Double Consolidation: Your Silver Bullet to Parent PLUS Loans
Tired of Parent PLUS loans holding you back? The double consolidation loophole can cut your payments in half.
🚨 The Double Consolidation Loophole is scheduled to close on July 1, 2025, so it's important to start planning now, as the process typically takes 4-6 months to complete. 🚨
If you have Parent PLUS loans and want to retire sooner, you need to learn about the double consolidation loophole.
This can cut your student loan payments in half (or more) and open the door to loan forgiveness.
In many cases, double consolidation has helped borrowers pay less than the overall loan balance itself!
In this article, you’ll learn:
Summary
By using a double consolidation strategy, you can significantly lower your Parent PLUS loan payments to focus on other priorities, like saving for retirement.
The Issue With Parent PLUS Loans
Parent PLUS loans are loans taken out in your name (i.e. you’re solely responsible for these loans) but used to pay for your child’s undergraduate college costs.
While they may seem like a solution for sending your kid to college, they can put you at a major disadvantage if you’re not careful.
Undergrad loans have caps on how much a student can take out. With the ever-increasing rise in college costs, it’s often up to parents to make up the difference through additional loans.
These loans are easy to get too.
You don’t have to go through the typical underwriting process like at a private institution (i.e. a bank). Before you’re able to question if borrowing that much money is a good idea… the funds arrive in your bank account.
This ease of access comes at a cost, though.
Parent PLUS loans carry higher up-front fees to finance, and the overall interest rate is over 2.5% more than the rate your child receives on their undergraduate loans.
The result? A loan balance that can balloon out of control, especially if you have to take out loans for multiple children.
The Forgiveness Solution
The typical approach to paying off loans is to simply make enough money to pay them off as fast as you can.
If you’re financially savvy, your strategy may include something like the snowball method of paying down your loans.
And that’s fine with a manageable amount of debt…but as your debt piles up, it becomes harder to dig yourself out of that hole…no matter what you do or how hard you try.
That’s why the government offers an alternative for federal student loans: make payments based on your income and forgive the balance that remains after a set time period.
In other words, pay what you can first, and then you don’t have to pay the rest!
This can be a great deal, especially if your federal student loan debt is higher than your income.
But there’s a catch…
A college education is one of the greatest gifts you can provide your child. But, you don’t have to sacrifice your retirement. The double loan consolidation loophole can help cut your Parent PLUS payments in half.
The Problem: Getting Forgiveness Is Tricky with Parent PLUS Loans
As they stand, Parent PLUS loans can only be paid via the standard 10-year plan, extended (25 years) plans, or a graduated plan (payments start out smaller and gradually increase over time).
Parent PLUS loans can’t be paid via an income-driven repayment (IDR) plan… and here lies the problem.
Initially, this makes forgiveness impossible, since you’re required to be on one of these IDR plans to qualify for student loan forgiveness.
So, the solution is to consolidate your Parent PLUS loans. Only then can you qualify for an IDR and get on the path to forgiveness.
Ah, but there’s another catch here!
If you consolidate all your loans at once, you are severely limiting yourself.
Why does consolidating all your loans into one loan limit your chances of forgiveness? It has to do with the IDRs that are available to you when you consolidate.
Quick Review: IDR Options For Forgiveness
There are four different income-driven repayment (IDR) plans:
Income-Contingent Repayment (ICR)
Income-Based Repayment (IBR)
Pay As You Earn (PAYE)
Saving on a A Valuable Education (SAVE), formerly Revised Pay As You Earn (REPAYE)
The amount you pay under these plans is either 10%, 15%, or 20% of your income after an adjustment based on the federal poverty level*.
*The amount you pay can be as low as 5% of your income on undergraduate loans with the SAVE plan.
Initially, once you consolidate your Parent PLUS loans, you’ll only qualify for the Income-Contingent Repayment (ICR) plan. Under this plan, you pay the most: 20% of your income.
This is because a consolidation loan that pays off a Parent PLUS loan is only eligible for ICR...your worst IDR option.
The language here is critical. I’ll get to the fun part in a sec (ok, fun for student loan nerds like me), but first, there are a few facts you need to know about ICRs.
How ICR Limits Your Savings Potential
As mentioned, ICR makes you pay 20% of your income after it’s adjusted for the Federal Poverty Level, and the adjustment used in this calculation is less favorable than the other plans. You’re going to pay much more on this plan than the others.
Another hurdle is the time until forgiveness.
Under ICR, the standard repayment period is 25 years.
Other IDR options offer 20-year standard periods. However, for all plans, if you’re pursuing Public Service Loan Forgiveness (PSLF), this can be 10 years.
In practice, ICR makes forgiveness much harder (twice as hard, in fact).
Surely, you’d rather choose a plan where you only have to pay 10%... and then be able to save for retirement too.
But, how do you qualify for one of those plans when consolidating a Parent PLUS loan locks you into ICR?
The solution requires a little bit of student loan wizardry that uses a neat loophole to your advantage…
To get on a favorable IDR plan and open the road to forgiveness, you’ll need to consolidate your Parent PLUS loans, but not all at once. Instead, use the double consolidation loophole.
