(Ep. 212) Unwrapping the Gift of Education from Parent PLUS Loans

Name: (Ep. 212) Unwrapping the Gift of Education from Parent PLUS Loans
Uploaded: 2024-11-12T03:54:29.679Z
Duration: 53 min 54 s
Channel: The Life Crest

The Life Crest

2 Video Views·Nov 12, 2024

For many student loan borrowers, saving money can be daunting. Knowing how to save and where to put your hard-earned money can be a difficult decision to make. Student Loan Advisors Dan Rooker, CFP®, CSLP®, and Ben Lacomis, CSLP®, are here to help you make the best financial decisions. Here’s a sneak peek into savings rates, updated savings and contribution rates for retirement accounts, and other common savings buckets to watch for, as well as examples of where you could save in 2023.

Welcome to another episode of the Student Loan Planner Podcast. I'm Lauren Williams, one of the senior consultants, and I'm joined today by my girl Megan McGuire, and we are talking unwrapping gifts during this holiday season and one particular kind of gift that we'll be unwrapping and talking about specifically today. Megan, welcome to the show. Thank you. I look forward to chatting about Parent PLUS Loans today. That is the gift that we're going to be unwrapping on this podcast. I think it was about time that we dedicated a podcast episode to Parent PLUS Loans. So since we're heading into the holidays, getting into holiday mode, this is a great time to maybe be thinking about your Parent PLUS Loan situation or your parents' Parent PLUS Loan situation. Because you might be going to see your parents, maybe your parents have Parent PLUS Loans for you or for your siblings, or you are the parent that has borrowed Parent PLUS Loans. You gave them this gift of education. So let's start to unpack Parent PLUS Loans. Yes, let's start by giving a round of applause, a round of applause to all the parents who have borrowed on behalf of their children because they wanted to make sure that they had an education. You know, I think sometimes we just, it goes a little bit unnoticed, and the stress related to the Parent PLUS Loans is what we usually inherit when someone books a But we want to acknowledge that it's a really cool thing for you to be able to do for your children. And so like you said, as you head home for the holidays, don't be afraid to say like, thanks mom and dad for the gift of my education because it truly is a gift to be able to go to the school that you want to, not have that money come out of your pocket. And the other thing I would say too is like, if you are not a Parent PLUS Loan owner right now, or a borrower in that case, and you have young children you're thinking about, is don't be afraid to think about telling someone, hey, instead of a physical gift for the holidays, what about a 529 plan contribution? So most 529 plans have a gift link. And that's what I do. I actually don't give any gifts to, like, I don't do adults period. And for anybody under 18, I only make contributions to 529 plans. I'm a financial planner. So if I find out that the kid I want to give to doesn't have one, I help set up a 529 plan. You can actually do it online on your own. You don't need a financial planner. It's a slight side note, but we're talking holiday season, we're talking gifts. This is a great thing to do to say instead of sending, you know, my child this, here's the link. You can send that as a bulk email to all your family members and friends. And it'll really help, you know, so that your child is not having to take on student loan debt. And you're maybe not the person who needs Parent PLUS Loans 10 or 15 years down the road from now. So without further ado, let's jump in and talk about, like, you know, what we should be considering and, you know, what even is Parent PLUS Loans? Who's borrowed Parent PLUS Loans up to this point? So Megan, start us off with some of the statistics. Yeah, yeah. So there's, there is about 3.4 million borrowers of Parent PLUS Loans out there with a current outstanding balance of about $106.3 billion outstanding. So that, that translates into about an average of $29,000 per Parent PLUS Loan borrower. Averages are dangerous, though. That doesn't tell the full story. There are some folks with much less than that who borrow Parent PLUS Loans. There's also folks with much, much more than that. If they had multiple children that they used Parent PLUS Loans for, or if the cost of attendance was a lot more per year. So that $29,000 per borrower is, it means not much to me. It's, it's what your situation is that's important and how we can navigate that when we go into repayment. Yeah, we don't want you, we don't want you to hear the $29,000 if you're a person who's borrowed much more than that and be like, oh my goodness, what did I do? How did I end up with so much, you know? Right. In fact, Megan, like, do you have an idea? Like, what's the biggest person that you've worked with that, or the largest amount of Parent PLUS Loans that you've dealt with? Oh, that's a great question. So I, one of the bigger cases I've had off the top of my head was closer to about $800,000. And it was for four separate children, four separate undergraduate degrees that they had used Parent PLUS Loans for. So we'll, we'll unpack some, some conversations about how you can tackle Parent PLUS Loans, like what that could mean for your financial situation. But let's maybe first talk about how they've been handled by some of the, the more recent things in the news, such as the one-time cancellation, the, the 0% interest in the payment freeze. So right off the top, they, they have been participating, Parent PLUS Loans have been participating in the, the 0% interest in the payment freeze. They are federal, federally held loans. If, if they were not part of the payment freeze, it's because they were those older FFEL Parent PLUS Loans, which those do exist. So if you had borrowed Parent PLUS Loans before 2010, and you, your payments are still going during this environment where the rest of student loans have been paused, you might have those FFEL Parent PLUS Loans that aren't eligible for the 0% interest and for the payment freeze. Something else that they've been included in is the one, well, kind of the one-time cancellation that has been talked about, as we know. It was struck down in the court system about a month ago. And we're seeing what that's going to look like in the spring of 2023, if that 10 or 20,000 is going to come through. But Parent PLUS borrowers were eligible for the 10 or 20,000, depending on if they had a Pell Grant. But some things that they've been left out of potentially, I'll throw that to you. That would be