Ben White

FedLoans instructs borrowers to commit fraud

07.29.19 // Finance

I keep hearing of cases of FedLoan Servicing providing blatantly false and dangerously misleading advice to borrowers when it comes to submitting their annual income recertification.

In fact, it’s so clearly wrong that I wondered if the people reporting it were simply mistaken or confused until I’d heard it repeated so many times. It concerns how to file your recertification when utilizing the Married Filing Separately “loophole” in IBR or PAYE.

The quick background: as you may know, federal student loan borrowers must submit their income annually in order to partake in any of the income-driven repayment plans including IBR, PAYE, and REPAYE. If the borrower is married and files their taxes jointly with their spouse (which is the common choice), then their family income is used to calculate their monthly payments. But if they file their taxes separately, then their payments under IBR or PAYE would be based on just their own income and ignore their spouses. This is considered a bit of a loophole, which is why the newest payment plan REPAYE takes into account household income regardless of tax filing status.

So here’s the fraud part. There’s generalized incompetence, and then there is this: FedLoan is actually telling borrowers who have correctly filed their taxes separately that in order to ignore spousal income—even in IBR or PAYE—that they need to check a box saying that they are “married but cannot reasonably access [their] spouse’s information.”

This is simply not true and does not follow any of the rules. What it does do is clearly misuse a niche box that was provided to help estranged spouses or sufferers of domestic violence.

In fact, this very kind of fraud was anticipated by commenters and addressed by the government, because some folks were worried that simply allowing for “self-certification” of spousal status would give people the chance to reopen the MFS loophole that REPAYE closed by simply pretending that they’re not really married.

From the Federal Register:

The commenter also suggested that borrowers who want to evade the requirement will not bother to have their spouse keep separate income information, but will falsely claim that they have no access to such information instead. According to the commenter, if the Department simply accepts such claims, some borrowers will unfairly benefit, and if the Department contests borrower claims that their spouse’s income information cannot be accessed, it will lead to controversies and lawsuits at great expense to taxpayers.

We note that the strategies suggested by the commenter who raised concerns that some borrowers might try to evade higher payments by hiding income or falsifying the certification form would be fraudulent. We expect that most borrowers would be deterred from falsifying information on a Federal application form by the significant penalties that can be applied.

So there you have it. FedLoans is—for absolutely no reason—essentially forcing borrowers to commit fraud in order to rightfully exclude spousal income. People have been submitting their annual recertifications incorrectly under this specific direction for years and repeatedly so, and FedLoan is apparently still giving this advice on a regular basis.

My personal advice (as an individual citizen who thinks fraud is a thing to be actively avoided) is to simply not follow whatever particular variant of this incorrect advice you receive from whatever random representative you speak to. Instead, ask for someone higher up to set things right. There are definitely people in the organization that know that this is incorrect, so don’t give in and do the wrong thing. I would hope that this practice will become universally known as the fault of the loan servicers and not your personal failing, but the risk isn’t worth it.

Now, if you file taxes jointly and think you are being clever by checking that box in order to lower your payments, don’t do that. That’s definitely unequivocally fraud.

In a broader context, this is just another example of why you should not get your loan advice from a loan servicer. They have no fiduciary duty to actually help you, have been and continue to be sued for being awful at doing just that, and the current administration has done everything in their power to remove all momentum in addressing this problem.

Read a (free) book. Scour the web. Talk to an advisor. Whatever. Just don’t trust a servicer at face value.

You don’t need to submit a PSLF ECF when you first start a new job

07.23.19 // Finance

You need at least one Employment Certification Form per employer for PSLF. A good rule of thumb is to submit annually to help make sure that FedLoan is counting your eligible payments correctly, and it’s a perfectly good idea to submit your first ECF a few months into a new job.

 


But, as you can see on the form, its purpose is to describe a period of qualifying employment that has already occurred and that FedLoan can thus use to mark each payment you made during the same period as eligible for and counting toward the 120 needed for PSLF.

