[00:00:00] Speaker A: Trying to pay back a Parent Plus loan can be a nightmare if you try to pay it back as a Parent Plus loan. But in this episode, we're going to give you a little loan loophole that you can take advantage of until July of 2025. To make that burden a little easier, let's get started.
[00:00:16] Speaker B: Are your student loan payments or loan balances a major obstacle in your financial life? Then tune in and let's escape student loan debt.
[00:00:27] Speaker A: Hello. This is Brenton Harrison of Escape Student Loan Debt and your host for the Escape Student Loan Debt podcast. If you were with us in our most recent episode, we talked about Parent Plus loans and why they are a growing crisis in this country. Parent plus loans are a loan that people take out for the benefit of their children. And unlike an undergraduate student loan, where that student themselves is limited in how much they can borrow, a parent plus loan is typically what you see for a parent trying to bridge the gap between the maximum amount that their child can borrow for undergraduate and what's actually needed to pay for some of these private institutions, or for a child who is going to a state institution but happens to be an out of state student themselves. If you're following along with us on screen, I'm actually reading from an article that says, according to the US. Department of Education Office of Federal Student Aid, there are over 1 million individuals over the age of 50 with federal student loan balances above $100,000 as of March 31, 2023. As a matter of fact, it would seem more likely that someone who is struggling financially would be more predisposed to taking Parent Plus loans. But in actuality, the more you make, the more likely you are to have a high Parent Plus balance. Reading from this same article, it says, and I quote, among the Families of Dependent first year students in 2015 to 2016, 30% of those with household incomes above 100,000 took out Parent Plus loans, while just 16% of families with incomes below 20,000 use these loans. So six figure earners are actually more likely to take out a Parent Plus loan in the first place, which makes sense, because based on historical trends, they're more likely to have a student in their household who goes to a school of higher education that has those levels of costs. So now that we know that it's a crisis, why is paying them back so difficult? Well, as we covered in the most recent episode, there are several reasons why. One of the first reasons is that Parent Plus loans, when you look at income driven repayment plans, are only eligible for one type of income driven plan, and that plan is the Income Contingent Repayment Plan. If you're looking on screen, we have an example to show you just how damaging this can be, let's assume that we have a family of four with $100,000 adjusted gross income. If they were on the Save plan, they would be able to take that $100,000 adjusted gross income and subtract 225% of the federal poverty level for a family of four, which is $30,000. This leads to a discretionary income of $32,500 for the year. And if they were making 10% as a payment, they would pay $270.83 per month. Now, let's compare that to what they would pay under income contingent repayment. With income contingent repayment, they have the same adjusted gross income, but they can only take away 100% of that federal poverty level, which leads them to a discretionary income of $70,000 as compared to 32 500. And instead of 10%, they have to pay 20%. So unlike the Save plan, where this family making $100,000 can pay under $300 a month, the payment under income contingent repayment is $1,167 per month, just an astronomical sum in comparison. So that's the bad news about Parent Plus loans. If you keep it as a Parent Plus loan, it is very hard to pay it back under income contingent repayment or have it forgiven because of how much you're paying. But the good news is there is a loophole that can turn a Parent Plus loan that's ineligible for income driven repayment plans outside of ICR into a new consolidation loan that's eligible for any of the income driven repayment plans. So this is called the double consolidation. Parent plus loophole. I know that's a mouthful. We're going to put a link to the article that I'm referencing in the show Notes so you can read it for yourself and read about this in more detail. But essentially what happens is even if you consolidate a Parent Plus loan and you only do it one time, it does not lose its Parent Plus loan status. You would just have a consolidated Parent Plus loan. But if you consolidate it twice in that process, the Parent Plus status drops off, and it just becomes a consolidation loan. And once it becomes a consolidation loan, you're eligible for any of the other income driven repayment plans. And when you listen to the second half of this episode, you're going to think about this and you're going to say, there's no way that this is legal. This has to be some loophole in the system where once they find out about it, they're going to charge you with fraud. In actuality, that is not the case at all. Not only is the Department of Education aware of it, it's a loophole that they have continued to allow to exist up until this point in time. Because at this point in time, with the announcement of the Save plan, they decided that they are going to formally close that loophole. But they're going to give you until July 1 of 2025 to process any double consolidations before that point. So after the break, we're going to walk through this incredibly convoluted process so you can at least know how it works. Because if you can make it through the process, you will put yourself in a position to have a radically lower student loan payment, which will be incredibly beneficial whether you're trying to have your loans forgiven in 20 or 25 years. Or in the case of parents who may work in public service, trying to do it in ten years through the PSLF program. Because if you're going to have your student loans forgiven, you want to do it after paying the least amount possible. And after the break, we'll show you how.
[00:05:53] Speaker B: This is the Escape Student Loan Debt.
[00:05:55] Speaker C: Podcast, a show for established professionals whose student loan payments or loan balances are impacting their marriage, their business, their credit, or their dream of achieving home ownership.
