Servicers other than FedLoan don’t handle PSLF

I’ve heard a few stories of attendings calling their servicers after making years and years of payments to get started filing for PSLF and being laughed off the phone because of their high salaries.

To be clear, PSLF has no maximum salary.

The master promissory note you signed says this:

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.

PSLF is all about months of qualifying payments made for qualifying loans while working full-time at a qualified employer. As of now (and probably never for old/current borrowers), there is no “needs test” to see if you still deserve to have your loans forgiven even though you’re a “rich doctor.”

Furthermore, the only servicer that handles PSLF is FedLoan. When you submit your first employment verification form (which the Feds recommend doing annually), you’ll be switched to FedLoan if you weren’t already with them by chance.

The other servicers—and probably especially Navient (currently being sued by the federal government for defrauding and misleading borrowers)—have a vested interest in keeping you on the rolls so that they can continue to make money off your payments. When you call the servicer, you’re getting some random employee who is probably making around twelve bucks an hour whose primary role is to provide customer service and troubleshooting with the website, not provide good financial advice. They are much much more likely to deal with somebody on the phone trying to get out of delinquency or default than they are to talk to somebody who is approaching 10 years of payments and is ready for public-service loan forgiveness. Despite the government stating that customer service is a priority, the servicers essentially have no fiduciary duty to work in your best interest.

Since the first loans won’t be forgiven until October 2017, no one can guarantee that there won’t be attempts to limit the damage from the somehow-unexpected popularity of this program, but that hasn’t happened yet and is likely to take some time to occur. Do not take your servicer seriously on this if you think you should otherwise qualify. Just get the paperwork filed out and submit it. Worst thing that happens? Your servicer is changed and you have to set up autopay again.

Betsy Davos: It’s okay for servicers to mislead borrowers

What a mess.

Education Secretary Betsy Davos has decided to roll back two Obama-era memos that were intended to guide servicers in their customer service efforts with borrowers. I discussed one the other week. Now that second shoe has dropped, peeling away the reasonable-sounding requests that basically servicers should be held accountable if “the company had misled or provided wrong information to borrowers or engaged in abusive consumer service” (remember, Navient is currently being sued for this).

Instead, Davos said:

We must create a student loan servicing environment that provides the highest quality customer service and increases accountability and transparency for all borrowers, while also limiting the cost to taxpayers.

Of course, providing good customer service or making sure defaulting borrowers re-enter repayment shouldn’t need to cost any extra public dollars; it only does because the government would have to pay servicers more money in incentives to make up for the loss of their loan sharking business.

This furthers the tension between borrowers and servicers and cements the contention that servicers are actively working against borrower’s best interests. This has already been happening, but now it appears that it will no longer raise any of the red flags it was supposed to.

I’ve spoken with attendings who thought they would qualify for PSLF soon (but hadn’t filed for certification and been switched to FedLoan) call their servicers and get laughed off the phone, being told that they made too much money to have their loans forgiven. Most people reading this site know that’s not how the program works, and servicers like Navient don’t even handle PSLF. But of course, it’s in their best interest to lie and keep reaping payments.

Apparently you can’t trust FedLoan

The wrinkles continue on the story that first appeared last December about folks being denied PSLF-eligibility for jobs they’d previously gotten approval for. From the NYT (emphasis mine):

Last week, the [Education] department filed a reply that said that FedLoan’s responses to borrowers’ certification forms cannot be trusted.

A FedLoan approval letter “does not reflect a final agency action on the borrower’s qualifications” for the forgiveness program, the department wrote.

You know it’s bad when one federal agency says its partner cannot be trusted.

This is one of those situations where the actual detail at stake is not particularly concerning, but the underlying capriciousness certainly is. This all centers on FedLoan approvals for non-501c3 nonprofit organizations.

There is no evidence that the department has any basis or plan for disqualifying the kind of work most doctors do in academic or government (federal, state, local) medicine. Indeed, with the way the law is written, this tactic really wouldn’t work because there is no individual interpretation required for most qualifying work.

But for those who are still years away from achieving PSLF in a career that essentially requires forgiveness to make any sort of financial sense, this remains unreassuring.

This program is not going to last forever.

Trump’s first student loan action

In this “Dear Colleague” letter, Trump’s administration takes its first action on student loan policy. Unsurprisingly, it was to rollback an Obama administration Dear Colleague Letter that prevented some collection agencies from charging extremely high fees when collecting on old defaulted FFELP loans if the borrower tried to respond quickly and enter into a loan rehabilitation agreement (i.e. actually pay them off).

This won’t affect any recent borrowers from this decade, in which federal DIRECT loans replaced the older system of private companies lending and the federal government serving as a guarantor.

What it does demonstrate is that no one should be surprised if nothing consumer-friendly comes out of this administration, and student loans are unlikely to be an exception. Trump’s campaign student loan plan was so financially unsound and costly that it is highly unlikely to ever make it anything more than soundbyte.1

Medical training return on investment

Some fun (but not new) light reading for those debating whether pursuing medicine was a mistake: UC Berkeley’s Nicholas Roth’s The Costs and Returns to Medical Education.

