You shouldn’t worry about public service loan forgiveness

Anger. Jealousy. Envy. Frustration. I was feeling all the emotions when NYU announced in August that their incoming and subsequent classes would be tuition-free into perpetuity. One consolation: at least I wasn’t one of the chronologically unfortunate that graduated from the school just months, or a year, before that announcement. For them, the time difference was small, but the difference in loans was vast — one year of tuition costs about $55,000. For four years, you’d be amassing some $220,000 of borrowings — again, before that announcement.

Loan grief afflicts us particularly in the medical profession because two-thirds of medical graduates have more than $250,000 in debt by the time they finish school. When we signed promissory notes for our direct loans at the start of medical school, public service loan forgiveness was a promise we thought would be kept. The deluge of articles over the past weeks regarding the first cohort of public service loan forgiveness (PSLF) recipients has my classmates feeling a whole different kind of emotion.

Fear.

That’s because of the 36,505 to apply for PSLF, only 96 have been approved, making it seem like the government is making bad on their promise. What we were frequently told about PSLF — that it will make our six-figure loan burden a manageable part of our career — appears a distant and vanishing prospect.

I argue that needn’t be true. Others have written extensively about why this batch of PSLF applicants hasn’t been widely approved, with plenty of accompanying horror stories, all of which I beyond sympathize with. In sum:

1. Only direct loans can be forgiven. The direct loan program was created under President Obama in 2009, and the first batch of applicants have been in repayment between 2007-2017. How many of those applicants converted all their Perkins loans to direct loans? Probably 96.

2. One-hundred twenty qualifying payments are required: a qualifying payment requires that you are a.) not in pre-payment of your loan, b.) work for a qualifying employer that’s either 501c3 non-profit or otherwise qualified under the program. How many people made exactly 120 qualifying payments? Exactly 96.

Ninety-six people followed all the rules, and now the fear is that the rules are too hard for everyone else to follow. This logical fallacy assumes the vast majority of PSLF applicants will repeat the mistakes of the 36,505 instead of emulating the 96 success stories.

1. Ensure your loans are all federal direct loans by converting any non-federal loans to a federal direct loan. Have you taken out personal loans? Private loans? Institutional loans? None of these loans are eligible for PSLF. What if you have Perkins loans from 10 years ago that have been in deferment? Those may not qualify either. How do you make sure all your outstanding student loans become forgivable? Use the direct consolidation loan to pile all your non-direct loans into a single pot. The government pays the bank or institution for your loans, and now you owe Uncle Sam. If you’re unsure, ask your loan servicer to review your loans and see if they qualify for income-driven repayment and PSLF.

2. Ensure you work for a qualifying employer by making the Department of Education your loan servicer. The biggest problem of the 2007-2017 cohort of PSLF is that they were getting their information from a wide variety of loan servicers who weren’t ultimately responsible for forgiving the loan. Today, before you make your first payment on your direct loans, you can make the Department of Education your loan servicer by filling out this employment certification form. The Department of Education will tell you if your employer is a qualifying employer and if your payment is a qualifying payment. You don’t have to wait ten years to find out you weren’t making qualifying payments!

3. Ensure that you’re making qualifying payments by using an income-driven plan. And don’t prepay. If you visit your loan servicer’s website, they’ll pre-populate a calculator with all of your loans and tell you which are eligible for what forms of repayment. Depending on your repayment plan, your marital status, (and sometimes the size of your spouse’s student loans), you may be required to pay 10-20 percent of your discretionary income. Discretionary income is defined as every dollar you make above the federal poverty line. (Which is defined by your family size.) Also, if your spouse makes six figures while you work in public service, your monthly payments might be just as high as standard repayment, and your forgiveness amount may be small.

4. Do not pre-pay your loans. There’s a small amount of legalese required to understand what’s considered a “qualifying payment.” You need exactly 120 of these before you can file for PSLF. So, it’s important to realize one important caveat of what’s a “qualifying payment.” Any time you overpay from what you owe that month, the balance is carried over to the next month. Then the next month’s payment isn’t considered a “qualifying payment.” For example, my monthly student loan payment is $400. I decide I want to pay three months in advance with my Christmas bonus. I pay $1,200 in December. That’s one qualifying payment. Then $400 gets applied to January and February. Neither of these is a qualifying payment, even though I’m actually ahead on my loan. I’ve delayed my loan forgiveness by two months by prepaying my loan. Better to hold on to the money until it’s due and not prepay on my loan.

Finally, a big disclaimer. PSLF only makes perfect sense if you plan on training for a long time and you have a high loan burden. If you’re training in residency and fellowship for 6 to 7 years at a 501c3 hospital, then your payments under income-driven repayment will be lower than the standard repayment, and you’re more than halfway to 120 qualifying payments. If your student loan burden is otherwise low, then it might make sense to pay off your student loans in two to three years after finishing a three-year residency. Everyone’s situation is different, but PSLF makes the most sense if you plan on training long.

Rishi Thaker is a medical student.

Image credit: Shutterstock.com

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