolidate both of those two groups together to make a singular, new Direct Loan. That final Direct Loan is then eligible for all of the IDR repayment plans, including the new SAVE plan, which for many people will be the most affordable plan, and other cancellation programs like PSLF. These steps are extremely technical, and may involve both online and paper consolidation applications: for people looking to take advantage of double consolidation, there is an excellent how-to guide here published by the Massachusetts Attorney General. The steps for double consolidation must be done precisely so be sure to read the entire guide in detail.
Parent PLUS Borrowers Need to Act Now
Unfortunately, the option for Parent PLUS borrowers to double consolidate will not exist forever. The Department of Education has stated that they will phase this double consolidation option out beginning July 1, 2025. After this date, people will no longer be able to double consolidate to access all the income-driven repayment plans available. And, Parent PLUS borrowers can receive the maximum benefits if they double consolidate before December 31, 2023. So, time is really of the essence!
Another reason to consider double consolidation at this moment in time is that something called the IDR Account Adjustment is taking place. The IDR Account Adjustment is a one-time audit of all accounts during which the Department of Education is counting folks’ time that they have accrued toward cancellation under the IDR plans. Under these plans, folks who make payments in IDR plans for 20 or 25 years—20 years if you only have undergraduate debt and 25 years if you have a combination of undergraduate and graduate debt—have the right to cancellation of the rest of their balances. Right now, the Department of Education is counting some deferments and periods of forbearance through this audit to get borrowers closer to these 20 and 25 year thresholds. So, through this Account Adjustment, folks will have more accrued time toward getting their loans cancelled!
The IDR Account Adjustment is already happening for folks who have been in repayment for over 20 or 25 years, which yielded debt cancellation for over 800,000 borrowers this summer to the tune of $39 billion. The deadline for these borrowers to consolidate in order to access this one-time audit is December 31, 2023. Consolidating before that deadline allows borrowers to keep all of the credit that they’ve accrued on their loans and apply it to the consolidation loan, and all of that credit will count towards PSLF credit as well!
Completing the process of double consolidation before the December 31st, 2023 deadline will ensure that Parent PLUS borrowers can keep all of the credit that they’ve already accrued on their Parent PLUS loans and apply it to the new Direct Consolidation Loan. The second consolidation must be initiated by this deadline, which means that borrowers interested in this process must submit their first consolidation as soon as possible since consolidations can take 4 to 6 weeks to process. This is particularly useful for Parent PLUS borrowers seeking PSLF who have already made a lot of payments on their loans while working for an eligible public service employer.
Does a Double Consolidation Make Sense for You? There Could Be Some Downsides.
There are some potential risks to double consolidation. If a Parent PLUS borrower misses the December 31st deadline and consolidates between January 1, 2024 and July 1, 2024, when new rules take effect, they may lose credit on their loans if they consolidate. If borrowers are unable to initiate the second consolidation application before December 31st, it may be best to wait until after July 1, 2024 to begin the second application. Otherwise, they may lose all past credit toward cancellation under IDR or PSLF on their loans when they do their second consolidation. After July 1, borrowers can retain a weighted average of their past credit when they consolidate two Direct Loans. In addition, if the double consolidation is done incorrectly, loans that were eligible for the SAVE plan would be consolidated with Parent PLUS loans, making them only eligible for the ICR plan. It’s incredibly important to make sure the double consolidation is done precisely and before the deadline.
If you are a Parent PLUS borrower and want to figure out if this is the right option for you, consider your options by using the loan simulator tool at Studentaid.gov.
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Amy Czulada is the Outreach & Advocacy Manager at the Student Borrower Protection Center. Previously, Amy was a Research Analyst at 32BJ SEIU in New York City.