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Loophole for parent borrowers shut out of student loan relief measures


President Biden's ambitious new plan to help student loan borrowers, explained

Once families hit their federal student loan limits, they often turn to federal Parent PLUS loans to secure the financing they need to send their children off to college.

As college costs rose, so have student loan balances, and the share of debt owed not just by graduates, but their parents, as well.

Parent PLUS loans account for $111 billion

There could be help for parents after all

“The gist is that if you consolidate a consolidation loan, and are careful about how you go about doing it, that new loan will be eligible,” Kantrowitz explained. This also entails switching to a different loan servicer and submitting a paper form, among other steps, so the new loan is no longer tied to the original Parent PLUS.

Still, the extra legwork is worthwhile. By switching from income-contingent repayment to SAVE, for example, payments on undergraduate loans could be reduced from 20% of discretionary income to 5%. “It cuts the payment potentially by a factor of four,” Kantrowitz said. “It is a dramatic difference in the monthly loan payments.”

The savings over 20 years could amount to “thousands or even tens of thousands of dollars,” he estimated.

But, “there is limited time left to take advantage of it,” Kantrowitz also added. The U.S. Department of Education said that it will close this loophole after July 1, 2025.

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