[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
Garrett Rossi, MD
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!
† 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.
I graduated in 2011, when PSLF was pretty new. People weren’t sure that the program would last. The past few years have been reassuring as I know more and more people who have successfully had their student loans forgiven.
In retrospect, I should have gotten a small part-time job at the end of 4th year. Then I could have based my repayments off a $500/month job rather than a PGY1 salary.
Why would you need a job? If you had filed taxes for the year that ended halfway through your fourth year, your payments would have been based on an income of $0, at least for the first six months of residency. Then they would be based on a half year intern salary for another year.
This is one of the worst posts I have seen here. How about making free market decisions with free market consequences? Why advocate farm land leases or real estate investments instead of letting physicians buy medical student loans? Wouldn’t that be a good way to pay it forward? Let practicing physicians finance and profit off of the development of new physicians. No different than a rental home but more satisfying. The mindset behind increasing government financing in healthcare education is truly stultifying. MAybe the government could guarantee my investment returns. I certainly deserve it. The WCI should edit itself.
Student loan forgiveness for physicians is a way for all of us to benefit off of the development of new physicians. I would prefer to be treated by a physician who’s healthy in body and mind and not weighed down by debt and fatigue from working all those extra shifts. As a non-physician earner, I pay higher taxes anyway, and I’d rather it go towards relieving people’s debt rather than all the other stupid things government decides to spend on.
Doctors CAN buy medical student loans if they want to. There have been several businesses that have started up in the last decade trying to do that. The problem is the students would rather get 2-3% loans from refinancing companies and the doctors aren’t willing to only make 2-3% on their own investments. It has to work for both parties, and I haven’t seen that happen yet.
The fears about PSLF being a broken promise seem media influenced and overblown. If you follow the rules people are being forgiven. I see more and more people with massive 200+ debt forgiven via PSLF. Also the loan servicer (myfedloan primarily) has indeed been deplorable in the past but they’ve recently made massive upgrades to their transparency and keep improving.
The proposal for $10,000 loan forgiveness from Biden Administration would be helpful if it applied to monthly payments. For example if you paid $2,000 a month it could be 5 months of payments covered. If it only applies to principal then I agree it’s useless to anyone pursuing more than 10k forgiveness via PSLF.
Final point is that student loan payments being post-tax is not talked about enough. This affects student loan related sign on bonuses, payments made, and forgiveness programs (but luckily PSLF forgiveness is tax free). We allow work related expenses to be deducted but the cost of education isn’t part of that. If we made all student loan related activities pre-tax (akin to an HSA) then we’d immensely decrease the student loan burden in a way that jives with the rest of the financial world.
Interesting. That would be even more aggressive than just letting the interest be deductible to high earners. You’re basically saying the entire payment would be a deduction. Hard to see that becoming law.
I don’t agree with part of this article. The author states that people going for PSLF are basically precluded from academic careers. That’s simply not true. If anything, it encourages academic careers. Academic centers are one of the primary places you can work to qualify, and is exactly why I (among many others), who never wanted to go academic initially, am now working in an academic center.
Agreed.
This is going to be an unpopular opinion, but I don’t agree with student loan forgiveness. I know people from undergrad who used student loans to buy a car or to go on international vacations. So if we forgive their loans, we’ve effectively gave them a free car and vacation.
If we forgive student loans, are we also going to forgive NHSC, IHS, or military service commitments? It doesn’t seem fair to forgive one’s student loans, but then turn around and charge the NHSC person 3 times the principal plus interest if they don’t fulfill their obligations.
Prior to any loan forgiveness, we must change the student loan program. If it’s such a bad program that got us in this mess, then why continue it?
It’s only an unpopular opinion among doctors (and others) with student loans!
Many people don’t like it from a policy perspective because the benefits go to the most educated and highest earning Americans.
But if we’re going to have a forgiveness program, let’s at least have a functional one. It shouldn’t take 60-100 hours on the phone/sending emails/filling out applications to get something you’re allowed by law to have.
I agree the main problem is the tuition, not the way it is paid for. Harder problem to solve though.
The whole concept of “forgiveness” is misleading. The forgiveness is simply taking money from some to give to others. The idea of having a “good” or “smart” way of income/wealth distribution never works. There are too many self-assessed good and smart people who have endless time to “help.”
I agree that it’s the taxpayer doing the forgiving.
Jim,
Thank you for listing the 6 to-do items that could fit on the postcard. It’s not that difficult to follow the rules to get a large student loan debt forgiven. I agree with a prior post that Fedloan servicing has improved as I have been working with them since 2014.
