Britannica Money (2024)

Did you take out parent PLUS loans to help finance your child’s education? Although these loans offer one way to pay for college, they might be one of the last resorts. Loan forgiveness and income-driven repayment (IDR) options are generally limited with parent PLUS loans unless you take specific steps.

And if you’ve been hoping to use loan consolidation loopholes to manage your parent PLUS loans, you’ll be out of luck if you don’t act fast. In 2025, the Department of Education will be closing the loopholes that allow you to access better income-driven repayment plans—including the new Saving on a Valuable Education (SAVE) plan.

Here’s what you need to know about the parent PLUS loan cliff in 2025 and how to access the loophole before it closes. But note: This is a complex, multi-step process, and you must follow it exactly in order to qualify.

What is the parent PLUS cliff?

Parent PLUS loans are already the worst of the federally funded options for paying for college. Parents take on debt in their own names to cover their children’s schooling. Parents are responsible for repayment—and they can’t consolidate a parent PLUS loan with any of their student’s loan debt.

For parents who have low incomes, the only official income-driven repayment (IDR) plan is income-contingent repayment (ICR), but its benefits aren’t as generous as other plans. In addition, parent PLUS loans aren’t eligible for some other types of federal student loan forgiveness programs.

To get around this, some borrowers go through two or more federal consolidations to hide the origin of the loans, then request an IDR plan. This process is often called the double consolidation loophole.

But that door is about to slam shut. It’s called the 2025 parent PLUS cliff, and after it closes, there will be no way to obscure the origin of your parent PLUS loans, and you won’t be able to take advantage of the new SAVE plan.

Steps to use the double consolidation loophole

Normally, you wouldn’t be able to get your parent PLUS loans into the new SAVE plan from the Biden administration. The double consolidation loophole makes it possible, but you need to follow a very specific process. And you must complete the steps before the loophole closes in 2025:

• Review your student loans in the National Student Loan Data System (NSLDS) and identify the parent PLUS loans.
• Divide your parent PLUS loans into two different groups. It’s important to divide them up and consolidate each group separately.
• Use the fillable paper consolidation form to request two different consolidations from two different servicers. Use a paper application, not the online process. For example, you might request Nelnet for one consolidation and Aidvantage for the other consolidation.
• Turn in your paper consolidation requests to the appropriate servicers. It can take a couple months for these consolidations to be completed.
• Once you verify that the original consolidations are finished, you can get another paper consolidation request. Put the information for both of your new Direct Consolidation Loans in this new request.
• Choose your preferred servicer and send in the paperwork. If you plan to apply for Public Service Loan Forgiveness (PSLF) later, consider sending the paperwork to the Missouri Higher Education Loan Authority (MOHELA), which handles the PSLF track for the Department of Education.
• Once the final consolidation is completed, you’re eligible for any of the IDR plans, including the SAVE plan, as long as you meet the requirements.

How to apply for IDR, including SAVE, with parent PLUS loans

Once you’ve completed the parent PLUS double consolidation process, you can apply for an IDR plan—including the new SAVE plan. Note that you must meet certain income requirements to be eligible for different plans. The most generous is the SAVE plan:

• SAVE limits qualified borrowers to paying no more than 5% of their discretionary income.
• Unpaid interest doesn’t accrue above the required minimum.
• It offers quicker loan forgiveness compared to other IDR plans, especially ICR.

Even if you don’t qualify for SAVE, there are other IDR plans that you might be able to access once you complete your parent PLUS double consolidation. Plus, completing double consolidation and having a “regular” Direct Consolidation Loan provides access to benefits like loan forgiveness if you qualify.

Things to keep in mind with parent PLUS double consolidation

• To complete this process effectively, you must use a paper application. Don’t go through the online process.
• Borrowers who only have parent PLUS loans must consolidate them in at least two different groups to get two different Direct Consolidation Loans with two different servicers.
• If you already have a Direct Consolidation Loan, you need to combine that with another loan.
• Borrowers with the former Federal Family Education Loan (FFEL) program can consolidate loans into a new Direct Consolidation Loan, which means they can be used as part of the double consolidation loophole.
• You can consolidate FFEL and parent PLUS Loans into their own Direct Consolidation Loans without having another loan.
• Remember to check the NSLDS to make sure your consolidations have gone through before taking each subsequent step.
• The parent PLUS double consolidation loophole can take some time to accomplish, so it’s important to start planning now.

The bottom line

Parent PLUS loans have the fewest benefits and repayment options of any Direct Loan program offered by the federal government. And the interest rates—plus up-front fees—can be quite high.

And if that’s not enough, remember that going into debt to pay for your child’s education could put your own retirement goals at risk. Think long and hard before you sign on that dotted line. Explore all other options first—grants, scholarships, work-study, and community college. And yes, it’s okay to set limits with your child.

But if you are using parent PLUS loans and you’d like to take advantage of double consolidation, follow the process exactly. And keep an eye on the calendar. In 2025, the double consolidation loophole falls off a cliff.

References

• Parent PLUS Loans | studentaid.gov
• Consolidating Student Loans | studentaid.gov
• Income-Driven Repayment Plans | studentaid.gov
• Repayment Options for Parent PLUS Loans | mass.gov