The Solution: The Double Consolidation Loophole
Remember when I said, “A consolidation loan that pays off a Parent PLUS loan is only eligible for Income-Contingent Repayment (ICR)”?
This is where you can use the language of the law to your advantage.
Let’s review:
Parent PLUS loans aren’t eligible for any income-driven repayment plan
If you consolidate all your Parent PLUS loans into one loan, the only IDR plan you qualify for is Income-Contingent Repayment (ICR)
Income-Contingent Repayment is the worst income-driven repayment plan that exists and makes it really difficult to achieve forgiveness
Here’s where the loophole comes in.
A consolidation loan that pays off another consolidation loan unlocks your ability to qualify for a much more favorable IDR plan.
It’s this second layer that insulates you from being stuck with ICR.
Not only can this have a massive impact on your loan situation, but it can help you achieve your dream retirement as well!
We call this process the double consolidation loophole.
How the Double Consolidation Loophole Works
If all of your loans are Parent PLUS loans, you need at least 2 to make this work.
If you have at least one direct loan, you’ll have a slightly less complex process. But for now, we’ll focus on what to do if all your loans are Parent PLUS.
To get into a favorable IDR, you’ll need to do three total Direct Consolidations. This is done over two separate rounds, hence the name “double consolidation”.
Here’s an example of how you can set this up.
Let’s assume you have 4 Parent PLUS loans:
Parent PLUS loan 1
Parent PLUS loan 2
Parent PLUS loan 3
Parent PLUS loan 4
In the first round, you’ll do two separate consolidations. Half of your loans go to one consolidation, and the other half to another consolidation:
Parent PLUS loans 1 & 2 become Direct Consolidation Loan A
Parent PLUS loans 3 & 4 become Direct Consolidation Loan B
Once round one is complete, you’ll proceed to round two: consolidating your two consolidation loans into one final loan:
Direct Consolidation Loans A & B become Direct Consolidation Loan C
And then…voilà! You’ve now unlocked the ability to qualify for a more favorable IDR plan, and thus make forgiveness (and your retirement) much more attainable.
What if you only have 2 Parent PLUS loans?
You’re allowed to consolidate (essentially, restructure) a single Parent PLUS loan. Consolidate each loan separately so you’re left with two Direct loans, and then continue to your final consolidation.
To perform a double loan consolidation, you’ll need to perform three separate consolidations in two rounds. To do this successfully, there are a few points to keep in mind.
Pro Tips For A Successful Double Consolidation
If this all seems complicated to you, I get it. But, the extra time and effort it takes to get this done is worth it.
For example, if you’re like many borrowers I see with Parent PLUS loans on ICR, you’ll end up with a $1,000+ monthly payment.
But, if you use the double consolidation loophole, you can get set up with payments that are $500/month or less.
That’s $500+ a month you can use to save for retirement! Add that up over the course of many years and the savings are staggering.
Here are some tips to make sure this process goes as smoothly as possible for you.
🚨 Don’t miss this important deadline! 🚨
It’s important to keep in mind that the loophole will soon be expiring, so you will want to take action on this as soon as possible.
The government is closing the loophole on 7/1/2025 with the following language:
“A borrower who has a Direct Consolidation Loan disbursed on or after July 1, 2025, which repaid a Direct parent PLUS loan, an FFEL parent PLUS loan, or a Direct Consolidation Loan that repaid a consolidation loan that included a Direct PLUS or FFEL PLUS loan may not choose any IDR plan except the ICR plan.”
This means that the final consolidation in this process needs to be done (disbursed) by June 30, 2025. You don’t need to be on an IDR by then, but you do need to have the consolidation completed.
Since this process can take 6 months to complete, it is best to start this before the end of 2024, January 2025 at the latest.
Pro Tip #1: You Must Use The Federal Loan System
These consolidations must be done through the federal loan system (Federal Student Aid).
When processed through the federal system, it’s called a Direct Consolidation loan. This is what you need for forgiveness.
Do NOT confuse consolidation with refinancing with a private company. I see the terms “refinancing” and “consolidation” used interchangeably, which can lead to mistakes.
Refinancing with a private company will take your loans out of the federal system, and disqualify you from all the different repayment plans, forgiveness options, and other benefits and flexibilities that come with federal loans.
It’s also important to note that this process can take up to 6 months.
Each round of consolidations can take up to 90 days (3 months). Account for this timeline in your financial plan.
Pro Tip #2: Use Different Servicers
Each consolidation loan needs to be done through a different servicer.
If you attempt two separate consolidations at the same servicer, they will just lump both consolidations into one if it’s within a six-month period.
I suggest working backwards here.
While the choice of your final loan servicer is now largely arbitrary due to the Department of Education's takeover of managing PSLF payment counts and forms, it's still important to plan your consolidations carefully. If you have a preferred servicer, make sure to do your first round of consolidations with a different servicer to ensure your loans end up where you want them.
