[Editor's Note: Today's guest post was submitted by Dr. Garrett Rossi, a psychiatrist that blogs at Shrinks in Sneakers. Dr Rossi proposes some reasonable changes to Public Service Loan Forgiveness (PSLF) for the Biden administration and Congress to consider. We have no financial relationship. See the end of the post for an editorial note about the current state of student loans. ]
There is a lot of debate about how to address student loan debt. There have already been calls for Joe Biden to cancel anywhere from $10,000 to $50,000 in federal student loan debt for each borrower. For people with less student loan debt, this could be life-changing. For physicians who funded their medical education with student loans, it’s unlikely to make any impact.
As a doctor who comes from a very modest family, I know all too well how crushing this debt can be. Having substantial student loan debt influences all aspects of life from home buying to the decision to delay having children. Debt influences your choice of employer, often taking less desirable employment opportunities that offer loan repayment programs or qualify for public service loan forgiveness (PSLF). Academic careers and private practice are largely off the table for lower-paying specialties such as family medicine or psychiatry. All of these factors depend on how much student loan debt you have, and many physicians are leaving school with $250,000 or more in student loan debt.
I know what you are going to say. I need to take personal responsibility for the choices I’ve made. No one forced me to become a physician or fund my education with student loans. However, for many of us, student loans are the only option for funding our education.
While I agree and do take personal responsibility for my career path, I still expect certain things, like the process of obtaining PSLF to be clearly articulated. I became a doctor to help people, and each morning the best part of me leaves to take care of my patients. When I come home there is little left to give to my family. I am willing to give selflessly to the underserved communities that I work in, but I expect that programs like PSLF will make good on their promise, as well.
My Proposal for Fixing PSLF
PSLF is a program that was in place when I started repaying my loans—I work for a qualified employer, I complete my employment certification each year, and yet there is still significant doubt if I will receive forgiveness after 10 years of making payments. Many of my colleagues are facing the same difficult choices. Namely, to enter a program with a suspect history of following through on their agreement, or try to pay the student loan debt off in its entirety.
What I would propose to Joe Biden and his team is a plan to revise the programs that already exist. We can start with making the PSLF program clear, fair, and understandable to all borrowers in ways such as:
- Providing clear information about qualifying employers
- Detailing instructions on completing and submitting documentation
- Creating a better way of tracking qualifying payments on a monthly basis
- Expanding the number and type of employers who qualify to take part in the program
Attempts to improve these issues have been made, but the process remains too cumbersome for many busy professionals.
An Additional Proposal for the IDR Program
Another helpful change for many borrowers is the proposed change to income-driven repayments (IDR). In my opinion, these payments should be capped at 5% of discretionary income. At this time IDR payments are 10% discretionary income, which is a significant amount of money each month. I like to think of this as an “additional 10% tax” I pay each month for attending medical school.
Finally, we need incentives to retain physicians in the community and rural practice settings. Physicians may be sacrificing promising academic or private practice opportunities to provide a public service. There needs to be some type of guarantee in place that assures the PSLF program will remain in place, and the program will forgive the remaining balance of the loans once 120 qualifying payments are made.
[Editor's Note: I certainly agree with Dr. Rossi's call for the administration of the PSLF program to be improved. The biggest issue with it at this time is that the bureaucrats running it cannot count to 120. Personally, I think the rules are clear enough and easy enough to understand. I mean, I can put them on a post-card:
- 501(c)3 or government employer (not a private group that contracts with a non-profit)
- Full-time job (30+ hours)
- 120 on-time monthly payments
- Qualifying loans (direct)
- Qualifying repayment plan (IDR plan or 10 year standard repayment plan)
- Fill out an annual employer certification form and fill out the application correctly
Personally, I think 10% of discretionary income IDR payments as currently available under PAYE and REPAYE are completely reasonable. 10% is already a significant improvement over IBR (15%) and ICR (20%), but cutting it to 5% isn't a hill I'd die on. The crummy service people receive from the federally approved loan servicing companies is a far bigger issue.
I agree that the current “forgiveness proposal” as outlined by President-elect Biden is not going to move the needle for most readers of this blog. While this information is highly fluid and subject to change at any time, here are the basics of what is currently being talked about:
- Forgive/Cancel $10,000 for all borrowers. It is unclear if this would then become taxable income (it probably would) but it just doesn't do anything significant for doctors who owe $200-500K in student loans. There is also talk of this applying ONLY to undergraduate loans, which again would essentially eliminate most of the benefit for readers of this blog.
- Forgive $10,000 per year for those working for a 501(c)3 for up to 5 years. Again, this is not an awesome deal for doctors. If you're going to work for a 501(c)3 for 5 years, you might as well get $200-400,000 forgiven instead of $50,000. Although presumably, it would reduce the debt for residents even if they choose to go into private practice after residency, so that would be nice. Again, this may only apply to undergraduate loans.
- PSLF Improvements. Half of debt may be forgiven after 5 years of public service. Again, this could be really awesome for general surgery residents! Additional loans (? PLUS) and payment plans may also be eligible.
- IDR Changes. There is talk of adopting Dr. Rossi's 5% of discretionary income IDR payments. IDR forgiveness may also become tax-free. The combination of these two things could revolutionize physician student loan management. However, at the same time they are talking about making only undergraduate loans eligible for the IDR programs, which would also revolutionize physician student loan management, but in the other direction!
Finally, President-elect Biden is expected to extend the current moratorium on both interest accumulation and payments for federal loans. He has not said how long the extension will be, but most people think it will be extended from the end of January at least to April.
So what should you do? Well, this is obviously a time of great uncertainty so the prudent thing to do is to stay the course with your current plan. If you have private student loans and have not refinanced them in the last six months, you probably need to do so (early and often). If you go through our links to our recommended lenders, you get the best available rates and hundreds of dollars of cash back you would not get for going directly to the companies. However, if you are currently sitting on federal student loans, it is probably best to give the new administration and Congress a little time to figure out what they're really going to do before refinancing. Since your payments/interest will still be $0/0% for at least a few more months, there is no real penalty to doing so. Trust me, when it becomes clear what the plan is and interest starts accumulating on your loans again, our messaging about “It's time to refinance again” is not going to be subtle.]
What do you think? How would you propose to fix Public Service Loan Forgiveness? Should discretionary income for the IDR program be capped at 5%? Comment below!
Variable 6.24% - 9.99% APR
Fixed 5.24% - 9.99% APR
^Up to 0.75% off rates
Variable 5.28%-14.51% APR
Fixed 4.90%-11.83% APR
^Best Rate Guarantee
Variable 5.28% - 8.99% APR
Fixed 4.90% - 8.87% APR
^Up to 0.25% off rates
† Bonus includes cash rebates and value of free course. Borrowers who refinance more than $60,000 in student loans using the WCI links will be enrolled in The White Coat Investor’s flagship course, Fire Your Financial Advisor for free ($799 value). Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted from May 1, 2021 through March 15, 2024. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.