Parent Plus Loan Consolidation: Cut Your Student Loan Payments

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Consolidating your Parent Plus loans can significantly reduce your monthly payments.

By combining multiple loans into a single loan with a lower interest rate, you can simplify your payments and potentially save thousands of dollars over the life of the loan.

The average Parent Plus loan interest rate is around 7.5%, but consolidation can bring that rate down to as low as 4.5%.

This can translate to hundreds of dollars in savings each year.

What Is Parent Plus Loan Consolidation?

Parent Plus loan consolidation is a process that allows you to combine multiple Parent Plus loans into a single loan with a lower monthly payment and a single interest rate.

You can consolidate Parent Plus loans with a minimum of $5,500 in debt, and the process typically takes 30 to 90 days to complete.

Consolidating your Parent Plus loans can simplify your finances and save you money on interest payments over time.

The Department of Education offers the Direct Consolidation Loan program, which allows you to consolidate Parent Plus loans and other federal student loans into a single loan.

By consolidating your Parent Plus loans, you can also potentially qualify for a lower interest rate, which can save you money on interest payments over the life of the loan.

Consolidation Options

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You can consolidate your Parent PLUS loans in various ways to simplify your payments and potentially save thousands of dollars. One option is to enroll in a standard 10-year repayment plan, which would require a monthly payment of $1,443.26 for a total of $173,191.

Another option is to consolidate and enroll in Income-Driven Repayment (IDR) plans, such as ICR, which could reduce your monthly payment to $709 and total payment to around $99,000 in 10 years. This is a significant difference, especially considering the potential for Public Service Loan Forgiveness.

To access more IDR plans, you can try a double consolidation, which involves consolidating your loans multiple times to remove the Parent PLUS tag. This could make you eligible for plans like PAYE, which has a lower monthly payment of $282 and a total payment of around $40,000 in 10 years.

Here are some key details about the different consolidation options:

Keep in mind that individual circumstances can significantly change results, and these projections assume a 3% annual income growth.

What Is Double and What Does It Do?

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Double consolidation is a strategy that can significantly lower your monthly student loan payments. It involves consolidating your loans twice, which essentially erases the fact that the original loans were parent loans.

This allows you to gain access to income-driven repayment plans, like Income-Based Repayment (IBR), Pay as You Earn (PAYE), and Revised Pay as You Earn (REPAYE), which set payments based on 10% or 15% of your discretionary income.

These plans define discretionary income in a way that shields more of your earnings from the payment calculation, resulting in lower monthly bills. For example, if you had an adjusted gross income of $60,000, your monthly bill would fall to about $330 on a more generous repayment plan.

Double consolidation isn't outlined on the federal website, and your loan servicer might not know about it, but it's not illegal. The one downside is Congress could close access to the loophole by changing the legislation.

By cutting your monthly payment significantly, double consolidation can be a game-changer for those struggling to make ends meet.

Second

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The second consolidation step is a crucial part of the process, and it's a bit more involved than the first consolidation. This is where you'll combine the two consolidation loans from the previous step into a single loan.

You'll need to apply online to a third servicer to make this happen, and the entire process can take at least 6 months. This step is important because it removes the Parent PLUS tag from the loan, making it eligible for other income-driven repayment plans like IBR, PAYE, or REPAYE.

With this plan, you'll pay 10% or 15% of your discretionary income, rather than 20%, which can significantly reduce your monthly payments. This is a huge relief for many borrowers, and it's a key reason why consolidation is such a popular option.

Here's a quick rundown of the benefits of the second consolidation step:

  • Removes the Parent PLUS tag from the loan
  • Makes the loan eligible for income-driven repayment plans like IBR, PAYE, or REPAYE
  • Reduces monthly payments to 10% or 15% of discretionary income

By taking this step, you'll be one step closer to finding a repayment plan that works for you and your budget.

Federal Student Loans

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Federal Student Loans play a significant role in the financial lives of many students and their families.

The maximum amount of Direct PLUS Loans that can be borrowed varies by year of study: $5,500 for undergraduate students, $7,500 for graduate or professional students, and $12,000 for parents of undergraduate students.

Borrowers who are denied a Direct PLUS Loan may still be eligible for a Federal Family Education Loan (FFEL) PLUS Loan.

The fixed interest rate for Direct PLUS Loans is 7.54% for loans disbursed between July 1, 2020, and June 30, 2021.

Direct PLUS Loans have a 4.272% origination fee for loans disbursed between October 1, 2019, and September 30, 2020.

