PSLF is the holy grail of federal loan forgiveness. The master promissory note you signed when you took out your loans had this paragraph toward the end:

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.

That sums up the gist pretty nicely. So, achieving PSLF comes from the combination of a few critical components.

The PSLF formula:

Eligible Loans
+ Qualifying Payments
+ Qualifying Work
x 120 months (10 years)

= Public Service Loan Forgiveness

The Loans

PSLF is a government program run by the Department of Education for the forgiveness of government loans. Eligible loans are exclusively of the “Direct” variety: Direct Stafford (older borrowers), subsidized, unsubsidized, PLUS, consolidation, etc. If you have other non-eligible federal loans (e.g. Perkins), you can often consolidate them into a DIRECT consolidation loan in order to be eligible.

Note that 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. Again, go to www.nslds.ed.gov to find out what loans you have if you don’t know. If the type of loan doesn’t have the word “Direct” in it, it doesn’t qualify for PSLF on its own

.

The Payments

Payments must be on-time required monthly payments while in repayment while employed full-time. Extra payments, grace period payments, payments made during school, etc. do not count. It’s 120 months, no shortcuts. As noted above, they do not have to be continuous payments. Also note that you must keep working full-time at the non-profit after you submit your forgiveness request until you actually receive forgiveness, which takes at least a few extra months to process.

In March 2018, a small provision in the “Consolidated Appropriations Act, 2018” set aside $350 million in additional funds to help out some unfortunate folks who were missing out on PSLF due to technicalities related to choosing a non-IDR plan for repayment for some/all of their 120 qualifying payments. The new program is being called the Temporary Expanded Public Service Loan Forgiveness (TEPSLF). In short, it makes the Graduated Repayment Plan, Extended Repayment Plan, Consolidation Standard Repayment Plan, and Consolidation Graduated Repayment Plan eligible for PSLF.

This money is available on a first-come, first-serve basis, and you apply after your initial PSLF application has been denied. You can learn more here: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/temporary-expanded-public-service-loan-forgiveness.

 

The Work

A qualifying public service job is defined as any full-time job at a government or 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. Better yet, search:

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 of the institution as identified on your W2 to qualify. So that really luxurious “nonprofit” with the great salary in most cases isn’t going to cut it. Being paid by 1099 means you are an independent contractor (not an employee) and thus will not qualify. Hard to be directly employed by the non-profit if you’re self-employed, right?

“Full-time” for purposes of PSLF is whatever is considered “full time” by your employer or 30 hours/week for at least 8 months/year, whichever is more.

Also note that up to three months of FMLA (Family Medical Leave Act) still count as full-time work for these purposes, so you won’t necessarily delay PSLF by taking America’s sorry excuse for maternity leave, taking care of family, or getting sick.

For each different eligible job contributing to the 120 months, you must submit a PSLF employment certification form. This is something you should do annually but absolutely at the minimum do at the end of your tenure at any facility. While you could theoretically go back and submit the form from your transitional internship 9 years later, doing it as you go would seem 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.), because FedLoan is the government’s chosen servicer and thus the one handling government forgiveness. The more unusual your work circumstances, the more important it is to submit these forms every year.

These are the full eligibility criteria for PSLF-eligible employers:

  • Government organizations at any level (federal, state, local, or tribal)
  • Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
  • Other types of not-for-profit organizations that provide certain types of “qualifying public services” and must not be a business organized for profit, a labor union, a partisan political organization, or an organization engaged in religious activities.

Qualifying public services include:

  • Emergency management
  • Military service
  • Public safety
  • Law enforcement
  • Public interest law services
  • Early childhood education (including licensed or regulated health care, Head Start, and State-funded pre-kindergarten)
  • Public service for individuals with disabilities and the elderly
  • Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations, as such terms are defined by the Bureau of Labor Statistics)
  • Public education
  • Public library services
  • School library or other school-based services

So, it is the private nonprofits offering “qualifying” services that are the category at greatest risk for being denied. If your job isn’t a 501(c)(3) but “should” qualify, submit your employment certification forms annually to prevent wasting your time and money planning for forgiveness that may forever remain out of reach. Even then, the Department of Education (which mostly lost a related high-profile class-action lawsuit) has recently stated that FedLoan employment certifications for this third category “cannot be trusted” and may be denied. FedLoan has been known to accept some employment certification forms for 1099-earning independent contractors working at some non-profits, but there’s no telling what’s going to happen to those folks. A true 501(c)(3) or government job is by far the safer bet insofar as PSLF eligibility is concerned.