like the PSLF waiver and the IDR waiver, if you want to pick up on that. Yeah. So with the Public Service Loan Forgiveness Waiver, Parent PLUS Loans were not included. And it was a really tough situation for us. So the Public Service Loan Forgiveness Waiver started in October of 2021, and it went until October of 2022. And it gave a lot of opportunities to people who had not previously met the criteria. So they met some of the criteria, but not all of it, to kind of right those wrongs and get themselves on the up and up and have payments counted that would not have previously been counted. And so Parent PLUS Loans are always this kind of like booger that everything doesn't always apply to it. The PSLF waiver was one of those things. So, you know, because they are Parent PLUS Loans, like it's like, oh, you can't actually do this. We were early on in the waiver, there was an opportunity to do what we call a double consolidation and see what happened. But it was a lot harder for you to even have an opportunity to take advantage of the Public Service Waiver. And a lot of people were not able to take advantage of it because of that. So yeah. Yeah. And one just like reality and why some of why Parent PLUS Loans are held out of a lot of things is because they're naturally not eligible for income-driven repayment plans. So Public Service Loan Forgiveness, you have to have the correct types of loans. You have to have, you know, had eligibility to be on an income-driven plan. But Parent PLUS Loans as they are without being consolidated are not. They just they don't have access to income-driven plans unless you consolidate. So that's some reason as to why they were left out of the PSLF waiver. There was some creative ways, like if you had some of your old own loans in the past that you could have taken advantage of the waiver. We had a whole webinar section on that. I think I did a YouTube video on that. So you could search our channel for that if that was something of interest for you. But otherwise, it was very rare that there was some opportunity there if you just had Parent PLUS Loans that were never consolidated. And that's going to stay true for the IDR waiver that's coming out because the IDR waiver is allowing past payments to be counted towards the longer term forgiveness timelines, the 20 or 25 year forgiveness for those income-driven plans. And for the same reason we just talked about for the PSLF waiver, Parent PLUS Loans as they are don't have access to income-driven plans. So they wouldn't be able to take advantage of the IDR waiver unless they were consolidated in the past. And if they weren't, we can only go from here. So all that to say that's why they've been left out of some of these other waiver opportunities. But we will talk about some options here towards the end of this podcast episode. But those are just the more recent things that have been in the news and some of the changes we've been dealing with in our planning that we wanted to touch on first. But let's maybe take a step back and talk about what the heck are Parent PLUS Loans. Anyways, let's talk about the basics. Yeah, so I think one of the cool things that you just brought up or one of the things that you just brought up that really reminded me about how these things are so wonky is that we talk a lot on the podcast about having direct loans and those loans being a lot more available. One of the things that made it really hard for those waivers is like sometimes you see the word direct Parent PLUS Loans. You're like, oh, I got direct loans. And so people were super excited. But that word in and of itself is kind of like with an asterisk on it when you have the Parent PLUS Loan. And so that's where, like you said, even when you do the consolidation, you're now eligible for the ICR plan. You still see this word direct Parent PLUS Loans, but they're not eligible for all of the different repayment plans that are available. So, you know, when we talk about what are Parent PLUS Loans, you know, so you take them for undergrad, for your students undergrad, you're not taking them for their graduate degrees. You are the parent and your child gets accepted to some school. It costs X, Y, Z number of dollars. Your child can borrow via FAFSA, but it's usually about $30,000 that can be borrowed. So, if there's a, you know, $60,000 or $70,000 a year school and $30,000 is over the course of the four years. Total. Yeah. Total, not per year. Let's be clear. It's going to cost you a lot more than that. So, you can borrow for your children's undergraduate education. They are in the parent's name. So, they will be your responsibility as the parent. They will not go in your child's name, even though you are borrowing on behalf of the child. And one of the things, too, is, like I said, they are federal loans. So, they will pass away with the parent. Did you pass away? And that's one of the benefits of having federal loans versus having private loans. Or they'll pass away if the child passed away for whom you borrowed. So, that's a key piece of the puzzle that I think is important to know, because it provides a little bit of security. Obviously, everybody wants to live forever, but none of us will. So, but, you know, a lot of people are very concerned about what happens to the debt when something like that happens. So, are there any other pieces of the puzzle that, you know, we should break down for just describing basically what Parent PLUS loans are, Megan? I think just a couple other notes. So, they can't be moved into the name of the student in the federal system. I think that's a lot of times a big misconception. And so, that means that the Parent PLUS loans themselves are, when you go into repayment, they're going to be based on your information as the parent. So, your job status, your income status, not your child's. They can't be, you know, they can't go from your kid to you or vice versa. The only way you can move them into your child's name is to do a refinance, where you would take the loan to a private company and your child would have to have eligible, like, work history or income information to be able to refinance that into their name. That's one option. We can talk a little bit about that when we talk about repayment here in a bit. But just another fact about Parent PLUS loans is that their interest rates are typically pretty high. Interest rates right now are 7.5% or more. And we're, you know, it's, they're higher than they have been over the past couple of years because of COVID. But they've always been around this high. Like, they've always been much higher than what the student can borrow for