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[00:06:48] Speaker A: All right, so how do we make sure that we can go through the process of a double consolidation for a Parent Plus loan? To position us to take advantage of any income driven repayment plan, excluding income contingent repayment, because that's the one that we're trying to get away from. If you're following along with us on screen, do not judge my penmanship. But you see four boxes. If you are listening, then we'll put a link to the YouTube in the show notes so you can check out the video. But on the whiteboard, there are four boxes, and in each box, there's a Parent Plus loan, parent Plus Loan one, parent Plus Loan two, three, and four. So we are imagining that there are four Parent Plus loans that this parent has taken out for their children's behalf. The first step in the double consolidation process involves grouping these loans into at least two groups. So what we're going to do is we're going to take Parent Plus Loan One and Parent Plus Loan Two, and we're going to make them one group, and we're going to take Parent Plus Loan Three and Parent Plus Loan four. And we're going to make them another group. We have to put them into at least two buckets. So when we do this, we are going to have at the end of that first process, when we consolidate loans one and two, we're going to have a direct consolidation loan that's a Parent Plus loan. So we're going to put direct consolidation loan, parent Plus Loan one, and then we're going to have a direct consolidation loan that's a Parent Plus loan, and we're going to have that be parent Plus Loan Two. So now we have two different groups. We've taken four loans and we've put them into two different groups. Now, it's very important that you understand how you're going to do this. In previous episodes, we've showed you how to go online on StudentAid dot gov and complete a consolidation application. But in this process, you can't do it online. And here's why. If you try to submit two consolidation loan applications through that system, at the same time, one of them will be canceled out. So instead of putting them into two groups, they would look at this and say, hey, there's been an oversight here. We're going to cancel one of these applications, and only one of them would go through, and we need both of them to go through. What does this mean? It means that you have to do paper applications for each of these consolidations. I know that's incredibly annoying. It's incredibly old school, but doing paper applications is the only way to make sure that these applications don't cancel each other out. So not only is it important that you make sure you do these applications in paper, it's also important that you send these applications to different loan servicers. All told, there's going to be at least three loan servicers that you interact with throughout this process. But when you do these first two groupings, you need to make sure that you are sending them to two loan servicers and that those loan servicers are not the one that you want to end up with at the end of this process. What do I mean? Well, we've talked about in previous episodes for Public Service Loan Forgiveness that Mohila is the only federal student loan servicer that actually processes public service loan forgiveness. So if you, for example, have Parent Plus loans, that you're trying to get double consolidated and then forgiven through Public Service Loan Forgiveness, when we do these first two consolidations, you don't want to choose Mohila as a loan servicer. You need to choose two other loan servicers. We're going to not only put a link to the application, the paper application that you can download via PDF in the Show Notes, we're also going to put a list of the different loan servicers so you can just pick any two random ones. In this example, if you're following along with us on screen, we sent Direct Consolidation Parent Plus Loan One to Nellnet. We sent direct consolidation loan parent plus loan two to advantage. Now, this process is going to take six to eight weeks to complete. So right off the bat, for the first step in the process, you have two separate applications that are both going to take a month and a half to two months to get through this consolidation. So you're going to have to stay on your loan service. So you're going to have to check your email to figure out when these are actually consolidated and applied. But once you have these two loans, you have direct consolidation loans, but they have not stripped their Parent Plus loan status. So once that process has been completed, we're halfway through. But unfortunately, because it still has its status, it's still only available for income contingent repayment as it pertains to income driven repayment plans. So there's that second consolidation. Technically, it's three consolidations, even though they call it a double consolidation loophole. But we have the first set of consolidated loans now. We're going to take those two groups and we're going to consolidate them again and put them together at the final loan servicer. In our example, we're going to assume that this borrower wants to consolidate these Parent Plus loans, make it eligible for the save plan or the Pay as you Earn plan with a lower payment, but eventually have it forgiven under the public service loan forgiveness. That would mean that eventually they want this final loan to end up at Mohila, so they're going to take that first consolidated loan at Nelnet and that second consolidated loan at Advantage, and they're going to do another consolidation application. And when they pick their servicer for this last consolidation, they are going to choose Mohila. So now, instead of a direct consolidated Parent Plus loan, this final consolidation drops its Parent Plus loan status, and you just have a direct consolidation loan. And that new loan is eligible for any payment plan, and it's housed at the right student loan servicer. And here's the good thing about this process. While the first set of consolidations has to be done on paper, the second consolidation can be done on the student aid website, because now we're not worried about two warring applications canceling each other out. So now you can go online, you can take that loan from Nelnet, you can take the loan from Advantage, you can consolidate it digitally and have that process completed, which will still probably take six to eight weeks. But at the end of that six to eight weeks, you can sign up for any payment plan that you choose. You can verify your employment, and you can start to get credit towards those public service credits if you so choose, or even if you're pursuing general forgiveness. We've also talked about the fact that you now no longer lose all of your previous credits when consolidating. So you can have that progress still added to your account, but be in a much better place in terms of the options that you have in terms of your monthly payment. Now, I know that seems crazy. I know that this seems like I said fraudulent, but in the show notes, we'll put this right from the Department of Education so you can see that this is something that they're aware of. This is something they're allowing you to do until the end of June 2025. And if you have Parent Plus loans or your parents took out Parent Plus loans on your behalf or, you know, people who have Parent Plus loans. This is something that is a real opportunity, but it's one that only exists for a limited period of time. So it might be a narrow swath of our audience who this impacts. But if that's you, I hope it was beneficial. And I'll see you guys in two weeks with some more value for your federal student loans and maybe even some private student loans as well. Talk to you soon.
[00:13:48] Speaker B: From escape student loan debt. This was the Escape Student Loan Debt Podcast, a show for established professionals whose student loan payments or loan balances are impacting their marriage, their business, their credit, or their dream of achieving homeownership.
