Parents who took federal loans to pay for their kid’s college education can use a loophole to cut their monthly repayments, student loan experts say. 

When President Joe Biden announced plans to provide relief to the more than 40 million Americans with federal loans, he excluded these so-called Parent PLUS Loans from the most lucrative income-driven repayment (IDR) plans. There are 3.8 million Parent PLUS borrowers, and they're disproportionately Black and Latino. And they're only eligible for the Income-Contingent Repayment (ICR) plan, which has higher monthly payments than the other plans.

The only way parents can access one of the more money-saving IDR plans is through a loophole, but they must act fast. The Department of Education knows the loophole exists and plans to close it July 1, 2025. 

What is the ICR plan? 

The ICR plan is always available for Parent PLUS Loan holders:

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Payments under the ICR plan are always based on your income and family size. It’s the lesser of: 

• Twenty percent of your discretionary income. 
• Fixed payments over 12 years, adjusted according to your income. 

Note: In some cases, your payment can be higher than the amount you would have to pay under the 10-year Standard Repayment Plan, the Department of Education warns. 

◾ Repayment length: 25 years. 

◾ Parent PLUS loans must be consolidated into a direct loan to be eligible. 

Buried under student loan debt:Some who took out parent PLUS loans to send their kids to college expect to die with debt

How ICR compares with other repayment plans? 

◾ All other plans produce lower monthly payments because they are based on a lower percentage of your income and usually have lower interest rates. Payments are capped at between 10% and 20% of your discretionary income. Under the new SAVE plan, for example, more of your income is also protected from student loan payments and the payment cap will be cut in July to 5% for undergraduate loans.

Say you earn $50,000 annually and have $100,000 of Parent PLUS loans. The ICR monthly payment would be $590, while the SAVE plan would be only $143, according to Student Loan Planner, which helps people manage student debt. 

◾ Some plans also have shorter repayment periods. and remaining loan balances are forgiven after 20 or 25 years of payments. If you're eligible for Public Service Loan Forgiveness, you can get your remaining debt forgiven after just 10 years in an income-driven plan. 

◾ The new SAVE plan also has an interest benefit. If you make your monthly payment, your loan balance won’t grow due to unpaid interest that accrued since your last payment. 

How can Parent PLUS Loan holders get a better repayment plan? 

It’s time-consuming, complicated and requires a careful double consolidation of loans by July 1, 2025, to access the most lucrative SAVE plan.

First, parents must have more than one PLUS loan. “You can only benefit if you have more than one,” said Stacy MacPhetres, senior director of education finance at EdAssist by Bright Horizons, a provider of educational advisory services to organizations and families. If that's your situation, experts say do the following: 

• Initiate the first consolidation process on paper for your existing Parent PLUS loans so they’re with two different servicers and choose the ICR plan. You must do this on paper and mail it because you’ll only be allowed to do one online consolidation, which comes next. Approval can take up to 90 days. 

• Once you receive confirmation those loans have been consolidated, you have to consolidate again. You consolidate those loans together online with one, new servicer. The new servicer will no longer be able to see that the original loans were Parent PLUS loans and you’ll be able to sign up for an IDR plan with lower payments, MacPhetres said. 

If you can get all of this done by April 30, the government will adjust payment counts for the consolidated loans to start from your very first payment, which could bring you closer to forgiveness. 

If you’re just starting the consolidation process now, it’s unlikely you’ll finish by April 30, but that shouldn’t deter you. “You’ll still get credit, just not the full credit,” MacPhetres said. “They’ll do a weighted average.”  

For example, if you have a loan that’s been in repayment for three years and another for four, you can get 3.5 years of payments counted toward your forgiveness, she said. 

How many people can benefit from the loophole?

Parent PLUS borrowers owe more than $112 billion, accounting for 13% of the total outstanding federal student loan debt, according to Senator Chris Van Hollen, who has called on the Biden administration to expand student debt relief to cover these borrowers.

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.