themselves. A little bit of history on Parent PLUS loans. They were designed not for lower income families. They were designed for middle class families to be able to borrow, to have a little more just cash flow liquidity, to not have to pay out of pocket for their child's education. And they were okay with a slightly higher interest rate because they could pay it off really quickly. But as the cost of attendance has increased significantly and wages of parents have not been increasing at the same percent, there was an increase in how much people had borrowed in Parent PLUS loans from 2008 to 2018. There was a study that showed that there's been an increase of about 42% of how much student, yeah, how much Parent PLUS loans have been borrowed. And so that goes to show that the cost of attendance has definitely gone up. We know that wages do not keep pace with the cost of attendance for school. That's been talked about time and time again. And so the place to turn to would be loans and aid, and Parent PLUS loans are very easy to access. So I think that's what we were going to talk about next is, you know, deciding if you should be applying for them, what the process is to look at Parent PLUS loans. So I'll turn that to you. Yeah. So like you said, it's really easy to apply for them. They're not looking at your debt to income ratio, which is where, like you said, that lower income person can take on the same, you know, $200,000 or $300,000. You know, maybe you make $40,000 or $50,000 a year, you take on $200,000 or $300,000 on behalf of your child. In most other areas of being able to assume debt, they just wouldn't approve you for that much debt. And so where you see someone with, you said $800,000 as an example, it doesn't matter if you make $400,000 a year and you borrow $800,000 or if you make $50,000 a year and make $800,000. So that makes it a little bit, it's good, but also bad. We're providing access to people, but we're also providing access in a way that, you know, keeps people in a situation where they are not ever financially free or, you know, able to build wealth. So, you know, when deciding to apply for student loans, I think some of the things you should be thinking about, you know, what I hear all the time is like, I really wanted to pay for my kid's education. But what happens in this is like, I wanted to be able to, you know, cover this, but life was happening all along the way. And you didn't get a chance to set up a 529 plan. You had other expenses, your child might have special needs. You had three or four kids and, you know, the different expenses between the three and four kids just didn't allow you to really be able to save in the way that you wanted to. And now you're in a situation where you're not eligible for additional aid or your child didn't get any scholarships or grants or anything like that, but you still want to do, like I said, that give the gift of education to your child. And so, you know, that is the one big thing in the decision-making process. There's a lot of other things though. Megan, you want to talk about some of them? Yeah. Yeah. No, I think sometimes Parent PLUS loans are the only way to turn because you can borrow private loans. So that's, we do pre-debt consultations as well. So that's one of our offerings. We do student loan repayment planning for people that already have the student loans, but we also do pre-debt consultations for folks thinking about taking on debt. So that includes parents thinking about going and borrowing for their child's undergrad education. So we talk about how you have, if savings is not there, if aid is a requirement or necessary to get your child through school, then you have kind of two options. Boils it down to either taking private student loans or the Parent PLUS loans, which are considered federal. And a lot of times in our conversations with our clients, it's talking about how with Parent PLUS loans, there are some downsides. The interest rates are high, but the access is there. And the repayment options are more flexible than maybe private student loans. So private student loans, you can certainly borrow them, but they have nothing interesting associated with them. Like we usually talk about, like they don't have access to income driven plans. They're not usually eligible for any kind of forgiveness opportunity, definitely not through the federal system. So they are just regular old debts that you have to pay back if it's a private student loan. And it's dependent on credit and your characteristics as a borrower. So you may not be approved for a private loan when you could be approved for a Parent PLUS loan. Because what they look for, honestly, is just to make sure that you don't have any other federal or government debt in default already. They want to make sure that you're not defaulting on a debt that's already with the government. Otherwise, you can borrow. One of the things that comes to mind as you're talking about this is like, you know, sometimes it's like this student loan thing is a racket. And one of the hardest things I've seen is, you know, the child can also take on the debt. So when the child takes on the debt, it's always private for undergrad. You know, like we said that we talked about that little bit of federal debt that you can get. But if you've got a, you know, I've seen, and the hardest case that I've had to do from a, you know, a undergrad borrowing standpoint, I've done a few of them actually, is someone who's just graduated. So they're 21 years old, maybe even 20 years old, just getting started with adulting. They are at an entry level job making, you know, $28,000, $35,000 a year, and they're coming to look for help with $200,000 of private debt. So they took that debt on in their name, they generally got a trash interest rate, you know, 14, 15, I've seen 17%. Sometimes they're variable interest rates. And they're like, Hey, we want to just know what our options are. And it is sad every single time I hang up the phone, because there are very little options, you know, you've set your child up for a life of fight, you know, and depending on what they graduated with the undergraduate, undergraduate degree doesn't usually give as many income opportunity. So they have a 200k, that's a pretty nice house in most areas of the United States that they can't live in. And they have not a lot of repayment options. And they have a high interest rate, they don't have a long credit history, they don't have income that would allow them to finance to refinance to a lower interest rate. So you definitely as we think about how to decide to apply for Parental Plus Loans versus