Public Service Loan Forgiveness has been in the news quite a bit in the past few months. There are proposals to cap the forgiveness amount, or eliminate the program altogether. To better understand if this is the right path for you, let’s take a quick look at the eligibility requirements, and some of the pros and cons of the plan.
The Public Service Loan Forgiveness program was originally passed in 2007 as part of the College Cost Reduction and Access Act, and makes it possible - provided you meet certain requirements - to make loan repayments for just 10 years with the remainder of the interest and principal written off.
The idea of having your loans forgiven after 10 years is very enticing to a number of medical professionals who are carrying large debt burdens ($180K) on average. But before you make a very serious decision about your financial future, it’s important to understand the requirements and some of the tradeoffs you must make when you choose this option.
Before you pursue this repayment course of action, be mindful of the fact that there are a number of requirements that borrowers need to satisfy in order to be eligible for the Public Service Loan Forgiveness (PSLF) program.
- Qualifying Employment – You must work in “public service.” This is defined as working for a governmental organization, not-for-profit organization that is tax-exempt, or a not-for-profit organization that provides a specific public service (ex: public health).
- Qualifying Employment Status – You must be a full-time employee of the organization.
- Have a Qualifying Loan – This means a Direct Loan. If you have other federal student loans you can consolidate them into a Direct Consolidation Loan.
- Qualifying Repayment Plan – All of the government’s income-driven repayment plans are qualifying plans.
- Make 120 Qualifying Payments – This means you make all of your monthly payments reliably, on-time, for 10 years. A payment only qualifies if it was made after October 1, 2007 – so the first group to qualify for PSLF will see debt forgiveness in 2017.
An Important Career Choice:
In order to qualify for Public Service Loan Forgiveness, you must work for a qualifying employer. While this seems like a fairly simple requirement to achieve, bear in mind that you are ultimately making a career decision when you pursue this path. By making the choice to work in public service for the specific benefit of PSLF, you are eliminating the option of private practice work. Not only is it possible to make more money in the private sector, but some physicians may prefer private practice as an overall career choice. Letting the promise of student loan forgiveness shape your career choices may ultimately lead you down a path that isn’t right for you. That being said, for physicians who have their sights set on serving patients in a public hospital or focusing on research, PSLF is a great option. Before making this important decision, think carefully about your goals – don’t let your debt drive your career path.
The Federal Government Has Discussed Restricting the Program
Most recently, graduates have become quite nervous about Public Service Loan Forgiveness under President Donald Trump. Going forward, the Republican Congress and President Trump have talked about eliminating the program.
However, the President has also mentioned capping loan payments at 12.5% of borrowers’ income and forgiving loan balance after 15 years. There is simply too much uncertainty with the new administration to rely too heavily on Public Service Loan Forgiveness.
It’s an Incentive, Not a Solution for Managing Medical Student Loan Debt
Public Service Loan Forgiveness and other forms of loan forgiveness tied to income-based repayment plans are designed to be incentives, not solutions. Having a portion of your debt forgiven may make a substantial dent in your overall debt burden, but unless you’re committed to serving in the public sector, it doesn’t make sense for you. For medical professionals, there is heightened risk that they will be removed from the program altogether. Many publications, including the WSJ, have identified flaws in the program stating that the program encompasses more workers at higher salaries than originally envisioned, calling it– a “doctor’s loophole” in the program. This increased attention from the media is calling into question the sustainability and survivability of the program. We believe you should approach this program with caution. Take a minute to review the eligibility requirements and see how they match up against your career goals. Note that this program is still in its early days, so expect changes in the near future. Arming yourself with knowledge about the pros and cons of PSLF will ultimate help you make the right decision for you.
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Splash is a finance company that provides an online lending option for medical residents and fellows who are looking to refinance their student loan debt, while keeping career and life options open. Splash has a unique loan refinancing package that gives borrowers the option to make minimal monthly payments during their residency and fellowship. This allows them to retain more of the money they earn, giving them flexibility in their monthly budget they won’t get from anyone else.