When writing about student loan strategies and explaining rules, I don’t like to talk about myself. My opinions don’t matter, and my motivation for covering a subject really doesn’t matter. However, in the case of the Parent PLUS double consolidation loophole, some context is critical.
This site hasn’t covered this loophole because it is complicated, and it is easy to make a mistake that can’t be fixed. More importantly, the loophole exists by exploiting a bug in the Department of Education recordkeeping system. Until recently, the Department of Education could have simply fixed the bug, and borrowers would have been left very disappointed.
A couple of things have changed. First, the Department of Education has arguably approved this new process — more on that in a bit. Second, many of you have asked questions about the process, and I don’t want to ignore your requests.
Double Consolidation Basics: How Parent PLUS Borrowers can Exploit a Loophole to get Lower Payments
Parent PLUS loans have limited repayment options compared to other federal student loans. Signing up for PSLF requires jumping through some hoops, and IDR payments are much higher than other plans.
This loophole allows Parent PLUS borrowers, who are normally only eligible for the ICR plan, to qualify for the SAVE plan. The potential savings is staggering. For example, a single borrower with two kids who earns $100,000 per year would pay about $349 on the SAVE plan. On ICR, the monthly bill jumps to about $1,236 per month.
Under the current rules, just about every federal student loan borrower can sign up for SAVE. The glaring exception is borrowers with Parent PLUS loans.
This is where the double consolidation loophole enters the equation. If a borrower consolidates their loans once, the new consolidated loan is tracked as a direct consolidation loan that contains a Parent PLUS loan. However, a secondary consolidation tricks the system into thinking there wasn’t originally Parent PLUS debt. The newly double-consolidated loan can then be enrolled in SAVE.
Double consolidation isn’t a strategy you will find on studentaid.gov, and it isn’t something the legislature or the Department of Education intended to create. It is a glitch in the system that borrowers found.
How the Department of Education Signed off on Double Consolidation
Given how desperate borrowers are to save money on their student loans, word of the double consolidation strategy spread pretty quickly. The Department of Education became aware of the issue.
The Department of Education officially acknowledged the process when the SAVE regulations were released. They announced that “[t]he Department is taking some additional steps in this final rule to affirm our position about the treatment of parent PLUS loans or Direct consolidation loans that repaid a parent PLUS loan being only eligible for the ICR plan.”
Essentially, they said we know about the bug and we are fixing.
Crucially, however, they said the changes would not take effect until July 1, 2025, AND they didn’t think taking away a benefit that borrowers had already received would be fair.
In other words, double consolidation is a glitch in the system, but the Department of Education knows about it, and they are allowing borrowers to utilize it until July 1, 2025. Any loan that is consolidated after that date will not receive the benefit of the loophole.
Parent PLUS Double Consolidation Risks
In the past, I warned borrowers who emailed me about double consolidation that the glitch could be fixed any day. Even if a borrower successfully double-consolidated, there was a risk that the Department of Education could fix the glitch and change their repayment plan back to ICR.
Thanks to the SAVE regulations, we now know that the Department of Education won’t be fixing the glitch until July 1, 2025, and we also know that borrowers who successfully took advantage of the glitch won’t lose their current repayment plan.
However, there are still risks associated with this process.
Double consolidation takes time. Student loan consolidation can take weeks or even months to complete. Going through the process multiple times takes even longer. If you wait until June 2025 to start the process, you won’t beat the July 1 deadline.
Double consolidation mistakes could be impossible to fix. If you make a mistake going through the double consolidation process, it could be impossible to fix if you catch it too late. The odds of a mistake are especially high because there isn’t an official guide, and servicers haven’t been trained on the process.
Lawsuits could change things. Generally speaking, student loan lawsuits focus on bigger items like the forgiveness program that went to the Supreme Court. Double consolidation is small enough that it may not be litigated. However, that doesn’t mean it won’t be litigated, and a court may conclude that the Department of Education didn’t have the authority to allow borrowers to take advantage of the glitch.
Things may change in the future. The element of unknown unknowns is a play here. Future administrations may try to claw back the regulation. Double consolidated loans may lose eligibility for future programs we don’t yet know about.
Many Parent PLUS borrowers may conclude that the benefit of substantially lower payments outweighs the potential risks. However, it is important to understand that there is a potential downside before starting the double consolidation process.
How to Use Double Consolidation and Sign up for SAVE
If you decide to go down the path of double consolidation, the Department of Education and loan servicers will not likely be much help. Don’t expect to see a guide to double consolidation show up on studentaid.gov.
Without an official blueprint, we are left to defer to the past experiences of others who successfully utilized the loophole.
Travis and the team over a Student Loan Planner have compiled a comprehensive step-by-step guide to double consolidation. They’ve been at the forefront of this issue for a while. Betsy over at TISLA also offers some helpful guidance on the double consolidation process.
A Few Final Thoughts
Double consolidation of Parent PLUS loans is a loophole, even though it now has a stamp of approval from the Department of Education.
For borrowers, this means guidance from servicers and the Department of Education will be limited. Don’t expect an easy process, and plan on spending time to make sure you don’t skip over any critical steps. Little things, like forgetting to submit a repayment plan request with your consolidation application, can cause issues.
However, the reward is massive if you are willing to live with the potential risks of a failed attempt and successfully get through the process. SAVE is considerably more affordable than ICR, and it can mean significantly smaller monthly payments and larger loan forgiveness.