not, you might be saying, Hey, I'm not going to take on the debt for my children. It might be that you have a conversation about them going to a different school, then working through school, then going to a technical school before you just give them like, okay, it's fine to go to expensive school XYZ. And you put this debt in your name, and then they get buried. And they start out with a financial future that they can't, you know, really get from underneath. It's really hard. Right? Yeah. No, that's a great point. And that's, honestly, that's probably some of the most heartbreaking conversations we have. And we don't have a lot of those, because this is this doesn't happen a lot, or at least with the clients that we work with. But those situations where we have someone with a ton of private student loan debt, entry level job, not a lot of income opportunity, there's just not much we can do. And so sometimes we are referring them to an attorney to talk about some more serious options, like looking at bankruptcy or looking at, you know, trying to settle that private debt in some way. So that is not a position to be in. So yeah, but borrowing the private loans is a risk. And I say that on all of my pre-debt consultations, because private student loans, they are just far less flexible than even the Parent PLUS loans. I know we were kind of ragging on the Parent PLUS loans a moment ago, and that's not the point of this podcast episode at all. It's just to get you aware of what you're getting into if you're looking at Parent PLUS loans. But Parent PLUS loans do provide more opportunity than private student loans. So if we have to go that route, Parent PLUS loans are certainly an option. You would have to complete a separate promissory note under your name with studentaid.gov. And one thing to think about, and I have many people who have consultations with us, and they say, gosh, I wish I knew this information before I borrowed. One thing to think about is if you and your spouse are looking at this together, think about who the loans should be better borrowed underneath. And first question to ask yourself is who is in public service, if anybody. If one of y'all is in public service, borrow that Parent PLUS loan under that parent's name. So if you're a teacher or a government worker or you're working in nonprofit and you see yourself probably working for the foreseeable future, like you're not going to retire in the next two years, then borrow the Parent PLUS loans under your name because you'll have even more options, including public service loan forgiveness, that you could explore with the Parent PLUS loans that you're borrowing. Another thing to think about is the income earning spouses. So let's say you are the higher income earning spouse in your family, but your spouse also works. They don't make significantly less than you, but they do make less than you. Then it may be better for that lower income spouse to be borrowing the Parent PLUS loans. So why I'm saying this goes back to the ownership of the loans we were talking about at the beginning, where when you borrow the Parent PLUS loans, they're under the name of that parent, not both parents together. That's never the case. You can't jointly borrow Parent PLUS loans unless you individually borrow one loan one semester and your spouse borrows another loan the next semester. So it does have to be under one person. Generally, it probably should be under one person for reasons of the income-driven repayment options in the future. Because when you go into repayment, you can have access to income-driven repayment options, and that payment would be based off of either your joint household income, if you both file taxes jointly, and or if you both have Parent PLUS loans. So that's why I was saying it might be better to borrow under just one parent. Because if you both have Parent PLUS loans, then you're both going to have a student loan payment, and there's no way to exclude each other's. And I mean, there is a way, but it's not really helpful to exclude the other's income. So borrowing under one parent, maybe borrowing under the parent that has the lower income if no one's working in public service. And then I think the options also, there's more opportunity for those who live in community property states. So that's a whole other layer of planning that we can think about. So community property states. This is where we earn our weight in gold in the consultation. It's like, oh, just take these loans and everything will be like, no, no, no. There's a lot of strategy that goes into what makes the most sense. If you're thinking about taking these on, like you said, and where you live matters. Yes. Yep. So community property states, I won't dive too deep into this today, but community property states, there's nine. They generally border the Pacific Ocean or the Mexican border. So California, Nevada, Louisiana, Texas, Washington State, randomly Wisconsin. That's one that's like one out there. There might be a couple others. I'm missing Idaho as one of them. So if you live in one of these states, there are some other unique tax planning opportunities we could talk about when it comes to what your income driven plan could be based off of. So that if you live in one of those states, that might actually be reason to put, well, it just depends. There's just so many different things that go into this future planning that you can do proactively. So if you're someone who's thinking about borrowing Parent PLUS loans or you already started, it's not too early to have a conversation about your repayment plan because your repayment plan starts the second you, well, in my mind, when it comes to like the plan starts the second you borrow the loan, because when you borrow that loan, you've made a decision and that decision will translate into X, Y, and Z planning opportunities in the future. So if we can get ahead of those decisions and strategically talk about repayment, then you're going to feel more prepared when it comes to actually paying back those loans in the future. Yeah. And I think you bring up a really good point as we kind of talk about the future. You know, we're talking about deciding to apply for Parent PLUS loans or not, but you need to ask yourself your future self some questions. So, you know, this is all about planning for the future because you might be paying for these loans over 20 to 25 years. You very much need to think about some of the other aspects. So, you know, think about are you on track for retirement? You know, have you currently been able to save enough so that you are ready to go when you want to be