As such, you need not try to submit a form the second you start a new eligible job such as your intern year. I’m looking at you, interns in July. You totally can, but it’s sorta meaningless outside of initiating the transfer to FedLoans if they’re not already servicing your loans. The main exception is if you’ve taken a job that you’re not sure qualifies and you want some official guidance before you keep working there. In which case, sure, fire away. In general, it makes sense to submit your first ECF after making a few months of qualifying payments.

Note that switching servicers can sometimes make other bureaucratic things like switching repayment plans complicated, so it’s advisable not to submit your first ECF near when your income recertification is due. Wait until that’s fully processed first. So, if you entered repayment in June or July and want to make sure things are moving in the right direction, then you could file an ECF sometime in the fall if you’re eager for some news.

You should absolutely submit your ECFs annually, but you should at the very least submit one at end of your tenure with each institution. You don’t want to be trying to get old employers to fill out things retrospectively or to have FedLoan reach back into the distant past to try to count up your payments for the first time. Experience has shown that counting is not really their strong suit.

Teachers sue the Department of Education over PSLF

07.22.19 // Finance

Earlier this year the DOE mostly lost a lawsuit against the American Bar Association about PSLF. In that case, the government lost because it didn’t play by its own rules when it changed some complicated details about case-by-case employment approvals and then tried to inflict those changes retroactively on borrowers. It was pretty blatant and they lost.

In other news, I’m a doctor and not a lawyer, so that’s my personal layman’s take.

Anyway, the American Federation of Teachers just sued the DOE as well. But this one is a much tougher sell. Here’s the actual complaint. Their argument? That the government-contracted servicers did an egregiously bad job managing students’ loans and misled borrowers to such an extent that the government should be held liable for their servicer’s mistakes and bound to make serious changes to the administration of the program in order to uphold its original intent.

Pages of Tears

The claims are certainly factually true and seem reasonable in a common-sense way. Reading these Kafkaesque stories of blatant, repeated, and irredeemable bureaucratic failure is as outrage-inducing as it is depressing. There’s no doubt that the administration of loan servicing in general and PSLF specifically is not what Congress had in mind when it passed the bill. The government servicers have done a terrible job across the board, but especially so when it comes to helping borrowers navigate income-driven repayment and PSLF. This is not helped in any way by the fact that formal guidance was really limited from the department itself for the first several years of the PSLF program. The first ECF wasn’t even available until five years in.

It’s comparatively easy for more recent graduates and pundits to roll their eyes at all these teachers and the other 99% of folks rejected in that first batch of PSLF applicants and point out that they didn’t qualify. Of course they didn’t! But the argument is that we are effectively punishing citizens who could have otherwise earned a rare entitlement for trusting what they reasonably believed was official advice.

Ultimately—generalized day-to-day incompetence aside—the problem is that all of these borrowers who are angry about not qualifying for PSLF in fact do not qualify for PSLF. They didn’t do the right things. Some have the right loans but used the wrong payment plan (the issue that was temporarily addressed when Congress passed the temporary “TEPSLF” expansion). But Congress has not attempted to address the “wrong loan” (usually FFEL) component nor made changes to how the program or loan servicing is handled that could address the disaster on the ground. For her part, secretary Betsy “I’ve-never-visited-a-school” DeVos‘s solution was to try to give all of the business to one unqualified company instead of several and put her friends at Navient (current defenders of a federal lawsuit for sucking) in the shortlist (fwiw, that proposal mercifully died).

The Crux of the Case

So back to this lawsuit. The crux of the suit hinges on the argument that the Department of Education is responsible for the servicer’s incompetence, and basically argues that all borrowers deserve PSLF if they were misled by one of the contracted federal loan servicers.

