Federal Guardian PLUS loans should not instantly eligible for income-driven compensation plans. Nevertheless, there are two loopholes involving consolidation of Guardian PLUS loans that may make them eligible for income-contingent compensation or all income-driven compensation plans.
The second, which is named the scholar mortgage double-consolidation loophole, will finish on July 1, 2025.
Eligibility for Revenue Contingent Compensation
If a Guardian PLUS mortgage is included in a Federal Direct Consolidation Mortgage and the borrower entered compensation on or after July 1, 2006, the consolidation mortgage is eligible for the income-contingent compensation (ICR) plan. [34 CFR 685.208(a)(2)]
The Guardian PLUS mortgage isn’t instantly eligible for any income-driven compensation plan. The consolidation mortgage can be not eligible for every other income-driven compensation plan. [34 CFR 685.209(a)(1)(ii), 34 CFR 685.209(c)(1)(ii) and 34 CFR 685.221(a)(2)]
These rules 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 compensation (ICR) plan is “not out there to the borrower of a Federal Direct PLUS mortgage made on behalf of a dependent scholar” and the income-based compensation (IBR) plan isn’t “out there to the borrower of a Federal Direct PLUS Mortgage made on behalf of a dependent scholar or a Federal Direct Consolidation Mortgage, if the proceeds of such mortgage have been used to discharge the legal responsibility on such Federal Direct PLUS Mortgage or a [FFEL PLUS Loan] made on behalf of a dependent scholar.”
All income-driven compensation plans are primarily based on the statutory authority for ICR or IBR.
How Double Consolidation Works
If a borrower consolidates a consolidation mortgage that repaid a Guardian PLUS Mortgage, generally the income-driven compensation plans will likely be out there 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 Guardian PLUS Mortgage. The unique sort 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 isn’t eligible for an income-driven compensation plan, as it’s opposite to the intent of Congress. Nevertheless, they’ve been unable to implement their interpretation of the regulation and rules due to insufficient monitoring of the unique sort of the loans that have been consolidated.
Double consolidation is a multi-step course of.
- The borrower should consolidate their Guardian PLUS loans with two totally different servicers. To do that, they have to submit paper consolidation mortgage functions. (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 compensation plan with these consolidation mortgage functions to forestall the consolidation mortgage functions from being rejected due to a failure to specify a compensation 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 could be performed 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 Guardian PLUS loans. The brand new consolidation mortgage will then have misplaced the tag exhibiting the origin of the consolidation mortgage as together with a Guardian PLUS Mortgage.
- Usually, one must wait 180 days earlier than consolidating a consolidation mortgage, as in any other case the loans could be merged into one of many current consolidation loans. Utilizing a 3rd servicer bypasses this limitation.
The Finish of the Pupil Mortgage Double-Consolidation Loophole
The new income-driven compensation plan rules, which have been revealed 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 father or mother PLUS loans or Direct consolidation loans that repaid a father or mother PLUS mortgage being solely eligible for the ICR plan. Up to now, limitations in Division knowledge might have enabled a father or mother 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 presently 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 strategy of consolidating in response to current administrative actions, together with the restricted PSLF waiver and the one-time cost depend adjustment.
As a result of a few of these debtors could also be together with father or mother PLUS loans in these consolidations with out understanding that they would wish to exclude that mortgage sort to keep away from complicating their future IDR eligibility, we will likely be making use of this clarification for any Direct Consolidation mortgage made on or after July 1, 2025.”
“Modifications: We added § 685.209(c)(5)(iii) to offer {that a} Direct Consolidation mortgage made on or after July 1, 2025, that repaid a father or mother PLUS mortgage or repaid a consolidation mortgage that at any level paid off a father or mother PLUS mortgage isn’t eligible for any IDR plan besides ICR.”
Sensible Suggestions
There’s ample time for present Guardian PLUS Mortgage debtors who’re in compensation to reap the benefits of the double-consolidation loophole earlier than it’s eradicated.
As of March 31, 2023, as many as a complete of $111.7 billion in Guardian PLUS loans to three.7 million debtors might probably have the ability to use the double-consolidation loophole.
If a borrower of a Guardian PLUS Mortgage makes use of the double-consolidation loophole to modify into the REPAYE plan, they’ll routinely be switched into the SAVE plan when it turns into out there.
Guardian PLUS Loans and Federal Direct Consolidation Loans that embrace Guardian PLUS Loans are eligible for Public Service Mortgage Forgiveness.
