This is a guest post from Travis Hornsby, founder of the Student Loan Planner website. He is an expert on student loans, and a great resource for any of your questions on this topic. If you’ve ever wondered, “Will PSLF still be around for me?”… this post below should allay some of your fears regarding PSLF. In addition to Travis’ recommendations, I also recommend that you consider using a PSLF side fund. That may help you sleep at night, too. Now for the post! Take it away, Travis.
Why PSLF Will Work
You wanted to become a physician to serve your higher purpose and help others. Being a physician can be a rewarding but also trying career. There’s the burnout. The stress. The PTSD. Higher suicide rates. Oh, and let’s not forget about student loan debt which can easily go into the multiple six figures.
One saving grace that can help you financially at least is the Public Service Loan Forgiveness (PSLF) program. Under this program, physicians who work at a nonprofit hospital or in the public sector can get their loans forgiven after 10 years of service and 120 payments. Tax free, too. In fact, according to the Association of Medical Colleges Medical School Graduation Questionnaire, 45 percent of respondent said they’re going to pursue loan forgiveness. Among that group, more than 75 percent stated they’ll pursue PSLF.
This option can clearly be a godsend for physicians with high balances and is a big part of graduates’ plans. But there’s been some worry as of late given the headlines that only one percent of PSLF borrowers were approved for loan forgiveness. Here’s why we’re not too worried and why PSLF will work out for current borrowers.
The program is working out the kinks
In 2007, Congress passed the College Cost Reduction and Access Act of 2007, which unveiled the Public Service Loan Forgiveness program in part to attract borrowers to work in the public sector.
Under the program, qualified candidates work full-time at an eligible organization for 10 years and make 120 payments. After that, boom, your loans are forgiven. But, it’s not been that easy. Given that the program started in 2007, the first group of borrowers only recently became eligible for this program.
It was reported last year that only one percent of borrowers applying for PSLF actually got loan forgiveness. Not exactly encouraging right? But also, everyone from the borrowers to FedLoan Servicing who processes the paperwork are dealing with this for the first time and working out the kinks.
The Truth is in the Numbers
The two reasons cited for not being approved for PSLF were:
- Not meeting program requirements
- Missing information
For example, there may be some borrowers who applied thinking they’re eligible but have not yet made 120 payments because they weren’t sure where they were at in the process. You could’ve been denied if you made 119 payments instead of 120. The point is, we don’t know the level of nuance that went into the “not meeting program requirements” but it doesn’t automatically mean that everyone will not be eligible ever or some time soon.
Regarding missing information, that’s just some more red tape to work through but should be fairly easy.
So yes, as of June 30, 2018 28,081 unique borrowers submitted PSLF applications and only 96 unique borrowers got discharges. Yet 8,103 applications had missing information and 20,521 did not meet program requirements.
But ever so slowly things are moving forward. As of September 30, 2018 a total of 206 borrowers had discharges, resulting in 12.3 million dollars being discharged, compared to 5.5 million dollars a few months before.
PSLF is a contract
As noted above, the Public Service Loan Forgiveness program was signed into existence by Congress. Also, when you took out student loans, you signed a Master Promissory Note (MPN), which is basically a formal contract between you and the Department of Education. In the MPN itself, it states:
Public Service Loan Forgiveness
A Public Service Loan Forgiveness (PSLF) program is also available. Under this program, we will forgive the remaining balance due on your eligible Direct Loan Program loans after you have made 120 payments on those loans (after October 1, 2007) under certain repayment plans while you are employed full-time in certain public service jobs. The required 120 payments do not have to be consecutive. Qualifying repayment plans include the REPAYE Plan, the PAYE Plan, the IBR Plan, the ICR Plan, and the Standard Repayment Plan with a 10-year repayment period.
Your MPN is a legal document and in it explicitly lists that PSLF is available. Now you may have heard a lot of talk about how PSLF may be eliminated.
First of all, that would be a major political undertaking. Secondly, it would anger many of the public servants that are working in or hoping to work in these jobs, which makes it a not-so-great position for candidates.
On top of that, any talk of PSLF elimination in the past has included that current borrowers will be grandfathered into the program. In other words, if you’re a current borrower pursuing PSLF, even if cuts are made down the line, you’ll still be eligible for the program.
What you should do if you’re pursuing PSLF
If you’re pursuing PSLF, don’t quit it just yet just because you’re nervous about the future of the program. Nothing has changed yet and if it does, you’re more than likely to be grandfathered in and will be fine.