You can find loan servicers on the “Direct Consolidation” loan application page on the Federal Student Aid’s website (see list at the bottom). There are more loan servicers available, but not all of them will be able to process consolidations.
Pro Tip #3: How To File The Consolidation Paperwork
There are some important paperwork details you’ll need to follow to pull this off.
Essentially, you’ll need to complete the paper forms for the two consolidations in Round 1, then do the online form for your third consolidation in Round 2.
Since you can only complete the online consolidation paperwork once in a six-month period, this means you’ll need to fill out paper applications for at least two consolidations.
When you fill out the paper forms, make sure to complete the following:
Direct Consolidation Loan Application and Promissory Note
Direct Consolidation Loan Application Additional Loan Listing Sheet (for including and, perhaps more importantly, excluding additional loans in your consolidation request)
One of the following repayment plan forms:
Income-Driven Repayment (IDR) Plan Request
Repayment Plan Request (for the standard, graduated, or extended repayment plans)
More About Repayment Plan Forms
This part is more of a formality since you likely won’t make a payment during the first round of consolidations (if done properly). But just in case, I typically recommend borrowers use the Repayment Plan Request form to choose the graduated repayment plan so the payment is as low as possible in case you’re forced into making a payment during this time.
However, using the IDR Plan Request form to select the Income-Contingent Repayment (ICR) plan could make sense. The payment may be lower than the Graduated plan, although that is usually not the case. Additionally, a payment on ICR provides credit towards forgiveness, so it could make sense to utilize if the payment is low enough.
Pro Tip #4: How To File The Paperwork For Getting On An IDR
Wait to submit your IDR request until the final consolidation is completed. Once the final consolidation is complete, then you will submit the Income-Driven Repayment (IDR) Plan Request to apply for your IDR of choice.
If you try requesting your IDR online, the online system will see that you had parent PLUS loans and will only allow you to select ICR. This is exactly what we are trying to avoid!
As a result, this form needs to be submitted via paper. You can do this by either uploading to your student loan servicer’s online portal or by mailing in a paper copy.
Pro Tip #5: When You Can Make Corrections
If you are worried you didn’t do things right or that the servicer won’t process things properly, you’ll still have a chance to make corrections before everything is finalized.
After each consolidation, the loan servicer will send you a letter in the mail showing a few things:
Which loans are being consolidated
Which loans are being excluded
What your expected payment will be
When the consolidation will be made official if you don’t take any action
If everything looks good, then great! You don’t have to do anything else.
But, if there are any corrections to be made, you’ll need to reach out to your servicer by the previously mentioned date, which is 10 business days after. Otherwise, the period for making corrections will have passed.
The main point here is that if you’re worried about possible mistakes, you’ll get a chance to correct them if you act quickly.
Double loan consolidation requires some effort and organization, but the benefits are well worth it. If you’re struggling with Parent PLUS loan payments, this strategy can help you prioritize your other financial goals, like saving for retirement.
Final Steps: Lower Your Monthly Payments
At the end of the day, the double consolidation loophole strategy is a workaround approach to help Parent PLUS loan borrowers tie their loan payments to their income.
Once you’re on an IDR, you’ll want your income (on paper) to be as low as possible.
The main way this is done - but not the only way! - is using your adjusted gross income (AGI) on your tax return.
So, your next step is to take measures to lower your AGI…without necessarily taking less income! Here are a few ways you can do this:
File taxes separately
Save for retirement using pre-tax savings
Coordinate your investment decisions
Decide which spouse carries the health insurance
Coordinate your Social Security payments, if you’re old enough.
These can all be used to enhance your strategy and pay even less towards your student loans, sometimes to the point where your payment is actually $0*!
*Yes, a $0 payment on your IDR plan still counts as a payment, and that’s a good thing if you’re pursuing forgiveness.
Key Takeaways
When you have massive amounts of debt in Parent PLUS loans, it can seem like there’s no way out. The double consolidation loophole allows you to snatch retirement from the clutches of certain debt.
Traditional methods like refinancing or using the snowball method can save you tens of thousands of dollars on your loan… which is pretty good.
But, I’ve seen borrowers save tens of thousands of dollars per year using the double consolidation loophole. Add that up, and that’s $100,000+ in savings over the life of your loan!
The potential is there. The key is knowing how to unlock these benefits. To review:
Consolidate your Parent PLUS loans to get on a favorable IDR plan and open the road to forgiveness, but don’t consolidate all at once.
Use the double consolidation loophole to qualify for an IDR plan that reduces payments to 10% of your income.
You’ll need to process 3 Direct Consolidations in 2 rounds.
You must use the federal loan system to process your Direct consolidations and use different servicers for each one.
You’ll have a chance to correct any mistakes by reviewing the letters you receive from your servicers.
You’ll want to act fast! This process can take up to 6 months and the government is closing the loophole on 7/1/2025.
If you follow these steps, you’ll set yourself up for success and be able to focus on the things that are truly important to you.
Want to make sure this gets done right? Have questions on executing this?
Reach out to see if the double consolidation loophole is right for you.
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At your service,
Erik Kroll