Federal Father or mother PLUS loans aren’t straight eligible for income-driven reimbursement plans. Nevertheless, there are two loopholes involving consolidation of Father or mother 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 Earnings Contingent Reimbursement

If a Father or mother 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 Father or mother PLUS mortgage shouldn’t be straight 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 Greater Schooling Act of 1965 [20 USC 1087e(d)(1)(D) and (E)], which specifies that the income-contingent reimbursement (ICR) plan is “not accessible to the borrower of a Federal Direct PLUS mortgage made on behalf of a dependent pupil” and the income-based reimbursement (IBR) plan shouldn’t be “accessible 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 Father or mother PLUS Mortgage, generally the income-driven reimbursement plans will likely be accessible to the brand new consolidation mortgage as a result of the mortgage servicer shouldn’t be conscious that the consolidation mortgage initially got here from a Father or mother PLUS Mortgage. The unique kind of mortgage will get misplaced when the loans are consolidated for the second time.

The U.S. Division of Schooling has maintained that this double-consolidation shouldn’t be 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 legislation 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 Father or mother PLUS loans with two completely different servicers. To do that, they have to submit paper consolidation mortgage purposes. (In the event that they consolidate on-line, the 2 consolidation loans will likely 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 purposes to forestall the consolidation mortgage purposes from being rejected due to a failure to specify a reimbursement plan.
• The borrower should watch for 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 executed 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 Father or mother PLUS loans. The brand new consolidation mortgage will then have misplaced the tag exhibiting the origin of the consolidation mortgage as together with a Father or mother 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 new income-driven reimbursement plan laws, which had been printed within the Federal Register on July 10, 2023, get rid of the double-consolidation loophole efficient July 1, 2025.

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

“The Division is taking some further steps on this ultimate rule to affirm our place in regards to the remedy of mum or dad PLUS loans or Direct consolidation loans that repaid a mum or dad PLUS mortgage being solely eligible for the ICR plan. Up to now, limitations in Division knowledge might have enabled a mum or dad 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 scenario at the moment on an IDR plan as a result of we don’t assume it will 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 technique of consolidating in response to latest administrative actions, together with the restricted PSLF waiver and the one-time fee rely adjustment.