A loophole is helping some parents lower their student loan payments

(Alex Brandon/AP)

As federal student loan payments resumed in October, Michele Lloyd, 57, began facing a stark reality: Between her own education loans and the debt she took on for her daughter's college degree, she would be repaying the $110,000 total well into her seventies.

The monthly $600 bill was more than Lloyd could afford as a therapist with a new practice, yet there were few options to lower the amount. The Parent Plus loans she had taken out for her daughter are barred from the government's most inexpensive repayment plans.

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"It's abusive," Lloyd, who lives in Detroit, said of Parent Plus loans, a program with $111 billion in outstanding debt held by 3.7 million people. "The interest rates are predatory. The payments are high. And with my income, I can't afford what they want me to pay."

Things started looking up weeks ago when an advocacy group told Lloyd about a strategy that could ease the burden of her debt: "double consolidation," a long-standing but little-known loophole that would hide the existence of Parent Plus debt under layers of new loans that are combined into one. That consolidated loan would then be eligible for more flexible repayment options like President Biden's much-touted Saving on a Valuable Education (SAVE) plan.

Consumer attorneys say the "double consolidation" strategy has gained popularity with the advent of SAVE and since the Education Department announced plans over the summer to close the loophole in July 2025.

When asked about the existence and pending end of the consolidation loophole, the Education Department pointed to passages in the SAVE regulation that was posted in the Federal Register in July. In it, the agency said "limitations in Department data" may have allowed a Parent Plus loan that was double consolidated to enroll in any income-driven repayment plan.

"The Department will not adopt this clarification for borrowers in this situation currently on an IDR plan because we do not think it would be appropriate to take such a benefit away," the agency wrote. "At the same time, the Department is aware that a number of borrowers have consolidated or are in the process of consolidating in response to recent administrative actions."

"In trying to end this practice, it seems the department is giving legal cover to what was a technical loophole for the next year and a half," said Adam Minsky, an attorney who specializes in student debt. "I'm advising clients that if you want to go for it, go for it but know there is some risk."

State authorities and advocacy groups are encouraging parents to take advantage before the deadline. But it is a tedious process. Missteps could derail the effort. And because there is no official policy on the books, student loan servicers can't walk borrowers through the steps.

Still, Lloyd and other parents are taking their chances to shake free from one of the most restrictive and expensive forms of federal education debt - Parent Plus loans.

The loans were designed to give parents with limited financial resources an easier path to help their children pay for college. The federal government is far more willing to extend credit to low-income parents than private lenders, but under terms that are far less appealing than those offered to students.

Whereas the interest rate on a standard undergraduate loan is 5.5 percent, it sits at 8.05 percent for a Parent Plus loan. Students also have a wealth of repayment options for their loans, including plans that take their income into consideration and could eventually qualify for loan forgiveness.

But parents are limited to just a handful of payment plans.

There is only one income-driven plan available to parents - Income-Contingent Repayment or ICR - and it is the least generous. To qualify, parents must consolidate the Plus loan into a Direct Consolidation Loan. ICR caps monthly payments at 20 percent of a borrower's discretionary income, defined as the money one earns above 100 percent of the federal poverty line ($14,580 for an individual).

The new SAVE plan, meanwhile caps payments at 10 percent of discretionary income, which it defines as 225 percent of the federal poverty line. If parents were allowed to enroll in SAVE, their monthly bills would be much lower.

In finalizing the SAVE regulation, the Education Department said Parent Plus loans were ineligible because Congress never intended for parents to have broad access to repayment plans based on their earnings. Advocacy groups argue that because the new repayment plan was born from the same authority used to create ICR, there is nothing barring the department from giving parents access to SAVE. The department has not budged on the matter, even as the NAACP has urged Education Secretary Miguel Cardona to reconsider.

That leaves the double consolidation loophole.

Here's how it works:

-Parents must have at least two loans: two individual Plus loans, or a Plus loan and the loans a parent took out for their own education.

-If you have only Plus loans, you'll submit separate applications to two different loan servicers requesting to consolidate one of your Plus loans with one servicer and the rest with the other.

-Once that process is complete, within 4 to 6 weeks, you must then do a final consolidation to bring all of the loans together.

-Parents like Lloyd with debt for their own education can submit one application to consolidate all of their Plus loans, wait up to six weeks for it to get processed and then initiate the final consolidation of the new loan and their own loan.

The Massachusetts Attorney General's office has detailed instructions online for both scenarios, complete with flow charts.

There are risks. Failure to follow the steps correctly could render the strategy moot, said Winston Berkman-Breen, legal director at the Student Borrower Protection Center, an advocacy group.

"You can't consolidate everything together. You have to sequence it right so that you're not stuck after one consolidation with only access to the ICR plan," he said.

Consolidating also could leave some borrowers with slightly higher interest rates because the interest is calculated by taking an average of the different rates on the loans.

Normally, borrowers would also lose credit toward any loan forgiveness programs by consolidating student debt, but the Education Department is temporarily counting accrued payments until the end of the year. That means Parent Plus borrowers have only until Dec. 31 to use the double consolidation to get maximum credit on their loans, Berkman-Breen said.

If parents miss that deadline, he advises they wait until July 1 to initiate the second consolidation. That's when the SAVE regulation goes into full effect and will allow borrowers to consolidate without losing credit toward debt cancellation.

Lloyd says she is entering double consolidation with her eyes open to the risks and her heart open to the possibility of success.

"All I can be is hopeful," she said. "I'm hoping that there are no mishaps, that my applications are received and processed, and that I'm able to get a reasonable repayment plan, not something that's going to force me to choose between groceries and paying the bill."

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