 

The Takeaway

PSLF isn’t something you sign up for. It’s something you automatically work toward when you make on-time monthly IDR payments. Similarly, the work verification also isn’t a commitment to PSLF; it’s just making sure your progress toward that possible goal is being counted appropriately so that you don’t have any surprises or end up miscounting your qualifying months.

Keep in mind, there are several reasons to forget PSLF exists:

  • You 100% want to work in private practice.
  • You plan to enter into a contract that will include loan forgiveness.
  • You don’t have a lot of debt (congrats).
  • Your cynicism overpowers your hope that the program will continue to exist when you can reap its benefits (even the very first eligible folks didn’t hit 120 payments until October 2017, and most of them were denied because they didn’t read the fine print).
  • You didn’t borrow that much but are set on forbearing during residency. As in, you are completely confident that the money you would need to pay for IDR during residency and fellowship will negatively impact your quality of life in such a way as to overcome the future financial benefit of having your loans forgiven (a tricky and likely shortsighted personal calculus).

But if you still want to:

  • New graduates should consolidate their loans into a Direct Consolidation Loan as discussed previously.
  • Sign up for an IDR plan: IBR, PAYE, or REPAYE as soon as possible.
  • Minimize payments by never paying more than you have to, which can include reducing your taxable income by maximizing tax deductions, contributing to pretax retirement accounts, etc. More about this in the next chapter.
  • Fill out your employment certification forms annually (or at least when you change employers).

 

Does PSLF make sense for you?

Training Duration vs Monthly PAYE Payments and Total Amount Paid to Achieve PSLF
TRAINING DURATION IN YEARS
Payment Year (Tax Year)3456789
1 (MS3/MS4)$0$0$0$0$0$0$0
2 (MS4/PGY1)$78$78$78$78$78$78$78
3 (PGY1/2)$316$316$316$316$316$316$316
4 (PGY2/3)$333$333$333$333$333$333$333
5 (PGY3/4)$1,000$349$349$349$349$349$349
6 (PGY4/5)$2,220$1,000$366$366$366$366$366
7 (PGY5/6)$2,220$2,220$1,000$383$383$383$383
8 (PGY6/7)$2,220$2,220$2,220$1,000$399$399$399
9 (PGY7/8)$2,220$2,220$2,220$2,220$1,000$416$416
10 (PGY8/9)$2,220$2,220$2,220$2,220$2,220$1,000$433
Total paid prior to PSLF$153,924$131,472$109,224$87,180$65,328$43,680$36,876

Assumptions: Consolidation after graduation with $0 payments during year 1 and half-intern-salary payments year 2. Intern salary is $55,000 increasing $2,000 a year per PGY year. Year transitioning between training and attending is an arbitrary mix (combined salary of ~$140,000) with a calculated monthly payment of $1,000. Attending salary every year caps at the standard 10-year monthly payment of $2,220. In reality, many people will not hit the salary cap, which requires a salary of about $280,000 in this example.

This chart illustrates a few important things:

  1. While PSLF helps defray the cost of longer training, longer training won’t be a good (financial) investment if it doesn’t also result in a higher salary. Doing a three-year fellowship to save $60k is obviously a poor financial decision.
  2. The bigger the difference between what you paid over 10 years and the amount you borrowed, the more PSLF saved you. People with long training will have the bulk of their loans forgiven.
  3. Every year of training reduces the number of years you must make larger attending-sized payments by 1. You can easily calculate the worst-case scenario of each attending year by using the standard repayment for your loan amount, which is the most you would ever need to pay per month under PAYE or IBR. For $200,000, that was $2200 a month. For $300k, it’s $3,331 a month. For $400k, it’s $4,441. So, for each extra $100k you borrow, you could pay as much as $13,000 extra per year in the quest for PSLF.

The easiest way to do a quick comparison with some more personalized numbers is to use the free online calculator offered by Doctored Money at https://www.doctoredmoney.org/student-debt/loan-repayment-calculator. Fill it out like my chart above and you then can tweak marital status, children, etc. to see what repayment options will look like for different job possibilities, spousal employment, etc.

If you borrowed more than twice what you’ll earn as an attending, PSLF is something you should really, really consider.