done? Like you're 60 and you're getting tired. You know, normal retirement age right now is 67. Are you on track to be done in seven years? Or, you know, maybe you're like you said in your 40s or 50s. That's generally where the Parent PLUS borrowers are when they have college age children. You know, the window is getting smaller for you to get on track if you haven't been. And, you know, what we notice a lot is that they said people didn't have the ability to be able to save for their children's education, which is why they're thinking about the Parent PLUS loans. They also may have sacrificed saving for retirement because of other things that came up. And now they're trying to get on track for that. So, do you want to take on debt for your child when you are already not on track yourself? And one question I always ask, you know, in the pre-debt consultations are, are you willing to have to, you know, you're taking on this debt for your child, but you might also have to turn and ask them if they can help you during your retirement years because you have not saved appropriately. And that's a hard thing for people to hear. It's like, oh, I didn't really think about, you know, I'm sacrificing for them, but I may also end up putting them in a situation where they can't grow and flourish the way that I want my child to because I need them to help me in my old age because I don't have enough for retirement. So, you definitely want to be forward thinking. You know, will you be able to afford the payment? So, we talked earlier about, like, being able to borrow $200K even though you make $50K. There's going to be a standard payment related to that that could be your whole paycheck. You know, what funds are you spending now if you are a mid to high earner? You know, you're a physician or someone like that, but you live in a high cost of living state, you have multiple children, et cetera. Can you redirect some funds that you have not been able to save up to this point because you've directed them to your child? So, as an example, maybe you've been paying for private school and now you can take the money that you're paying to a private school and that can become the student loan payment and you just kind of keep doing what you're already doing in your monthly budget? Or are you going to have, like, are you already stretched on a monthly basis and now you're going to be adding the student loan payment to the overall scenario? And like I said, again, this could be for 10, 15, 20, 25 years, depending on what payment strategy makes sense to you. But where are those funds going to come from? You know, because like I said, we're always in the moment, like, we need to borrow this much. We need to make it happen. We need to do this. But your future self will thank you if you ask yourself these questions in advance. Yeah. And thinking about other debts that you have in the mix, like if your child is going to school now, that's probably a four-year ramp up period, two to four-year ramp up period where those loans are going to be coming due because when you do borrow the loans, they can go into in-school deferment while your child is going to school. So that's maybe a four-year period where you could dedicate, like, if you do have any outstanding debts that you need to clear up, maybe that's a push to be paying those all off so you could be debt-free by the time those Parent PLUS loans kick in. Because the less other debt payments you have in the mix, the more you could have potentially to be putting towards these Parent PLUS loan payments in the future. So that might be important to think about, too, is what kind of debts do I have already in the mix and what can I clear out before I have to start paying these Parent PLUS loans in the future? And it can also be an arrangement with your children that they pick up a part of the payment, a part or all of the payment in the future. We work with folks all the time that do very different things. We have some parents that come to us when they have the Parent PLUS loans and they want to take full responsibility of the whole payment, and that's fine. We have other parents that take half of it or a percentage of it and their kids take a portion of the payment. So they work at it jointly or collaboratively there. We also have people who have multiple children that borrow these Parent PLUS loans, so they divide the payment between who had how much of the debt or the total Parent PLUS loan balance because it's still borrowed under the parent. It is kind of itemized per student. You could tell who borrowed how much by what school they went to, and they have a loan ID number associated with it, too. So I have some clients that will divide the payment between their three kids, and that makes it affordable for everyone because of just dividing and conquering there. So you could do it many different ways, but those are definitely some things to keep in mind when it comes to budgeting for this payment coming up. Yeah, absolutely. I think that's always one of the most interesting things is deciding what to do once payments do kick in. Like you said, especially if there's multiple borrowers, sometimes it's just like, okay, we got the payment to this and there's four kids, divide by four. And sometimes it's like, well, Jane only borrowed 50 and I borrowed 150, and so I need to pay more of the payment. It's completely up to you, but those are family conversations that need to be had. And once again, they're conversations that you definitely want to be thinking about before you borrow the loans in addition to when you actually have them. I'll reiterate, though, that they are the parent's responsibility. So we've seen some situations where things got a little ugly and the parent was like, I'm not paying for this. And it's like, well, this is in your name. You wanted your child to pay for it, but they're not in a financial position to be able to do so, or they get upset and they're just not going to pay for it. It is your responsibility as the parent. It is not your child's responsibility. So if they wash their hands clear of it, they said, I don't know about the family relationships. We can put some family therapists in the show notes or something. But just be mindful that it is your responsibility as the kid, I mean, as the parent to be able to pay for the loan. And sometimes we get frequently the kid booking and wanting to take responsibility for them, handling them as if they're their own. But it does take some collaboration with the parent because everything is in the parent's name. Yeah, no, that's a good point. And we do our consultations with both the