I’ve discussed (in great and somewhat confounding detail) income-based repayment (IBR), public service loan forgiveness (PSLF), and forbearance previously.
(Read it if you haven’t already. Go ahead, I’ll wait).
To sum up: the best and most straightforward reason to plan to apply for PSLF is if you want to both train and practice at a non-profit or academic center. And doing your income-drive repayment (IDR) right is important.
Now, you can’t actually “apply” for PSLF until you’ve made the 120 monthly payments (which, again, do not have to be consecutive). So you need to make 10 years’ worth of payments. However, there are a few things you should do on your way to this goal of tax-free loan forgiveness. You could wait until 120 payments are made to start the process, but you’ll avoid potential disaster if you keep the PSLF dream of loan-forgiveness in mind from the very beginning.
The PSLF formula:
+ Qualifying Payments (discussed below)
+ Qualifying Work (discussed below)
x 120 months (10 years)
= Public Service Loan Forgiveness
PSLF is a government program run by the Department of Education. Eligible loans are exclusively of the “DIRECT” variety: Stafford, subsidized, unsubsidized, PLUS, consolidation, etc. If you have other non-eligible federal loans (e.g. Perkins), you can consolidate them into a DIRECT consolidation loan in order to be eligible. The 120 payments are calculated per loan, so if you consolidate, the counter resets. This means that you need to take care of any loan voodoo before you start making payments in order to not waste time/money. Go to www.nslds.ed.gov to find out what loans you have if you don’t know.
Payments must be required (monthly) while employed full-time (at least 30 hours/week). Extra payments, grace period payments, payments made during school, etc do not count. It’s 120 months, minimum, no short cuts. They do not have to be continuous payments.
A public service job is defined as any full time job at a non-profit, tax exempt, 501(c)(3) organization. Most teaching hospitals fall under this category and even some private hospitals fall under this designation. If you don’t know, just ask. Keep in mind that many technically “nonprofit” hospitals do not directly employ physicians but rather contract with them. You have to be an actual employee paid on W2 etc. So that really luxurious “nonprofit” with the great salary probably isn’t going to cut it.
For each different eligible job you hold, you must submit a PSLF employment certification form. This is something you should absolutely do at end of your tenure at any facility. While you could theoretically go back and submit the form for your transitional internship 9 years later, doing it as you go seems like a much safer bet. Once you submit your first employment certification form, your loan servicer will be switched to FedLoan (as opposed to one of the several others you may have been assigned to such as Nelnet, Navient, etc)
Keep in mind, there are several reasons to forget PSLF exists:
- You want to work in private practice
- You plan to enter into a contract that will include loan forgiveness
- You don’t have a ton of debt (congrats)
- Your cynicism overpowers your hope that the program will continue to exist when you can reap its benefits (even the first eligible loans won’t be forgiven until 2017)
- The money you will pay for IDR during residency and fellowship will impact your quality of life in such a way as to overcome any future financial benefit in the long term (this is a tricky personal calculus). The fewer dollars you have, the more each individual buck is worth. As in all things, scarcity matters.
But if you still want to:
- Get your loans in order
- Sign up for IBR, PAYE, or (probably) REPAYE during intern year, minimize your payments as possible using tax returns or pay stubs (whichever is lower). PAYE will save you more than IBR.
- Never pay more than you have to, which can include reducing your taxable income by maximizing tax deductions, contributing to pretax retirement accounts, etc
- Fill out your employment certification forms as you can
- Keep count and apply after 120 payments (with that final employment certification form, since you must still be working at a non-profit when you apply)