If you want to see how the hot dog is made, it’s straightforward to do a quick back-of-the-napkin calculation to see if public service loan forgiveness is a viable choice for you. First, look at how many years you will be a resident or fellow. Take 9 and subtract it: that’s the number of years you’ll be making attending-sized payments. Why 9 and not 10? Because if all goes according to plan, there’s a one-year lag between a salary increase and an IDR-payment-increase. Give yourself an average salary as a resident and give yourself an average salary as an academic-type attending based on what you know about where you plan to do residency and where you may practice. Even though your salary will increase with each PGY-level and may increase each year as an attending, this is just to see if it’s worth giving more thought to. Add up ten years of payments and that’s what it’ll cost to get your loans forgiven.

In this case, we don’t actually care what the “forgiven” amount is, because that number is higher as a result of low payments than it would’ve been if you’d been aggressive. All that is matters is how much money it takes to get out of debt. Any plan that requires actually paying off your debt will always cost more: the principal + the interest.

You may notice in so doing that the amount you pay is close to your actual loan amount. If so, going out of your way for PSLF is not for you; you’d easily make up the difference in the extra income from private practice. If your IDR payments don’t cover accruing interest even as an attending, then PSLF will likely be a great deal for you regardless of the exact amount you will have forgiven.

Generally, people earning as much or more than owe each year with a short residency may not be impressed, whereas people in training for six or seven years will have more than half of their loans forgiven.

Every month of PSLF-eligible IDR you complete as a trainee is one less month of bigger payments you’ll make as attending. Literally, anyone doing IDR in residency can have some of their loans forgiven. No amount of refinancing will get you to a negative interest rate of not paying the full amount you borrowed back!

 

Comparing salaries between Jobs

If you’re an average borrower and can make IDR payments during training prior to working at a nonprofit after, PSLF will save you money on your loans. That’s not debatable; it’s just math. That doesn’t mean PSLF makes academia magically more lucrative for most physicians than private practice in the long term. You’ll have to weigh the money saved by PSLF versus the lost extra income from a more lucrative job. Remember, the purpose of the program was to incentivize people toward in-demand public service jobs that would otherwise be essentially unaffordable.

After years of school and training, you’ll eventually land your first “real” job. If you’ve been doing your IDR throughout residency, you’ll be well set up to either stay in academics and go for PSLF or consider the move to private practice.

Finding a job in the right place doing the right things with the right people is probably the most important goal.

But you’ll still want to compare the benefits apples to apples, which means you’ll want to take into account the PSLF-benefits in a non-profit vs the higher pay in practice.

The simplest way to do this is to calculate/guestimate how much total money you will need to pay to achieve PSLF for a nonprofit job vs how much you’ll realistically need to pay off your loans in private practice (with or without private refinancing).

Take the difference between those two numbers and divide it by the number of years after graduating it’ll take you to hit PSLF/10 years. That’s essentially the tax-free PSLF salary bonus per year for that period of time.

So, compare your after-tax compensation from each job and add the PSLF bonus on to the academic one and see which comes out on top. Alternatively, subtract estimated taxes from the amount extra that private practice pays compared with nonprofit work and compare that to the PSLF bonus.

 

When PSLF = Being Aggressive

If paying your loans down quickly or going for PSLF are financially close to equivalent, then the safe choice is to actually pay off your loans. You never know what might happen to the government program or your life plans, but you do know that the faster you make payments and the more you put down, the more money you can save.

There are two reasons that paying down your loans may save you even more than one would think just running the numbers

  • If you can refinance to a lower rate or can unexpectedly put more money toward your loans, then you can save even more.
  • On the flip side, your PSLF quest can always get delayed by losing a month here or there and thus needing to pay extra, reducing PSLF’s benefits. Or, you could even need to leave your full-time qualifying public sector work, throwing a big wrench in your plans.

 

Relying on the Government

My feeling—and the feeling of most informed people without a vested interest in driving refinancing business—is that PSLF is a healthy plan for those who have already borrowed money but that its panacea status for combating ballooning medical school costs may not last forever. Our premedical colleagues starting a few years in the future may not be so lucky, and—given the bad press if nothing else—schools that rely on promoting this program to justify very large tuition raises will eventually need a reconciliation.

More discussion on the future of PSLF can be found in “The Future” chapter.

 

Finally

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. If so, doing your income-driven repayment (IDR) right is important.

As a resident, the best choice for most folks is to choose REPAYE and maximize that interest subsidy. REPAYE will allow most residents to have a low effective interest rate during training and give you the flexibility to either do PSLF efficiently or to double down as an attending and pay off your loans. That sounds a lot more fun than needing to pick a job you don’t want just because your loans have tied your hands.

 

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