Repayment Options

Most borrowers end up with the standard plan when it comes time to repay their loans, which is also the default plan when no plan is chosen. This plan has a fixed monthly payment and lasts for 10 years.

There are other repayment plans available, including graduated repayment plans that slowly ramp up monthly payments over time. These plans are available for up to 25 years.

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If you're struggling to make payments, income-based repayment plans can help by capping the amount you repay each month based on your available income. This can prolong the life of the loan, but relieve the burden of large monthly payments.

All educational loans, including federal and private student loans, allow for penalty-free prepayment. This means that once you're financially stable, you can put more money towards the reduction of existing student loans without penalty.

Student Loan Repayment Options

Paying off student loans can be a daunting task, but there are several options available to make it more manageable. One option is to pay extra each month, as seen in Example 1, where paying an extra $150 per month can save you $4,421.28 in interest payments and pay off the loan 3 years and 8 months earlier.

If you're struggling to make your standard monthly payments, income-based repayment plans can help. These plans, such as Income-Based Repayment and Pay As You Earn (PAYE), can cap your monthly payments at 10% or 15% of your discretionary income. For example, under the PAYE plan, your monthly payment would be 10% of your discretionary income.

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The standard repayment plan is the default plan for most borrowers, but it's not the only option. Graduate repayment plans, such as the Extended Graduated Repayment Plan, can extend the life of your loan to up to 25 years. This plan can be beneficial if you're struggling to make payments, but keep in mind that it may not be the best option for everyone.

To give you a better idea of the different repayment plans available, here's a summary of the major plans:

It's worth noting that some repayment plans may forgive the remaining balance of your loan after a certain number of qualifying payments, such as the Income-Based Repayment and Pay As You Earn plans.

Why You Might Need a Financial Professional

You might need a financial professional to help with complicated questions about income-driven plans, such as Pay as You Earn (PAYE) and Revised Pay as You Earn (REPAYE).

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These plans are the most affordable, but REPAYE counts spousal income in the payment calculation, while PAYE has stricter eligibility parameters.

Married people may benefit more from Pay as Your Earn and Income-Based Repayment plans, which calculate payment off a single income.

You'll have to file taxes as married, filing separately to qualify, and experts recommend changing your tax filing status the year before in preparation for consolidating.

Loan servicers and financial aid officers cannot provide tax or personal finance advice, and tax professionals often don't understand student loan payments.

A financial advisor with a Certified Student Loan Planner designation and a tax background can help you assess whether consolidating is worth the work for your personal circumstances.

Loan Types

The world of loan types can be overwhelming, especially when considering parent plus loan consolidation. You have several options to choose from, including federal direct consolidation loans and federal family education loans.

Federal direct consolidation loans allow you to combine multiple federal student loans into one loan with a single interest rate and monthly payment. This can simplify your finances and potentially save you money.

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Private student loans, on the other hand, are not eligible for federal loan consolidation. If you have private loans, you'll need to explore other options, such as refinancing or negotiating a lower interest rate with your lender.

Federal family education loans, also known as FFEL loans, can be consolidated into a direct consolidation loan. This is a great option if you have a mix of federal student loans and FFEL loans.

Frequently Asked Questions

What is the parent plus double consolidation loophole?

The Parent PLUS double consolidation loophole is a strategy that allows you to convert Parent PLUS Loans into eligible Direct Consolidation Loans, making them eligible for the SAVE program's generous repayment terms. This is done by consolidating the loan multiple times to change its source.

Will parent PLUS loans ever be forgiven?

Parent PLUS loans can be forgiven through certain programs, but only after consolidation into a Direct Consolidation Loan. Forgiveness is possible through Income-Contingent Repayment (ICR) and Public Service Loan Forgiveness (PSLF) programs.

Is parent plus considered a direct loan?

Yes, a parent PLUS loan is considered a type of Direct Loan, made by the U.S. Department of Education to eligible parents through participating schools.

What are some disadvantages of getting a direct consolidation loan?

Getting a direct consolidation loan may limit your eligibility for future student loan forgiveness programs, including those for graduate school loans. Additionally, consolidated loans may not be eligible for forgiveness, which could impact your long-term financial goals.

Angelo Douglas

Lead Writer

Angelo Douglas is a seasoned writer with a passion for creating informative and engaging content. With a keen eye for detail and a knack for simplifying complex topics, Angelo has established himself as a trusted voice in the world of finance. Angelo's writing portfolio spans a range of topics, including mutual funds and mutual fund costs and fees.

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