And that takes us to the recent lawsuit that the department mostly lost against the ABA. I say mostly lost, because of the various counts brought against the department, the DoE did win a key victory. In a case where the servicer made a mistake and incorrectly approved a borrower’s ECF (employment certification form), the Department of Education fixed the mistake years later and removed years of PSLF eligibility from someone who thought they were in great shape. This was deemed totally kosher by the court. As long as the mistake was not a final agency action, the government wasn’t held responsible for fixing a “contractor’s error.”

These PSLF denials are not a matter of the posthoc rule changing the DoE lost about earlier this year. The relevant rules haven’t changed, and people are largely correctly rejected (with the exception of FedLoan’s inexplicable inability to count as high as 120). It’s basically a matter of abysmal customer service. And terrible customer service may not be enough.

From the ABA suit decision:

Moreover, although the Department previously confirmed to [the plaintiff] that his employment was eligible, an agency’s attempt to correct a “mistake in interpreting and applying its own recently promulgated regulations” does not necessarily trigger the APA’s prohibition on retroactive rules.

So, with the repeated caveat that I’m totally not a lawyer, it’s going to be a tough sell to convince the court that the bad actions and terrible advice from servicers should mandate a broad rewriting of the program architecture or large swath of additional forgiven loans. It’s probably going to rely on a really sympathetic ear who wants to go out of their way to favor the plaintiff.

Hope?

However, even if it fails, this case may still be a good PR move to stoke some high-visibility outrage. It would be more likely for these issues to be fixed by another act of Congress than for the court to swoop in and save the day. Though, along those lines, even the administration of another temporary expansion would be no small logistical feat given the slow-motion trainwreck that is FedLoan Servicing.

The Coming Changes to USMLE Scoring

07.18.19 // Medicine

In March of this year, there was the InCUS: Invitational Conference on USMLE Scoring. The results page is here, and the summary report is here.

Invitational? That means that the only people invited were stakeholders who are deeply entrenched in the status quo and/or directly profit from the USMLE system. Namely, the Association of American Medical Colleges (AAMC), American Medical Association (AMA), the Educational Commission for Foreign Medical Graduates (ECFMG), the Federation of State Medical Boards (FSMB) and the National Board of Medical Examiners (NBME).

Absent? Regular humans like students, residents, or even much in the way of program directors, educators, etc. No big surprise. When a growing body of students and educators advocated for removing Step 2 CS because it was an easy superfluous reduplicative and expensive waste of time, the NBME just made that harder to pass. They’d much rather just change the paper you get at the end of the other tests than introspect or make a structural change.

So, the NBME has always said they didn’t like people using the score to evaluate medical students (but have spent an awfully long time letting people do just that):

Said another way, the exams were developed as medical licensure examinations and not as academic achievement exams.

The outcome of this big convening of masterminds? Well, the recommendations are extremely vague but give the impression that eventually removing the three-digit USMLE score is a likely component.

Recommendations specific to USMLE:
1) Reduce the adverse impact of the current overemphasis on USMLE performance in residency screening and selection through consideration of changes such as pass/fail scoring.
2) Accelerate research on the correlation of USMLE performance to measures of residency performance and clinical practice.
3) Minimize racial demographic differences that exist in USMLE performance.

Recommendations to the UME-GME transition system:
1) Convene a cross-organizational panel to create solutions for the assessment and transition challenges from UME to GME, targeting an approved proposal, including scope/timelines by end of calendar year 2019.

Indeed.

 

One of the unintended consequences of more medical schools moving to pass/fail amidst increasing medical school enrollment and flat residency spot numbers has been the increasing importance of the USMLE and the shadow curriculum it has created.

If Step 1 matters but your coursework does not, then you’d be better off in a correspondence course that let you spend all your time preparing for Step 1 and ignoring anything your school actually wants you to do. On the flip side, if the USMLE were to suddenly be pass/fail, then residency programs may be evaluating applicants with literally no comparative data from which to judge candidates.

