Kari Brayden, student financial services coordinator at the Larner College of Medicine at the University of Vermont, shares details regarding the current medical student debt environment, as well as financing options. Learn morpwe about medical student financial services here.
Regardless of the amount of money medical students owe by the end of their fourth year, 48 percent report that they plan to pursue federal Public Service Loan Forgiveness (PSLF). These programs attract even more questions than loan refinancing, which was recently discussed here. Last year, a reported three quarters of 2017 M.D. graduates were carrying education debt, with about half of them owing $200,000 or more. It’s no surprise, then, that the PSLF program’s credibility is drawing interest.
PSLF is perhaps the most scrutinized and jeopardized student loan repayment benefit. It was created in 2007 by President George W. Bush to inspire indebted graduates to enter public service roles, which are often less lucrative. This program states that a borrower may have their entire remaining direct loan debt written off tax-free after making ten years of income-based payments while working full-time for a 501(c)(3) or any government, state, or federal agency. It is estimated that more than 80 percent of hospitals are non-profit, making PSLF attractive to debt-burdened physicians (not to mention payments made during residency count).
As the program stands now, the Congressional Budget Office estimates that if left unchanged, PSLF will cost the government $425 million in 2018, $1.015 billion in 2019, and $1.42 billion in 2020. Part of the criticism of this program stems from students having no incentive to minimize borrowing, which in turn, requires a lot of funding from the government.
October 2017 marked the first time eligible borrowers were able to apply for forgiveness, and rumor has it that qualified borrowers are already receiving approvals. In anticipation of this continual budgetary effect, there have been various congressional bills and proposals featuring a myriad of program adjustments ranging from total program elimination to a $57,000 forgiveness cap. Some higher education experts and other politicians have pointed out that the PSLF program is written into the current loan promissory notes that students sign prior to disbursement, which would make a total program elimination unlawful. The U.S. Dept. of Education will have no choice but to create a grandfather rule for prior borrowers if the program is eliminated. In other words, many of you reading this may be borrowing loans in the nick of time.
The fate of PSLF is yet to be determined. Regardless, there are a number of reasons why PSLF may not be the best repayment strategy for physicians, including:
- If your debt is forecasted to be paid off in less than 10 years (more common with shorter residencies and/or lower debt and/or high spousal income);
- If your specialty is dominated by for-profit entities, such as emergency medicine; or
- If you establish or join a “private practice” instead of, or before, completing 10 years with a 501(c)(3) hospital or academic institution.
Fortunately, other forgiveness options exist under income-based billing plans, which ultimately offer a taxable loan write-off if you still have a balance after 20 years. However, higher-earning individuals such as physicians are sometimes forecasted to pay off their debt before they even reach 20 years, whether that be under an income-based plan or a standard (non-income-based) plan, sometimes costing less overall than if you were to stretch repayment to two decades in hopes of a debt write-off.
Similar to the loan refinancing discussed here, there is no one-size-fits-all advice when it comes to the pursuit of PSLF versus private refinancing. As always, we encourage you to reach out to Student Financial Services or your federal loan servicers for guidance just prior to graduation. And remember what Benjamin Franklin once said: “An investment in knowledge pays the best interest.”