The End Of The Student Loan Double-Consolidation Loophole

Federal Mother or father PLUS loans will not be immediately eligible for income-driven reimbursement plans. Nevertheless, there are two loopholes involving consolidation of Mother or father PLUS loans that may make them eligible for income-contingent reimbursement or all income-driven reimbursement plans.

The second, which is named the pupil mortgage double-consolidation loophole, will finish on July 1, 2025. 

Eligibility for Revenue Contingent Reimbursement

If a Mother or father PLUS mortgage is included in a Federal Direct Consolidation Mortgage and the borrower entered reimbursement on or after July 1, 2006, the consolidation mortgage is eligible for the income-contingent reimbursement (ICR) plan. [34 CFR 685.208(a)(2)]

The Mother or father PLUS mortgage isn’t immediately eligible for any income-driven reimbursement plan. The consolidation mortgage can also be not eligible for every other income-driven reimbursement plan. [34 CFR 685.209(a)(1)(ii), 34 CFR 685.209(c)(1)(ii) and 34 CFR 685.221(a)(2)]

These laws observe the statutory language within the Increased Training Act of 1965 [20 USC 1087e(d)(1)(D) and (E)], which specifies that the income-contingent reimbursement (ICR) plan is “not obtainable to the borrower of a Federal Direct PLUS mortgage made on behalf of a dependent pupil” and the income-based reimbursement (IBR) plan isn’t “obtainable to the borrower of a Federal Direct PLUS Mortgage made on behalf of a dependent pupil or a Federal Direct Consolidation Mortgage, if the proceeds of such mortgage had been used to discharge the legal responsibility on such Federal Direct PLUS Mortgage or a [FFEL PLUS Loan] made on behalf of a dependent pupil.”

All income-driven reimbursement plans are based mostly on the statutory authority for ICR or IBR.

How Double Consolidation Works

If a borrower consolidates a consolidation mortgage that repaid a Mother or father PLUS Mortgage, typically the income-driven reimbursement plans shall be obtainable to the brand new consolidation mortgage as a result of the mortgage servicer isn’t conscious that the consolidation mortgage initially got here from a Mother or father PLUS Mortgage. The unique kind of mortgage will get misplaced when the loans are consolidated for the second time.

The U.S. Division of Training has maintained that this double-consolidation isn’t eligible for an income-driven reimbursement plan, as it’s opposite to the intent of Congress. Nevertheless, they’ve been unable to implement their interpretation of the regulation and laws due to insufficient monitoring of the unique kind of the loans that had been consolidated.

Double consolidation is a multi-step course of.

• The borrower should consolidate their Mother or father PLUS loans with two totally different servicers. To do that, they need to submit paper consolidation mortgage functions. (In the event that they consolidate on-line, the 2 consolidation loans shall be merged.) 
• Two consolidation loans are essential to allow the borrower to later consolidate the consolidation loans collectively.
• The borrower ought to embrace a request for the income-contingent reimbursement plan with these consolidation mortgage functions to stop the consolidation mortgage functions from being rejected due to a failure to specify a reimbursement plan.
• The borrower should await affirmation that the consolidation loans are full earlier than consolidating once more. This sometimes takes 30-45 days.
• The borrower should consolidate the 2 consolidation loans with a 3rd servicer. This consolidation might be achieved on-line at StudentAid.gov. One should use a brand new servicer as a result of the opposite two servicers are conscious that the borrower consolidated Mother or father PLUS loans. The brand new consolidation mortgage will then have misplaced the tag exhibiting the origin of the consolidation mortgage as together with a Mother or father PLUS Mortgage.
• Usually, one must wait 180 days earlier than consolidating a consolidation mortgage, as in any other case the loans can be merged into one of many present consolidation loans. Utilizing a 3rd servicer bypasses this limitation.

The Finish of the Scholar Mortgage Double-Consolidation Loophole

The brand new income-driven reimbursement plan laws, which had been printed within the Federal Register on July 10, 2023, eradicate the double-consolidation loophole efficient July 1, 2025.

Particularly, the U.S. Division of Training specifies on web page 43836 of quantity 88, quantity 130 of the Federal Register:

“The Division is taking some extra steps on this last rule to affirm our place concerning the therapy of dad or mum PLUS loans or Direct consolidation loans that repaid a dad or mum PLUS mortgage being solely eligible for the ICR plan. Previously, limitations in Division information might have enabled a dad or mum PLUS mortgage that was consolidated after which re-consolidated to enroll in any IDR plan, regardless of the Division’s place that such loans are solely eligible for the ICR plan.

The Division is not going to undertake this clarification for debtors on this state of affairs presently on an IDR plan as a result of we don’t assume it could be acceptable to take such a profit away. On the identical time, the Division is conscious that plenty of debtors have consolidated or are within the means of consolidating in response to latest administrative actions, together with the restricted PSLF waiver and the one-time fee rely adjustment.