If you have Parent PLUS Loans, you know that the repayment options can be limited.
While income-contingent repayment is available to Parent Plus Borrowers who consolidate, there is a backdoor way for Parent PLUS borrowers to access IBR, REPAYE, and PAYE*.
*Must meet new borrower requirements to be eligible for PAYE.
The method is called double consolidation, and it's a strategy that some Parent Plus borrowers are using to access additional repayment options and reduce their monthly payments.
This article will discuss double consolidation and how it works, its benefits, and the steps needed to execute a double consolidation properly.
What are Parent PLUS Loans?
Parent Plus Loans are loans made to parents to help pay for their dependent child's education and are the sole responsibility of the parent borrower.
Unlike other types of federal loans available to undergraduate borrowers, Parent PLUS loans can be taken out for the total cost of attendance.
Parent PLUS loans also generally have higher interest rates than other types of federal loans and don't offer the same opportunities for forgiveness.
What Repayment Options are Available to Parent PLUS Borrowers?
When it comes to repayment, Parent PLUS loans are only eligible to be repaid under one of the four term-based plans—the standard repayment plan, the graduated repayment plan, the extended repayment plan, or the extended, graduated plan.
If consolidated into a Direct Consolidation Loan, Parent PLUS loans can also become eligible to be repaid under the Income-Contingent Repayment Plan (ICR).
While monthly payments on the ICR plan will generally be more affordable than payments on a term-based plan, ICR has some significant drawbacks.
For one, monthly payments on ICR are capped at 20% of a borrower's discretionary income, compared to the other IDR plans, which caps monthly payments at 10%-15% of a borrower's discretionary income.
Additionally, while the other 3 IDR plans offer interest subsidies, ICR does not. Borrowers on ICR are also subject to yearly interest capitalization, making ICR vastly more expensive than the other income-driven options.
What is double consolidation, and how does it work?
Though called "double consolidation," double consolidation is a process that involves consolidating three times and essentially converting your Parent PLUS loans into Direct Loans.
Once the process is completed correctly, your new consolidation loan will be eligible to be repaid under REPAYE, IBR, or PAYE.
Here's how it works:
First, you'll want to consolidate at least one of your loans with a servicer of your choice. It's typically recommended that you apply via a paper application to avoid having all your loans consolidated into one consolidation loan.
For double consolidation to work, it's essential that you don't consolidate all your loans in this first step. For more information on federal loan consolidation, visit studentaid.gov/consolidation.
Next, you'll apply to have your remaining loans consolidated into a second but separate consolidation loan. Again, it's typically recommended that you apply via a paper application.
Once both consolidations have been finalized, you'll apply for one final consolidation--combining your two consolidation loans into one. After this final consolidation, you'll now have one Direct Consolidation loan eligible to be repaid under REPAYE, PAYE, or IBR.
Make no mistake, double consolidation can be tricky and requires diligence and a lot of patience. However, double consolidation can be a helpful tool for Parent PLUS borrowers looking for more affordable repayment options.
Are you having trouble with your student loans? Want to explore your repayment options? Chipper can help!