parent and the child on the call or just the child or just the parent. But it does just depend on your family dynamic like you said, there does have to be some collaboration there because you'll as the parent with the Parent PLUS Loans, you'll have your own StudentAid.gov account and your own access to the loans separate from your child's loans. So they may have their own loans under their own name, under their own StudentAid.gov account. So if you're delegating the work to your child for this Parent PLUS Loan, that's fine, but you will still have to be part of the process to an extent because they have to have access to your information. So let's talk a little bit about when do payments begin? Because we talked about what happens when payments kick in, but also when is this actually going to happen for us? So I think you need to be thinking about, well, what do I want for myself based on what my financial plan is? So as soon as they're dispersed, your payments will begin unless you ask for a deferment, which most people do. When your child is in school, you're saying like, okay, I don't want to pay while they're in school. And generally your child, for the loans that they borrow, those loans are going to be deferred while they're in school. They're not going to be required to make any payments. And depending on what type of loans they have, the interest will also be accruing. For your loans, the interest will absolutely be accruing as soon as they are dispersed, because you have the ability to be able to start repaying them as soon as they are dispersed. So option number one is to start paying them immediately. Option number two is to defer them until your child is done with their education. And you can even just do like a six-month grace period after their deferment. So generally the child all gets an automatic grace period. You can ask for a six-month deferment period to kind of get yourself set up once your child graduates as well. So those are some things to be thinking about. We get the question a lot too, like, should I be paying interest while they're in school? Well, we don't technically have to make payments, but interest is accruing. And the answer to that is it depends. It depends on your repayment plan, because if you're someone who's going to be going towards loan forgiveness in the future, it would not make sense to be paying interest, because going the forgiveness route means we're shooting to pay the lowest possible to maximize how much we can get forgiven in the future. But if you're someone who thinks that they're going to be paying these loans off, not relying on forgiveness, then maybe paying the interest while the kids are in school is a good idea. Because when your child graduates and you have to enter repayment for the first time, what's maybe good about Parent PLUS loans is that interest does not compound while the kids are in school. That's unlike a lot of other debts. So that just means that interest will grow on the original principal that you had borrowed. And it grows in its own just accrued interest bucket while they're in school instead of continuously being added to the balance and then the next interest month being charged off of that new higher balance. So that's not the case. It grows at simple interest while they're in school. But interest does capitalize when you enter repayment for the first time. That is the same for your kids as well. The first time you enter repayment is a capitalization trigger where that accrued interest that has not been paid then becomes part of the principal balance going forward. So if you're someone in the boat of, I'm going to be paying this off in the future, not doing forgiveness, then it might be best to aim to pay at least the interest cost per month. So the cost at the time of graduation is not more than you borrowed. Absolutely. I think that's definitely a great consideration as well. The other thing I would say we need to consider about when to decide about the beginning payments is if you have multiple children. So maybe you have three or four children and you're going to be borrowing on behalf of all of them. And you might want to defer until everybody is done with school. So other options exist because this is where strategy once again comes into play. Oh yeah. This is where it can get complicated. Right. I got two that are done. I got two that are in. Or I got two that are done, one that's in and one that is getting ready to go in one or two years, depending on how it was spaced out. But if you have multiple kids, you also want to think about the strategies related to when it makes the most sense to repay, because otherwise you could be throwing money into a black hole paying on one set of loans instead of paying one price for the total amount of loans that you're going to borrow. Yeah. That's a great point. And it does get a little interesting when there's multiple children to plan for. So let's use that to jump into types of repayment because I think that could talk a little bit more about the complexities of multiple children, multiple timelines. So with Parent PLUS loans, as they are, if you did nothing post-graduation but enter repayment, you would only have access to what's called amateurized repayment options. And that's where they just take your balance, they spread it out over a specific period of time, which could be 10, 15, 20, 25, or as long as 30 years, where they take your balance, spread out payments over that timeline, and you pay off the entire balance over that timeline. Those repayment plans are generally called the standard, extended, or graduated repayment plans. So the standard, that can go out from 10 years to 30 years. The extended repayment plan can go out to 25 years. And the graduated repayment options, those can go out those same terms, but they graduate the payments, just as it sounds in the name of the plan. They start the payment out really low, and they increase that payment every two years. So it's not based on income, but it might be meant to mimic income growth over time. But that plan, I call a ticking time bomb, because it is not, again, not based on income. So it just grows every two years when that might be the opposite of what you need. If you're someone who's going into retirement, higher student loan payments 10 years from now is not going to be the ideal. So those are the natural repayment plans that you have access to if you don't do anything. Now, if you do a consolidation, so consolidation is where you combine your loans within the federal system. Let's say you do that post your kid's graduation. You then open access to one income driven