Point #2 from the blockquote is fascinating in its awkward tardiness because everyone knows the correlation with most clinical performance is negligible, and no meaningful research would likely ever state otherwise. USMLE scores correlate with written boards’ pass rates, which themselves also do not correlate with clinical performance. It’s turtles all the way down. None of these tests actually test what they purport to. The whole system is in shambles from the SAT on up. They all measure a degree of general intelligence and preparation, but…who cares.

Despite the mea culpas about mental health, failing students, blah blah blah, not discussed at all—of course—is whether or not the USMLE sequence should even be maintained as is. There’s a painful failure of vision in a conference solely focused on…scoring.

For example, is CS something the NBME should be doing in the first place or isn’t that what an accredited medical school is for? Or, are Step 1, 2, and 3 testing sufficiently different things to do justify three different exams, and if they are, do all three really play a distinct role in the licensing process? One could easily argue that Step 2 CK is much more meaningful to clinical practice and residency performance than Step 1, which mainly has the benefit of a) being hard and b) having scores universally available during the residency application process because it’s taken earlier.

Feel free to submit your comments on these meaninglessly vague preliminary recommendations here.

Tuition Dollars at Work

07.15.19 // Finance, Medicine

From Dr. Daniel Barron’s “Why Doctors Are Drowning in Medical School Debt” in Scientific American’s Observations blog.

Each year, only 41 percent of applicants are accepted into medical school. Because demand outstrips supply, medical schools have the economic upper hand and, because lenders invariably approve loans to cover tuition, schools can effectively set the price of tuition to be whatever they want. College kids who don’t like it need not apply—somewhere in the remaining 59 percent, an applicant is willing to pay.

[…]

Each year a class of new doctors graduates with a total of $2.6 billion in loans, with a median student debt of $194,000. And no one—not even the regulator tasked with protecting students—can say where this money goes.

He interviews the dean that made NYU tuition-free, who provides some interesting quotations. Also, if you read the article, please note that the Barrons need a new accountant.

Effective Rates of Negatively Amortized Federal Student Loans

07.08.19 // Finance

Excellent post from my internet friend Dr. Sotirios Keros over at Doctored Money (a great non-profit non-conflicted site on physician finance and student loans), “Your Federal Student Loan Interest Rate May Be Lower Than You Think”:

Federal students loans are unlike other types of debt in that the interest is not capitalized except in certain circumstances. This means that your unpaid interest is not costing you anything. You still owe it, of course, but it represents “interest-free” debt. For example, consider an initial balance of $200,000 at 5%, which now has accumulated unpaid interest of $30,000. Although you owe a total of $230,000, interest only accumulates at $10,000/year. That’s an effective rate of 4.3% (e.g. $10,000/$230,000).

Seriously, check out the post.

Misunderstanding how federal student loan interest works is something I see wrong all the time, especially on the rare occasions I log into any of the physician finance-type Facebook groups. Accrued interest doesn’t hurt you in the short term unless it capitalizes. For example, rushing to make a token interest-only payment does nothing to change the natural history of your loans. That money can be leveraged—for example even just earning trivial interest in an online savings account—before being deployed more effectively.

The common advice from sites that make lots of money from student loan refinancing is that all graduating residents not doing PSLF should refinance. This seems logical because the private company sticker rates are nearly always less than the federal rates. But that’s not necessarily functionally true, because a resident whose loans spent years negatively amortizing likely has a big chunk of uncapitalized interest that’s doing nothing while in the federal program but will capitalize and earn its own interest after refinancing.

It may still be the right choice, but except in certain situations, you can’t just compare rates apples to apples and know you’re saving money.

You have to compare the effective rates!

Time to ditch the ERAS application photo

07.07.19 // Medicine

Pretty damning results about the impact of perceived attractiveness on residency application success. Suffice to say, what came up didn’t exactly make it into the NRMP Program Director’s Survey.

There’s a new paper in Academic Medicine titled “Bias in Radiology Resident Selection: Do We Discriminate Against the Obese and Unattractive?” coming out of Duke. Hint: the rhetorical question posted in an academic paper title is always answered with a yes. But while the study used their own radiology program, I have zero doubt that this is universal and probably substantially worse in other fields.

