Student loan debt is like an iceberg that has the potential to sink physicians financially unless they figure out how to manage it. Public Service Loan Forgiveness (PSLF) is a radar-like management tool for physician borrowers.
PSLF is a free federal program that started in 2007 and allows certain federal student loans to be forgiven after 10 years of on-time monthly payments, often at a reduced monthly payment amount, for physicians employed by nonprofit or public health systems.
In order to gain a better understanding of the program and how it works, here are the most common questions we receive from new physicians when they are deciding if PSLF is a fit for them.
How can I find out if my hospital qualifies?
The first thing to do is to identify who is paying you—are you an employee of the hospital or another entity? Some physicians are employees of the hospital. In many cases, physicians are employed by a physician group or a university. Your most recent IRS Form W-2 will identify your employer.
Second, determine the nonprofit status of your employer. Hospitals and physician groups may be nonprofit or for-profit. In some cases the status is unclear. Last year, a prestigious and profitable hospital told us their physician group was a for-profit entity. When we asked for confirmation, we learned their legal tax status was actually nonprofit. In order to figure out tax status, ask for the federal Employer Identification Number (EIN). By obtaining this information you can determine if the group is nonprofit and qualifies you for PSLF—or privately owned or for-profit, which would make you ineligible.
Will Congress change the program in the future? Or, if Congress changes it, what happens to me?
Because PSLF can be changed through an act of Congress, we find that physicians have questions about the future of the program. There are a few reasons why we recommend physician borrowers consider PSLF as a viable option now for loan forgiveness.
First, experts believe that the high cost of medical education and the growing physician shortage create compelling public policy reasons to continue the program into the future. In addition, the original purposes of the law still exist. PSLF was created by The College Cost Reduction and Access Act of 2007 to protect borrowers from excessive student loan repayment burdens and to encourage employment in the public and nonprofit sectors. The Act cut subsidies to private student loan lenders estimated to cost U.S. taxpayers $87 billion. Those savings are redirected to programs to help borrowers.
Second, precedents exist for extending benefits to current participants in the event of future changes. According to university financial aid officers, when changes are made to federal student loan programs, existing participants have been grandfathered in.
Finally, a borrower ultimately remains responsible for the repayment of student loans, so we recommend that our clients work with a financial advisor to establish and make regular contributions to a contingency fund to serve in the case of adverse changes.
I heard there is a $57,000 cap on amount forgiven. Is that true?
No. There is no cap on forgiveness with PSLF. This figure was proposed in President Obama’s 2015 budget proposal as a possible cap, but Congress took no action.
I made payments during residency. Do they count toward the 120 required for forgiveness?
The earlier physicians start repayment, the more benefit they will attain. However, many residents and fellows don’t have the time to fully understand the options. Recently a physician finishing her training told us, “We are dying for good information on student loan forgiveness. You made it easy.”
If the payments were made after October 1, 2007, on Federal Direct Loans where the location that the residency occurred is a qualifying public service organization and payments were made under a qualifying repayment plan, then they qualify.
Should I consolidate my loans?
This depends on the loans you have. If some or all of your loans are not eligible for PSLF and you wish to participate in the program, you will have to consolidate into a Direct Consolidation Loan. Only loans received under the Direct Loan Program are eligible for PSLF. If you have loans from programs that are not eligible, such as the FFEL Program or Perkins Loan Program, you can consolidate them into a Direct Consolidation Loan in order to qualify for PSLF.
It’s our goal to raise awareness about Public Service Loan Forgiveness. When early-career physicians understand their student loan forgiveness options, they feel equipped to make informed decisions and avoid financial icebergs.
Joy Sorensen Navarre is the president and founder of Navigate LLC, which has helped hundreds of early-career physicians understand their student loan repayment options, evaluate the results and make solid decisions. She can be reached at (612) 209-2382.