The IDR renewal is required annually and is important not to be late or your payment will increase substantially. The employer form is recommended annually but not required. I had my daughters’ file the employer form after two months of residency employment and IDR payments to get “grandfathered” in the program and make sure Fedloan approved their employer.
Thanks for all of your work on behalf of physicians!
Cheryl
As a government lawyer who is eligible for PSLF next month, I do agree that the payments need to be lower, whether by being capped at 5% or coming from after-tax income. When I was single and starting out in a government job in a high-cost-of-living area (which isn’t taken into account), the loan amounts made my already-frugal budget really, really tight. Like, beans-and-rice tight. Once married, it’s easier to (legally) game the system by filing taxes separately from my husband and lowering my AGI by maxing out retirement accounts. But still, from a purely financial standpoint, it would have absolutely made more sense to just work at a law firm and pay off my loans in a couple of years. If our society wants to incentivize top professionals to take public service jobs (that’s supposedly the point, not an act of sympathy or charity for doctors and lawyers), the incentives need to be better. Although it’s worked out for me, I discourage others from doing it.
PSLF not being honored?
I’d like to see some evidence of this claim. In my circles everyone who had their paperwork in order has had their loans forgiven as per the loan agreement. Any links or examples of PSLF not being honored? I heard the initial media rumors, but those people were rejected because they simply didn’t qualify. Not because some bureaucrat decided not to honor the promissory note. FYI – serious question not being flippant.
Psychiatry equal low paid speciality?
Maybe my perspective is off, but psychiatry attending salary jobs seem to be in the $275-325k range with very comfortable hours/patient load. Do other specialities actually make significantly more? Here is a link (from Medscape Report – https://aasm.org/medscape-physician-compensation-report-shows-salaries-vary-by-specialty/) showing psychiatry midrange and compared to family medicine is ~25% higher. According to the chart, the same ratio psychiatry is lower than emergency medicine (273k vs 350k). Is our salary standard plastic surgery? Cause they work a lot more hours…
Also, we describe making in the top 5% of earners in the country (and probably the world/history) as “working selflessly” is really disingenuous. As physicians we should be realistic about the language utilized (especially in print on popular websites). When you’re getting paid six figures you simply are not being selfless.
To be fair, lots of people were rejected because they had 120 payments but the servicing company couldn’t count that high.
WCI – could you provide me more info regarding the 120 payments miscounting? I’d like to learn more. It’ll be some time before I qualify, but I’d very much like to be informed.
Thanks
Simply that some people like they have 86 payments and when they call up their loan servicing company the company thinks they have 72.
As a peds subspecialist I do feel like having PSLF levels the playing field for those in lower paying specialties. Basically if you’re a pediatrician who works for a nonprofit hospital for 7 years or a subspecialist who works for 4 years you’ll get your loans forgiven which is reassuring for those who are entering lower paying fields. For the higher paying fields many are paying off their loans in the 5-10 years. I’m surprised given the “anti-wealth” climate out there that there aren’t stories of docs who did PSLF who are doing well. All it takes is one news story showing a doc in a Tesla who got their loans forgiven for this all to end.
I do think overdoing loan forgiveness can have unintended consequences such as driving up college prices. However, I think PSLF seems like a fair deal although it would be nice if it were easier to manage.
I had at least one of those stories on my podcast, although I don’t think there was a Tesla involved.
Oh no, batten down the hatches! All good points, but I know there are some “vocal” readers of yours who love to hate on PSLF and complain about student loans of other people.
For me, I finished dental school in 2010 and sacrificed for years (like many others) to finally have them paid off. It would be discouraging to think my that others (who didn’t sacrifice) would be rewarded… Doesn’t seem right.
Lots of people feel that way about general forgiveness. Most recognize PSLF as forgiveness in exchange for public service. Now whether you feel employment at a non-profit hospital or being an academic is real public service or not, I’ll leave up to you. But that’s the way it works under current law.
I’ve been really conflicted about PSLF. By the time I finish all my training I will have completed 6/10 years and my current student loan burden is ~$400,000.
My gut says “I took a out these loans and I’ll pay them off.”
While my brain says “The agreement I made with the government when I took out these loans included forgiveness of these loans. How can I be wrong to ask them to hold up their end of the contract?”
And so my brain says I should pursue forgiveness since it’s SOOO much money.
If you’re eligible, you’re eligible. How is that any different from taking a charitable contribution deduction, having your baby on Medicaid in med school, or doing tax loss harvesting.
Now if you want to argue about whether it is wise policy or not, that can be reasonably argued from both sides. But I don’t think there is any ethical problem with taking PSLF if you’re otherwise eligible for it. That’s partly why the interest rate on federal student loans is so much higher than your mortgage.