A new federal law set to take effect this summer could have major repercussions for existing Parent PLUS borrowers if they don’t act fast, financial aid experts say.
The One Big Beautiful Bill Act, passed last year, includes the largest overhaul to the federal student aid system in decades. Part of that overhaul limits the number of loan repayment and debt forgiveness options available to borrowers. More specifically, it will prevent new Parent PLUS borrowers with a high debt-to-income ratio and those who work in civil service jobs from taking advantage of income-driven repayment plans and the Public Service Loan Forgiveness program.
And while existing borrowers are still able to take advantage of these benefits, based on how Education Under Secretary Nicholas Kent and his staff interpreted the law through regulations, the time to do so is running out.
The regulations, which were approved after negotiation in November and will be finalized this spring, say that in order to maintain access to IDR and/or PSLF, existing Parent PLUS borrowers must go through a procedure called loan consolidation and make their first payment on the new loan by July 1—the same day OBBBA’s new limits take effect. The department recommended borrowers apply for consolidation by April 1 so that their application is processed in time. (Yes, that was two days ago.)
Advocates have repeatedly warned that the department’s proposal puts Parent PLUS borrowers in bind. That’s because the department only gave this group nine months since the draft plan was first approved to learn about the change, determine if they were eligible for these programs, apply for consolidation, get approval and make their first payment.
What makes this time crunch even more concerning, financial aid experts say, is the fact that the regulations aren’t yet finalized. That means loan servicers, aid offices and borrowers are making plans based on the proposal and what they think the final regulations will say, not something that has been codified.
Still, with the soft deadline already passed and July 1 fast approaching, financial aid experts are sounding the alarm and trying to remind borrowers that they need to act quickly to avoid potentially higher monthly payments and the loss of loan forgiveness options.
As the clock keeps ticking, Inside Higher Ed asked Karen McCarthy, vice president of public policy at the National Association of Student Financial Aid Administrators, five questions about what readers need to know. The interview has been edited for length and clarity.
- For the Parent PLUS borrowers we’re talking about, gaining access to an income-driven repayment plan or Public Service Loan Forgiveness hinges on a process called loan consolidation. Can you explain what that is?
Consolidation loans have been around for a really long time, and they don’t really serve the same purpose that they did when they were originally created. They were originally created when people had kind of a mishmash of loans, perhaps from different servicers, different types of loans and multiple monthly payments. A consolidation loan allowed them to consolidate all of their various individual loans into one new loan. But, in this case, it doesn’t really function in that way.
In the law, the Parent PLUS loan itself is not directly eligible for an income-contingent repayment plan, like other direct loans are. So consolidation is a vehicle in order to get those Parent PLUS borrowers eligible for an income-driven repayment plan. You’re kind of converting those Parent PLUS—that’s not the legal term—but it’s like you’re converting the Parent PLUS into a new type of loan, the direct consolidation. It’s just an extra step that’s necessary to be eligible for IDR and PSLF because of the way the law is currently written.
One other important distinction is that this July 1 deadline [when even consolidation will not make Parent PLUS borrowers eligible] is really only for parents who are already in repayment on their PLUS loans, or parents who do not plan to take out new PLUS loans. Once a parent takes out a PLUS loan after July 1—even if it’s in addition to an existing loan—then they have to follow the new rules no matter what. I wouldn’t want someone to jump through all the hoops of doing the consolidation, and then they borrow a new loan in the future and learn, oh, you can’t get IDR anymore.
- So I know we’re past April 1 already. For borrowers who haven’t yet applied, what steps do you recommend they take?
They can reach out to their federal loan servicer to initiate that direct consolidation loan. And I would encourage it, because that April 1 deadline is not a hard deadline. If somebody is interested and it’s past April 1, I would still encourage them to do it.
- You talked about how this is a soft deadline, but that’s because it’s going to take time to process these consolidation applications before the hard July 1 deadline. Have recent staffing cuts within the Office of Federal Student Aid affected the speed at which applications are being processed? And how could this affect borrowers?
I don’t know how quickly they are processing consolidation loans right now over at ED. There’s been a lot of attention on the backlog regarding just general enrollments into IDR and PSLF, and there’s been public reports that show what the backlog is. But that is separate from consolidation applications.
I would say that 90 days [the time between April 1 and July 1] historically is longer than they have taken to process consolidation loans. But I don’t know if by them saying “April 1” it means their expectation is that it will take the full 90 days, or if they’re just offering that window to try to get people to apply early and it won’t actually take that long. It’s just hard to speculate there.
We have encouraged [ED] to devote adequate resources to this, because we expect there will be a big influx in consolidation applications here
- Has the department said anything about whether it will recognize applications that were submitted but had not been fully processed and approved before July 1?
I don’t know if it’s just a decision that [ED] made or if they feel that the wording in the law requires it, but they have clearly said on their pages to ensure that your consolidation loan is disbursed before July 1. So they’re clearly going with the idea that it has to be approved, not just applied before the deadline.
I don’t know if they might reconsider that, depending on what the volume is and their backlog. But I do know that [in past instances of law changes] the department used a little bit of leeway. Because they have that backlog, they’ve said, as long as you had your application in, you won’t suffer those repercussions.
I don’t know if the wording in the law is different, or if [the Trump administration] is just going down a different path.
- So what is the role of financial aid staff in all of this? Is there anything they can be doing to support borrowers as they’re operating under this tight timeline?
Historically, aid administrators are not super involved in the repayment-plan conversation. And I would say, probably even less historically are they engaged in those repayment conversations with Parent PLUS borrowers. However, because this is so significant, I think that many financial aid offices are becoming more involved in these postgraduation loan-repayment conversations than they have been. Some schools are reaching out to their Parent PLUS borrowers, even their current Parent PLUS borrowers, to let them know that if they borrow a new loan after July 1, these are the repercussions in terms of the repayment plans that are available.