You probably shouldn’t trust anyone offering you free government money unless that person happens to be dancing around the nation’s capital wearing a blue leisure suit with question marks on it. Know what I’m sayin’? But hear me out.

If you have more than one PLUS or GradPLUS loan at an 8.5% fixed rate (loans taken out between July 1, 2006 and July 1, 2010), you can consolidate those loans into one 8.25% fixed-rate loan. Welcome to the PLUS consolidation loan loophole.

Here’s how it works: when our geniuses in Washington raised the PLUS rate to an exorbitant 8.5%, they forgot to raise the cap on consolidation loan rates. The consolidation loan rate cap is 8.25%. Thus, if you consolidate two PLUS loans, you’ll automatically save .25%.

For example, suppose you have two $20,000 PLUS loans that you’re paying off over ten years. Monthly payments are $247.97 on each loan, or $495.94 total. Over ten years, you will pay $19.513.32 in interest.

Now suppose you consolidate those loans. Your monthly payments will fall to $490.61–which, granted, is about enough to buy two sticks to rub together to keep warm. But over ten years, you’ll end up paying $18,873.29 in interest–a savings of $640.03.

If you’re paying over 20 years, the savings are bigger, but, of course, your total interest will be higher. In the example above, if you extend the repayment period, you will pay $347.13 each month and wind up paying $43,310.76 in interest. Consolidate, and your monthly payment falls to $340.83 (yay, two sticks!) and your total interest payments equal $41,796.93. Your savings: $1,513.83. That’s a lot of sticks!

So it’s not exactly huge, but it’s free money. So how do you apply? Head on over to the Department of Education’s Direct Consolidation Loan program to see if you qualify.


  • Reduced interest rate means lower monthly payments.
  • Single monthly payment (a potential monthly savings of $0.44, the cost of first class postage).


  • Consolidation loan terms may be less generous than original loan terms. Make sure you compare the terms of your current loans with the terms of your consolidation loan.
  • Your original PLUS loan interest rate might be lower than 8.5% or might offer a rate discount for automatic withdrawals.
  • Those with new PLUS loans (as of July 1, 2010), which have an interest rate of 7.9%, obviously can’t benefit.

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