plan called income contingent repayment. So just to pause there for a second, there are four different repayment plans under the income driven umbrella, and you're only getting access to one. So I just want to highlight that because where we're heading next is going to make that very relevant. Yes. Yeah, that's a great point. So, yeah, ICR, it is one of the oldest income driven plans. It's based on 20 percent of discretionary income. So it is the most expensive. And it mathematically doesn't really provide a lot of relief to families who have very large student loan balances relative to their income. So this income contingent repayment plan, it's an option, but it may not be a relief. It may not be a payment relief for certain families. So that's and then one option I also didn't mention yet before we get into the double consolidation is refinancing. You can when your kids graduate, you can refinance, which is taking the loans out of the federal system to a private company. You can do that in your name, you and your kid's name or your kid's name depends on credit and the lender's requirements. But that is an option as well. That's that is a permanent decision. So if you go to refinance, that is something you want to feel very confident about, that that was the right move for you because you can't turn back to the Fed system once you do that. But going back to income contingent repayment, let's talk about why we talked about why that plan is maybe problematic. It's expensive and it has it does have a forgiveness timeline of 25 years. But let's jump into what we know and plan off of for folks that might need more relief, the double consolidation. This is like our grand finale, people. It is the bread and butter and the most wonderful thing we've learned about Parent PLUS loans. It is slightly complicated, but it can provide a lot of relief to someone who is in a situation where they need a affordable payment. They need to be in a payment system for a long period of time. The double consolidation kind of loophole and we don't know how long this window is going to be open. We'll say that. But this is why it's a great time you know, as we headed to the holidays, like book a consultation. Have your kids book a consultation or give you the gift of a consultation if you're a parent. So that you can understand how this works exactly, how it may be relevant to you so that you can get the necessary relief. And Megan is our double consolidation magician. So I'm going to break it down on the baseline and then Megan's going to jump in and give you all the details. So double consolidation is basically taking all the different loans that you have. So one piece of the puzzle is if you've already consolidated your Parent PLUS loans, double consolidation won't be available to you. Because when you consolidated your Parent PLUS loans, you already pushed them all together. You have one thing that says Parent PLUS loan, X number of dollars, and that's it. So there's nothing to double consolidate. A double consolidation happens within the federal system. And let's say that you have six student loans that you, you know, taken out over various semesters on behalf of your children. So you can take three of the loans and you consolidate them together. You send them over to one servicer. So let's pick, you know, Mohila as an example, that's a name of a loan servicer within the federal system. And then you take the other three loans and you send them over to Great Lakes, a different servicer. So now you have taken your loans, you've consolidated them, you know, technically already two times and sent them two different directions. And they're held over at those different servicers. They'll say, hey, we have your loans here. We have half of your loans here. Everything is complete. And now what you do is one more time, you consolidate the loans and you bring them back together. So you do just have that one loan and you put them to another servicer. So let's say 8 Advantage as your, you know, kind of third option there. So the loans have gone to different places. They've been squished down slowly but surely. And you've actually done three consolidations total, but it's called the double consolidation because it's like round one of consolidating and then round two of consolidating. Why is this so cool? Because it opens the door. Remember I told you, you can only do one income contingent plan or one income-driven plan, which is ICR, if you just do one consolidation. This one opens the door to those other income-driven plans. So that is pay as you earn, revised pay as you earn, and also income-based repayment, which so many people get confused about. Income-driven, IDR is the name of the program. Income-based is one of the options underneath the umbrella. There's four different options. And now you have access to all of them if you do this double consolidation process. So Megan, jump in and break down, you know, all the things that I left out by giving the high-level view of everything. No, that was a great high-level view. And it's, this is a loophole. So let's, I want to circle back to that because this is not something that you could call your loan servicer and say, hey, I want to do the double consolidation loophole, or I want to double consolidate to have access to pay as you earn or repay. They're not going to know what you're talking about. This is a legitimate legal loophole in the student loan system that was not supposed to be here. So if you go back to what we were talking about at the kind of towards the beginning, Parent PLUS Loans weren't designed for lower income families. They were designed for middle income families who could quickly and easily pay these loans off. So it wasn't important to them when they were designing Parent PLUS Loan repayment to have more affordable repayment options. They had income contingent repayment as the repayment option, which is the more expensive income driven plan, because they weren't anticipating, you know, lower income individuals needing more relief on the student loan payment. That's just the reality of what the thought process was when they developed Parent PLUS Loans. Now, nowadays, we know that they, again, they're easily accessible. They might be necessary for lower income families to be able to send their kid to college if there's no other financing option or no other aid availability. So with that said, the double consolidation is a loophole. So what being closed, it's possible that this could be closed at any point in time. So this podcast, we're going to have this go live in December of 2022. We don't know if it's going to be around in 