In Financial Planning

If you’re a doctor, you know there’s one topic you just can’t avoid: student loans.

This topic is right up there with studying for the boards or matching into a residency. It’s an ever-present and stressful part of being a physician.

Luckily, over the past few years, the government created several new ways for borrowers to pay back student loans and get student loan forgiveness. The most popular one among physicians is the PSLF program.

However, recent updates have many borrowers concerned about their eligibility for PSLF, so here’s what you need to know:

What is PSLF?

PSLF stands for Public Service Loan Forgiveness. According to the Department of Education, PSLF “forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”

To put it in plain English, PSLF is generally a great option for doctors who enjoy working in the public sector. In a way, it’s almost like a loophole that can enable many physicians to get hundreds of thousands of dollars of student loans forgiven provided their jobs are approved under the plan.

Here’s how it’s supposed to work: If you work in a government organization or qualifying not-for-profit organization for 10 years and made 120 payments, your student loans should be forgiven.

Because many hospitals are not-for-profits, it’s possible for physicians to qualify for PSLF working regular hospital based jobs. Some might even be able to count their residency years towards this as well if they trained in a not-for-profit hospital that qualifies.

Sounds Great. What’s the Catch?

I’m glad you asked. The catch is that no one has actually received PSLF yet. President George H. W. Bush started the program and the first people to make 120 payments are supposed to receive forgiveness this fall.

It seems like everyone just realized how much it’s going to cost though – $24 billion in fact. Because of this, President Trump wants to get rid of the program altogether when Congress votes on the next budget.

Keep in mind, this should not affect people who are currently working towards PSLF. They should be grandfathered in. It will only negatively affect students who take out loans after July 1, 2018.

So, I’m Good Then?

Well, maybe. You see, PSLF really benefits those with expensive educations, like doctors and lawyers, because if they work in the public sector, they could potentially get huge loan balances forgiven.

However, if you read the New York Times article last December about the lawyers who found out they were ineligible for PSLF when they thought they were, you can see why the future really isn’t guaranteed.

In fact, the American Bar Association is suing the Department of Education over this issue. The lawsuit focuses on four lawyers who took jobs in the public sector thinking they qualified for PSLF. Some of them even filled out certification forms every year to make sure and kept the certification paperwork! Then, they got letters from the Department of Education basically saying,  just kidding – none of your loan payments qualified for PSLF after all because your job doesn’t qualify.

Needless to say, since these attorneys thought they were getting hundreds of thousands of dollars of student loans forgiven, this poses a huge problem for them. If they lose this lawsuit, it has big implications for those who thought they qualified for PSLF all along. It makes their future very uncertain. If they win, the Department of Education might not have as much power to take away PSLF from those who received certification that their jobs counted towards it year after year.

Time will tell, which is why I am watching this lawsuit closely. In a perfect world, you should be able to get your loans forgiven after 10 years/120 payments if your job qualifies. However, as evidenced by the ABA lawsuit above, it’s hard to guarantee.

Anything Else I Should Know?

Forbes published a succinct article earlier this year that listed the 7 student loan changes to expect this year. Some of them, like Trump’s plan to end PSLF, made national headlines. However, there are other updates. For example, the good news is that more banks might offer competitive private loans to borrowers. There are also proposals in place to make the FAFSA and student loan repayment plans easier to understand.

Like many things, student loan repayment plans have gotten complicated, and with so many different options, it can be hard to know which one is best for you.

I think PSLF for those who qualify and enjoy working in the public sector is still a great plan provided that they actually give student loan forgiveness as promised. However, borrowers should stay updated on the latest news and updates to ensure they know whether or not they will qualify.

Don’t worry, I’ll do my best to keep updating my clients and readers on these issues so you can make the best possible choice when it comes to repaying your student loans. If you have any questions along the way, keep in mind that initial consultation calls with me are free.

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