Double Consolidation: Unlock the Power of Parent Plus Loans

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Update: Congress is closing the double consolidation loophole as of July 1, 2025. The only option after that will be ICR. So if you have existing Parent Plus loans time is of the essence to take advantage of this loophole.

Introduction:

Paying for college always comes back to the parents. You can either save for college ahead of time in a 529, co-sign on a private student loan (my least favorite option) or take out Parent Plus loans. With college tuition costs skyrocketing over the years, many families have had to turn to Parent Plus loans, but when graduation comes so do the payments! This causes many parents to panic about how they can afford these payments. However, there is a little-known strategy utilizing the double consolidation of Parent PLUS loans, that can alleviate the financial strain on families. In this blog post, we will explore how double consolidation works and provide an example on leveraging this strategy to your benefit.

What are Parent PLUS Loans?

Parent PLUS loans are federal loans available to parents of dependent undergraduate students, that allow parents to borrow to pay for their child's education.

1. Loan Limits: Parent PLUS loans allow parents to borrow up to the full cost of attendance at their child's school, minus any other financial aid received. There is no specific annual or aggregate borrowing limit.
2. Repayment: Parent PLUS borrowers have the option to request a deferment while the student is enrolled and for an additional six months after the student graduates. The standard repayment term is 10 years, but there are various repayment plans available, including income-driven options.
3. Responsibility: As the borrower, the parent is solely responsible for repaying the loan. Although some families may have an “arrangement” for the student to pay this loan for them when they graduate, but the student has no legal obligation to help repay this loan.
4. Eligible for various loan forgiveness programs: Standard Parent Plus loans are not eligible for any loan forgiveness, but Consolidated and Double Consolidated Parent Plus Loans are eligible for Public Service Loan Forgiveness and Long Term Forgiveness (20 and 25 Year).
5. Interest rates are fixed and set by the government
6. Loans are forgiven at death: A parent PLUS loan is discharged if the parent dies or if the student on whose behalf a parent obtained the loan dies.
7. Application Process: To apply for a Parent PLUS loan, the parent must complete the Free Application for Federal Student Aid (FAFSA) and then submit a separate PLUS loan application.

What is Double Consolidation?

Parent Plus loans only have access to the 10 year payment plan, the extended and graduated repayment plans. None of these is eligible for loan forgiveness. If you do a single consolidation this will give you the option for Income Contingent Repayment (ICR), which is the worst income based repayment as it has the highest monthly repayment. Double consolidation is a loophole that gives parents access to better repayment options (PAYE, IBR, RePAYE, SAVE) normally not available on Parent Plus loans. This is a loophole is closing July 1, 2025. Double consolidation is not something your servicer will offer as a strategy for repayment so be sure to work with a Certified Student Loan Professional (CSLP).

Update: Congress is closing the double consolidation loophole as of July 1, 2025. The only option after that will be ICR. So if you have existing Parent Plus loans time is of the essence to take advantage of this loophole.

Who does this strategy work for?

The use of double consolidation works well for a married couple that borrowed a significant amount of Parent Plus loans (think expensive college and/or multiple children) and have one parent whose income is lower now or will be in retirement. Because the repayment amount is based on income there an incentive to borrow as much as possible in Parent Plus loans as it will not impact your payment. For example your monthly payment will be the same if you borrowed $20,000 or $200,000. Existing Parent Plus borrowers should start the double consolidation process by early 2025 because this loophole is closing to be able to take advantage. New Parent Plus borrowers will only be able to borrow until January 2025 and have enough time complete the double consolidation process before it closes on July 1, 2025.

Which Parent Should take out the Parent Plus Loan?

A lot of things should be considered before deciding which parent should borrow the Parent Plus Loan. For example each parent's current income, years until retirement, pension income, social security, current age, health, and employer all matter. As you can see this is a very important decision.

Why is this so powerful?

Let's look at this example of John and Jane Doe who borrowed $200,000 in various Parent Plus loans at 7% to send their kids to college. John makes $200,000 and Jane makes $40,000 a year. The standard 10 year plan gives them a payment of $2,322 a month for 10 years. If they planned ahead and borrowed the loans in Jane's name and now choose to file their taxes as married filing separately (MFS) then the income based repayment will only be based on Jane's income and will result in a very low monthly payment. As long as Jane's income remains at this level or less, this will result in a small payment on these parent plus loans until they are forgiven in 25 years. You may still have to pay taxes on the forgiveness amount as by current laws student loan forgiveness is considered taxable income, but in this example that is estimated to be $40,000 (25 years from now), which is much better than paying $200,000 today.

This is why it is so important to have a pre-debt plan so you know which parent to borrow the Parent Plus loans name in.

Conclusion:

The double consolidation of Parent PLUS loans offers a loophole for parents to pay off their loans for a fraction of the cost. Due to the complicated nature of the double consolidation strategy, I recommend consulting with myself or another Certified Student Loan Professional (CSLP). Remember this loophole is closing July 1, 2025. The only option after this date will be a single consolidation to the ICR plan, which can still be a solid loan forgiveness strategy with the proper planning.