2025. We can be hopeful and potentially, you know, plan around if this will work. But if you do a consultation with us, we also talk about if it doesn't work, what our plan B would still be. You would still have access to income contingent repayment. I'm also hopeful that in the future, there's going to be better repayment options for Parent PLUS borrowers in general without this loophole, potentially, just easier, better options in the future. But going back to just like the language of how this works, the student loan system designed Parent PLUS Loans to be able to have access to income contingent repayment if you consolidated. And your Parent PLUS Loan has a loan code associated with it. And when you consolidate that Parent PLUS Loan, it tells that direct consolidation that it came from a Parent PLUS Loan. So that is what tells the repayment options or like the system that you only have access to income contingent repayment along with those other amortized options when you consolidate. If we consolidate through this double consolidation method that we're talking about, we're forcing out that Parent PLUS Loan code because we go back to what Lauren had described as we consolidate a portion of the loans with one company, a portion of the loans with a different company. We have two direct consolidation loans that are separate, not at the same company. They both consolidated Parent PLUS Loans. So they both only have access to ICR. The key is when you consolidate them again together, because then what you do is you consolidate two direct consolidation loans together, not Parent PLUS Loans. Parent PLUS Loans is not in the equation anymore. You're consolidating two other eligible loans into one final consolidation loan. And that's what breaks down access to pay as you earn, repay, IVR, which is based on 10% or 15% of your discretionary income. So it can cut that payment in half or less because ICR is also less favorable in its calculation for the poverty line deduction that they calculate. So all that to say is this is a very legitimate way to go about opening access to cheaper plans, but it is a process, right? It is definitely a process. We have to do it by a series of applications. You can only do one online application through the student aid system every six months. So we do have to use paper applications. So we have a YouTube video on how to do this. That's on our YouTube channel. We have an article about how to do this. But again, it is a process. And if you want help walking through it, that's something that all of us are trained to do. So our consultant team can help really walk you through those steps, help get you to the point where this is accomplished correctly because we have the 12 months of email support too. If you wanted to make sure you could feel welcome to forward us your correspondence as time goes on and just make sure that all the T's are being crossed, the I's are being dotted, it's getting done correctly because it is a one-time shot at doing it. If it's done incorrectly or the service just consolidates all the loans together and you have one consolidation loan, then you don't have a chance at the double consolidation again. It's a one and done kind of opportunity, if that makes sense. The double consolidation is the gift of all gifts this holiday season. If you learn this information and you know someone who might have borrowed for their children, you are the person who borrowed for your children, has not yet consolidated, or you are a child of someone who took out Parent PLUS loans on your behalf, like shout from the rooftops because this could be a game changer for that person's overall finances. We've got to be future thinking. It's the time of the year, like I said, we're buying ugly sweaters and we're picking up eggnog on the way, but what does it mean to get a real gift that can be impactful for the rest of someone's life? I think this is absolutely that opportunity to be able to do that. If you want to book a consultation, you know where to find us, studentloanplanner.com. In addition to that, I'll say that Megan does usually some follow-up consultations. Sometimes people book the Parent PLUS consultation and they're just a little bit overwhelmed by the process, so they like to come back and book a second consultation. Usually that one is booked with Megan because she is our queen of paperwork. She'll sit and go over the paperwork line by line as you fill it in to make sure you don't make any mistakes because some people get really nervous. We give very thorough instructions, like I said, we give these instructions out for free via the YouTube channel, via the blog, but sometimes it just is worth it to invest in making sure that it's done right, making sure that your overall plan is in place. We definitely want to wish you happy holidays. We want you to enjoy your time with the family. Enjoy taking a break if you're not hanging out with family because this is the time of year where everybody stops working, but as you set those New Year's resolutions, don't forget your financial goals and just maybe invest in taking some time to make sure that you have the clarity you need so you have the best overall plan for yourself because student loans are just one piece of your puzzle. There's your budget, there's your other debts, there's your retirement, there are your investments, your tax situation being efficient in that regard, are you properly insured, and do you have estate plan documents in place? You know, who gets your wealth when you pass away? That's full financial picture. So, you know, there's a lot of things to be thinking about and no better time than wrapping up this year thinking about the goals you set and achieved, the goals you set maybe didn't achieve, and what do you want for 2023. Megan, anything you want to say as we head on out? Gosh, that was a wonderfully wrapped up, like you tied that bow perfectly on top of this, so I'm gonna leave it at that. Thank you for wrapping up this episode so nicely and I hope this helps people just have some kind of nugget of information to take to help your parents, help your own situation, know that you're not alone. That's another thing I want to make sure you feel not, I don't want you to feel alone or judged. This is a safe place to talk about your student loan situation and to learn some information about how to tackle the student loans judgment-free zone completely. So, I hope this helps take a nugget of information with you and I echo Lauren's last closing remarks. Have a wonderful holiday season and I can't wait to see you guys in the new year, 2023. All right, see you all next year.