Overall, of the specialties included, rad onc and radiology topped the scale and endocrinologists bottomed it. The data is from 2009, so some of the assumptions are out of date (as well as pre-dating the imaging reimbursement crunch and subsequent fall in radiology reimbursement, for one). In particular, how student loans are handled makes the data presented significantly less terrible than the reality for some specialties. But it’s still worth reading for several reasons, including:

After Congress passed the 1997 Balanced Budget Act, which capped government payments to hospitals for residents, hospitals added over 4,000 more residents than the government would support. This suggests that market forces are at work as hospitals try to hire residents until the marginal value of an additional resident is zero. It also suggests that hospitals profit from additional residents long after the point when our government stops funding resident education.

I didn’t know that, but it jives perfectly with the narrative all residents believe that hospitals benefit from our cheap labor despite the ludicrous claims that it “costs more” to educate a trainee.

Back to the numbers though, and ultimately, the provided calculated rates of return for the investment in medical school and training is fraught with misleading specificity. Career duration can change the entire calculus (he uses a retirement age of 65). From chron:

Although the overall physician population has grown 188 percent between 1970 and 2008, according to the AMA, the physician population over age 65 has grown by 408 percent in the same period. Economic factors may be keeping many physicians on the job longer, according to data from The Doctors Company, a medical malpractice insurance firm. The company found that the portion of physicians reporting satisfaction with retirement plans has dropped 18 percent since 2006, and the average age at which an internist retired had increased from 62 in 2002 to 70 in 2009.

When considering the costs of becoming a doctor, one must add up the real costs of attending school, lost wages during school, decreased wages during residency, and interest on student loans. Roth uses $36,369.68 as the annual tuition and fees (now it’s probably closer to $47,500 according to the AAMC). He does not count for living expenses, which is fair since everyone’s got to live, but students usually borrow this cost and his treatment of loans is suboptimal. He uses the wages of an intern to approximate lost wages during school (which is probably low for what most doctors could earn in other fields). He uses the average wage of a same-aged person with a college degree to calculate the opportunity cost of not working during school (again, probably low, given that physicians are typically better than average students and likely destined for better than average nonmedical careers overall as well). He also gives us free money:

In 2011, approximately 88.8% of professional degree students received some sort of aid. Of those students, the average aid awarded amounted to $27,500. xxix When weighted, the total aid for all students on average amounts to $24,420 annually.

I know almost no medical students who receive aid anything like that unless we’re grouping student loan “aid” in here. While there are the occasional folks with full rides, most scholarships are small, and most aid given for professional students is actually in non-medicine fields. This probably shouldn’t have made it into the analysis.

I also consider interest payments on student loans. Creditors offer many different types of loans to students, and this makes it very difficult to infer a general loan payment structure. For my purposes, I assume that a typical student accrues $100,000 in interest payments from loans for medical school. I assume that this student pays $5,000 in interest payments annually during the first three years out of medical school and $12,140 annually for an additional seven years.

These sums do not include payments on the original principle; they only include interest payments. These assumptions are similar to a sample repayment schedule presented by AAMC. This repayment schedule assumes an initial Federal Stafford loan of $160,000 dollars with public service loan forgiveness with an assumed $100,000 starting salary after residency

Essentially all loans are DIRECT loans now, but it’s still impossible to handle all loan possibilities with one plan. But this assumes basically a three-year residency followed by PSLF. Given that 44% of graduating students are considering PSLF, assuming that the average doctor isn’t really on the hook for their student loans is misleading. The total loan amount is also now too low, as are the likely annual payments as an attending.

So that’s the dealbreaker. Student loans have changed a lot since interest rates have risen. He assumes no interest payments followed by 100% PSLF adoption, which severely underestimates the cost of attendance to basically 100k even. That’s not realistic for the 60% of doctors who don’t plan to attempt PSLF and would even less useful if PSLF is eventually capped as has been proposed.

It would have been nice to see the payback method used as well (the measure of time to break-even point on an initial investment (it’s intuitive and easier to understand for most folks). But using Net Present Value (NPV) is a great way to present the value of an investment in medical training. Unfortunately, the assumptions are everything: the initial investment cost and the discount rate change the game:

It would seem that the interest payments weigh heavily on the net present values of medical education investments, although these values remain substantively positive.

Specifically, these correlations suggest that physicians receive increases in earnings that overcompensate for the opportunity costs of additional training. This assumes, of course, that additional years of residency and fellowship training result in higher earnings than lesser-trained physicians. The correlation between median earnings and the years of training necessary for the specialties I analyzed, however, is only .4588. While this correlation is significant, it reveals some inconsistencies between further training and earnings. If further training does not result in increased earnings to justify that training, then some physicians may find it profitable to avoid specialization.

Case in point: Infectious disease and endocrinology. You lose three years of attending income only to make less than if you hadn’t specialized in the first place. You are effectively taxed against your academic and clinical interests.

As Roth notes, the assumptions used and the relative costs etc change the number. But in the past several years, the only trend has been more cost to training at overall higher interest rates than were available in the 2000s. This change only exacerbates the cost of choosing a specialty with a bigger duration-to-income ratio.

It’s nice to see a mathematical illustration of what everyone implicitly knows. While Roth’s investment outlook is sunnier than reality, the comparison between different specialties is still relatively meaningful.

The average doctor with average debt is still doing okay. But a doctor choosing a less than average remunerative field with greater than average levels of debt is a different story. That private college + private medical school graduate passionate about rheumatology better be planning on starting their career in academia and hoping PSLF stays just the way it is. The orthopod? They’re just fine.

And if medical schools continue to get more expensive and options for forgiveness are capped, we’re not that far off from the point when some fields will no longer make financial sense at all.