The idea was to grade mock applications and see who you’d invite:

Reviewers evaluated 5,447 applications (mean: 74 applications per reviewer). United States Medical Licensing Examination Step 1 scores were the strongest predictor of reviewer rating (B = 0.35 [standard error (SE) = 0.029]). Applicant facial attractiveness strongly predicted rating (attractive versus unattractive, B = 0.30 [SE = 0.056]; neutral versus unattractive, B = 0.13 [SE = 0.028]). Less influential but still significant predictors included race/ethnicity (B = 0.25 [SE = 0.059]), preclinical class rank (B = 0.25 [SE = 0.040]), clinical clerkship grades (B = 0.23 [SE = 0.034]), Alpha Omega Alpha membership (B = 0.21 [SE = 0.032]), and obesity (versus not obese) (B = -0.14 [SE = 0.024]).

The breakdown:

  • Facially attractive and nonobese applicants had a 24% chance of getting an interview
  • Less attractive, nonobese applicants had a 12% chance
  • Obese and unattractive had a 10% chance

At the end of the day, the top three factors for selecting candidates were Step 1 > Race > Facial attractiveness. And being both skinny and attractive literally doubled your chances.

Awkward.

While programs will always eventually meet their applicants and may always “like” applicants who are easy on the eyes, I don’t think any residency (except derm kidding not kidding) actively wants to screen their applicants by appearance.

Is there really any legitimate justification for having access to an ERAS photo in the first place prior to selecting interview candidates? I don’t need to know what you look like.

In the meantime, this study just further confirms the advice I’ve given before: you want your ERAS photo to be good.

Review: The Physician Philosopher’s Guide to Personal Finance

07.05.19 // Finance, Reviews

Back in May, I had the chance to sit down with The Physician Philosopher’s Guide to Personal Finance: The 20% of Personal Finance Doctors Need to Know to Get 80% of the Results.

The Pareto approach is a good conceit and is most of what people need. Real personal finance for most people is two things: simple and behavioral. Save a significant amount of your income by living on less than you earn and then do something really boring with it. Then, stay the course no matter what.

Add in bits about how important it is to buy own-occupation disability insurance from a reputable agent (like these folks, who I recommend) and term (not whole) life insurance, and that’s the meat of the book.

My main beef, unsurprisingly, is the chapters dedicated to student loans. One, there are some factual inaccuracies (e.g. about eligibility criteria for the PAYE program, the fraction of physician jobs that qualify for PSLF, the common misconception that losing a partial financial hardship in IBR or PAYE boots you out of IDR and into the standard plan [it doesn’t, the payments just cap at that amount]), and the notion that all doctors should leave REPAYE after training and switch to PAYE in order to minimize payments [it depends!].

Two, the Pareto principle applies well to most people’s retirement finances but less well to nitty-gritty loan details, especially once you get into PSLF-territory. For the former, there is no evidence that a complicated portfolio outperforms a simple one when it comes to your investment accounts. As author Rick Ferri recently advised on the White Coat Investor podcast:

Regarding your portfolio: make it simple, make it automated, and just let it do its thing. Don’t touch it. That’s the best financial advice I can give. Simplicity, automation, hibernation.

But, there can be a big difference with small details when it comes to loans, which can easily change result in swings of tens to hundreds of thousands of dollars. I see what should be simple mistakes cost thousands constantly. Technicalities are the lifeblood of the system, but I do agree with TPP’s overall thrust though. Luckily, there’s a free book that knocks that particular topic out of the park.

Overall Jimmy is a solid writer and the book is readable and reasonably concise. The first editions of my books had small errors too (okay, I’m sure they all still do—I’m a very fallible human). The beauty of self-publishing is that Jimmy has probably already fixed the errata I found.

It’s a solid book for students, residents, and early career physicians. Just please supplement for loan management.