Public Service Loan Forgiveness
In celebration of the new medical year and a bunch of new residents and attendings, I wanted to take a close look at the Public Service Loan Forgiveness (PSLF) program and how it can benefit you when it comes time to repay your student loans. I’ll start by looking at what you actually need to do in order to apply for PSLF and some common pitfalls with the application process, but I will mostly focus on the benefits of the program and why the decision to stay at a not-for-profit hospital may make more sense than private practice in the beginning. Lastly, I’ll go into the future of the PSLF program as there has been some anxiety about whether or not the government will continue with the program or defund it through new legislation.
In order to be eligible for the PSLF program you must work for a qualifying employer, one that is a registered 501(c)(3) non-profit or be employed by the government. Many hospitals are registered as non-profits, so in general your time working as a resident counts towards employment with a qualifying employer. While working full-time for a qualified employer, you must make 120 qualifying monthly payments under a qualifying repayment plan in order to qualify. Let’s hope you’re qualified. This means that you’ll need to work full time for a non-profit for 10 years and pay every month, but after that time period, the balance of your loans are forgiven tax free. You must also be on an income driven repayment plan for your loans in order to qualify for PSLF. There are a number of income driven repayment plans out there, but finding the right one for your situation is a topic for another discussion. The last piece is that you must have a qualified loan which are Federal Direct Loans. If you received Federal Loans before 2010 they may have been through other government programs and will not qualify unless you consolidate into a Direct Consolidation Loan. While this seems like a lot of hoops to jump through, in most cases you’re already doing most of the requirements they set forth in order to take part in the PSLF program.
We’ll look at how the decision to get paid more vs stay at a non-profit and help your loans breaks down later, but for now let’s look at the most common pitfall for PSLF.
If you want to apply for PSLF fill out this form as soon as you can. Many people wait for a few years before submitting this form and will realize that those years don’t count towards PSLF. That’s the biggest pitfall, people believe they’re taking advantage of PSLF but haven’t submitted that form yet, and those years won’t count towards forgiveness. The next stumbling block is that you must submit that form annually. Every year you must re-submit the form in order to maintain PSLF status, which is kind of a pain, but that’s the way it’s set up. You must also re-submit the form if there is a change in employer. Many people assume that you simply apply for PSLF, make your 10 years of payments, and you’re good to go. You must re-submit that form every year, and with every employer change. I know I sound like a broken record, but I would hate someone to be on track to get their loans forgiven and get tripped up due to one of these pitfalls. The last simple but easy mistake to make is when you finish your payments, what do you do? If you answered “celebrate being free of student loans!” then I have some bad news for you. When you finish your 120 monthly payments, you then must resubmit the form I linked earlier while still working for a qualified employer. After that has been approved, the remaining balance on your student loans will be forgiven and the best part is that that remaining balance is not seen by the IRS as taxable income so you won’t be hit with a big tax bill.
Should You Stay or Should You Go?
One of the big decisions you’ll need to make is whether to go into private practice or stay in hospitals or fellowships. Unfortunately, student loans will likely play a large part in that decision as you decide what’s best for you and your family. For those who have started the PSLF program in residency, the choice may be a little easier as you’ll likely want to do your 10 years and have your loans forgiven as an extra incentive to stay in the hospital world. For example, if you went into a pediatrics residency vs. a neurosurgery residency, the views would be very different. For pediatrics, you’d have 3 years in residency and then need to work for 7 years in a non-profit in order to finish out the PSLF program. For the neurosurgeon, it’s 7 years in residency and then only 3 years are required to finish. So, depending on what residency you’re doing, you could have vastly different timelines for how long you would need to spend in non-profits after residency.
Let’s look at salary comparisons and how PSLF can tip the balance. I’ll use some round numbers to make it easy, but if you want the specifics for your situation, please send me an email and we’ll figure out your situation together. Say you’re doing your residency in general orthopedic surgery, which takes you 6 years, and you have $300,000 in student loans at 7% interest. After residency you’re offered a hospital job for $425,000 and a private practice job for $475,000. The yearly pre-tax value added by being on PSLF is $113,900 but let’s just say $110,000. So when you need to decide on whether to go with the hospital job or the private practice job, add that $110,000 to the hospital job, so that the salaries are $535,000 to $475,000. This is obviously using rough numbers for the median salaries and such, but you can see how being on PSLF can drastically change your perspective when it comes time to decide which path to take.
The Future of PSLF
There has been a lot of debate over whether PSLF will continue to be funded or if it will get taken away through legislation in congress. At this time it seems that PSLF will be sticking around as the legislation would need an act of congress to pass. Regardless, if PSLF was defunded it would be such that new applicants would no longer be able to receive the programs benefits, those currently on the program would be able to finish it out. Obviously this is a great program, and I would like to see it continue on, but for those worried about your benefits being taken away, I would rest easy. As this situation develops, and given Congress it could take awhile, I’ll be sure to update this to give you a more accurate reading on the future of the PSLF program.
Congratulations again to the new residents and attendings, I wish you nothing but the best of luck as you take this next step! What do you think of the PSLF program? What repayment methods are you using? Please leave and comments or questions below!