To keep your eligibility and manage payments, make sure to submit your Employment Certification Form each year to FedLoan Servicing. You can submit it to:
U.S. Department of Education
P.O. Box 69184
Harrisburg, PA 17106-9184
If FedLoan Servicing is already your loan servicer, you can upload the form to the website. Under PSLF, you must be on an income-driven repayment plan. To stay on one of those programs, you will need to recertify each year and update your income and family size.
Taking these steps can help ensure that your employment and payments actually qualify for the PSLF program so there are no surprises. You will need to be diligent with the details and keep up-to-date records throughout your repayment. But doing so can boost your odds to getting approval, quickly, without any missing information or not meeting the requirements.
Though the program is not perfect and we don’t know everything that will happen in the future, current borrowers shouldn’t fret so much about the disappearance of PSLF.
For additional help and resources, you can use the PSLF Help Tool to understand if you qualify and get your paperwork in order.
From the Author: Travis Hornsby
Travis Hornsby founded Student Loan Planner after helping his physician wife navigate ridiculously complex student loan repayment decisions. To date, he’s consulted on over $400 million in student debt personally, more than anyone else in the country. He is a Chartered Financial Analyst and brings his background as a former bond trader trading billions of dollars.
He brings that same intensity to analyzing the best repayment paths for graduate degree professionals with six figures of student debt. He’s helped over 1,700 clients save over $80 million dollars on their student loans, and he’s been featured in U.S. News, Business Insider, Forbes, Huffington Post, Rolling Stone, ChooseFi, Bigger Pockets Money, and more.
From what I understand, there is no requirement that the 120 payments do not have to be made consecutively in a 10 year period. Meaning, it may be possible to take a year or two off from a qualifying employer, then after that hiatus, return to a qualifying employer again to finish off the remaining 120 payments.
My question is, if you take a break from the payments… do you think this hurts your chance of being grandfathered in???
I have explored this scenario for my wife in my own blog as “scenario #2”. Feel free to read my article if you can.
I appreciate your helpful response in advance.
When graduating from residency or fellowship, how can we go about finding out our future employers PSLF eligibility? Is there a website which list this information? Should this be discussed on interviews or by calling the institutions HR department?
Hey everyone, just wanted to report in that Travis was right!! My wife has a colleague under 40 with a lakefront property and a husband who spends his time as a day trader. She recently had 214k or student loans wiped clean from the PSLF and was able to acquire an adjacent lot on the lake where she plans to buy a second home! Amazing, thanks US taxpayers am I right? Something just feels right about people that make more than 97 percent of people in this country shifting the majority of their financial obligations to hard working, responsible US taxpayers. I’m sure most of them are glad to lend extra time at work to cover the tax obligations so she can have that second property.
Keep going y’all, you may have similar success!
DMF—no, that won’t matter. All discussion on grandfathering and all language in the laws relate to having taken out a loan at a certain time (i.e. being an “old” or “current” borrower as opposed to a “new” one). Your actual stage of repayment is not relevant.
Peter—you need to talk about it during the interview process. In particular, many doctors are not paid directly by the institutions they work for. Working at a nonprofit hospital is meaningless if you are paid by a for-profit provider group. You need to find out who the employer is on your W2. That is the organization that needs to be a government/university/nonprofit organization. There is no PSLF database, but there are 501c3 lookup websites.
Sorry to jump in after Ben, but he’s right. Cumulative payments for PSLF is one reason why PSLF is really not all that risky.
Physicians vastly overestimate the risk.
Peter the govt is coming out with a tool to look up employers but I think it’s still in beta. Basically just ask them what the W2 says on your paystub. Tell them you need to verify that it’s a non profit employer paying you because of loan forgiveness rules they should be able to confirm or deny eligibility.
Ben and Travis,
Thanks for the helpful response.
Yes, current discussions on grandfathering and all language in the laws relate to having taken out a loan at a certain time (i.e. being an “old” or “current” borrower as opposed to a “new” one).
A part of me just worries that these discussions can change. And Congress has the ability to change the language in the laws.
Physicians in general are risk adverse, and perhaps I am vastly overestimating this risk. But it’s still a risk. Delaying forgiveness increases the risk that things could change.
I have been on this program for 8 years, and believe I fulfill all of the criteria. However, you state that the employment certification should be submitted annually. I have did it twice (when I started and when I changed job). Does this mean that I will lose the payments from 6 of the years???
Thanks for the article and any answers, this is a stress minefield!
No. But if you do it annually, you will make sure that all of your payments are counting and recorded. Need to submit that and get the info to make sure that they are your payments counting, too!