By Andrew Paulson, CSLP, Lead Student Loan Consultant and Co-Founder of our partner site StudentLoanAdvice.com

In October 2022, the Department of Education (DOE) issued a press release titled “Charting the Path Forward to Public Service Loan Forgiveness (PSLF).” In this release, there were a couple of regulations listed that could help borrowers who are pursuing PSLF. One of those regulations could be huge for doctors in California and Texas. Here’s what it says:

“Allow a qualifying employer to certify employment for a contractor if that individual is providing services that by State law cannot be filled or provided by an employee of that organization. The Department is aware of specific circumstances where existing state laws generally prevent doctors at nonprofit hospitals in California and Texas from working for the hospital directly. This change would cover those individuals as well as any other contractor whose employment is similarly barred by state law.”

This regulation would allow thousands of docs (and other health care professionals) in California or Texas that are currently ineligible for PSLF to qualify, potentially saving physicians hundreds of thousands of dollars in forgiven student loans.

First, let's talk about how some doctors in California and Texas have a tough time qualifying for PSLF.

California and Texas have had unusual state laws for years that prohibit many nonprofit hospitals from directly employing doctors. As a result, many doctors in those states are employed by a contractor with a hospital. However, in this specific situation, a doctor can't get PSLF, because in order to qualify, they must receive their paycheck directly from a qualifying organization—such as a nonprofit, a 501(c)(3), or a government employer. A doctor who's working for a nonprofit but who is being paid by a contractor wouldn't qualify.

With PSLF out of the picture, these doctors then select an alternative method of repayment, such as student loan refinancing or IDR forgiveness. That's usually a more costly option than PSLF.

If a doctor in California or Texas wants to pursue PSLF, they are constrained to employment at an academic institution, in public health, or in a government setting like the VA. If they aren’t interested in those environments, they must settle for employment at hospital contractors such as Kaiser Permanente. These contractors do not currently qualify for PSLF. This can pose a difficult decision for new docs who often have large student loan balances. Many new docs plan to pursue PSLF after they graduate training and desire to live in California or Texas. They risk losing out on PSLF, as there are fewer job options in those states that qualify because of the unusual state law.

One of the largest employers of docs in the country, Kaiser Permanente, could be on the list of employers that could fit as PSLF eligible, thanks to this new DOE adjustment. Many doctors finishing training who want to work in California will work for Kaiser. The unfortunate reality is they usually finish training with 3-7 years of work experience that is PSLF eligible, but they have to forfeit the program because Kaiser is not a qualifying employer. Now, with an opportunity for those docs to qualify for PSLF, many more physicians could end up pursuing PSLF and have their loans forgiven just a few years out of training.

More information here:

Refinance Student Loans and Pay Off or Go for PSLF?

Is Public Service Loan Forgiveness Worth It for Doctors?

 

How Do I Know If I Qualify for PSLF?

If you want to qualify for PSLF, here are six things you need to remember:

  1. Have direct federal student loans. If your loans aren’t direct, consider a direct federal consolidation.
  2. Enroll in an income-driven repayment (IDR) program such as REPAYE, PAYE, IBR, or ICR.
  3. Work full-time or the equivalent of full-time across multiple agencies or organizations (minimum of 30 hours per week).
  4. Make on-time monthly payments.
  5. Complete an employer certification form.
  6. Work at a qualifying employer. Qualified employers tend to be nonprofits, 501(c)(3), government employers, etc.

Once you’ve hit 120 qualifying monthly payments, you would be eligible for your loans to be forgiven tax-free.

More information here:

The (Nearly) Perfect PSLF Situation for a Physician

 

How Do I Know If My Employer Qualifies for PSLF?

The easiest way to determine if your employer qualifies is by using the PSLF help tool on studentaid.gov. To verify your eligibility, you need to insert the employment identification number (EIN) from the organization(s) that is paying you. Your EIN is usually on a tax form like your W-2. If you don’t have this, reach out to human resources.

Below is an example of a qualifying employer indicating “Eligible.”

This means, as long as you are following the rest of the PSLF rules, then you are accumulating credit (or have in the past) for the PSLF program.

If you are working at a community hospital but are employed by a contractor, you are likely paid by the contractor. Today, if you tried to input Kaiser Permanente (likely a contractor with a nonprofit hospital), you would come back with this “Not Eligible” status.

 

How Do I Know If My Employer Qualifies for This PSLF Loophole?

PSLF adjustment California Texas

As of this writing, Kaiser Permanente employment or any other situation in which you are paid by a contractor with a non-profit/501(c)(3) doesn’t qualify for PSLF. Based on the new DOE regulations to start July 1, 2023, Kaiser is likely an employer that would qualify.

After recent guidance, borrowers are now eligible to qualify their employment.

In order to qualify your employment you need to complete a PSLF certification form and input your qualifying nonprofit/501(c)(3) employer information. That means, you'll input their EIN and request a signature from an official of the qualifying employer not your actual employer (generally the contractor). On the PSLF help tool, you'll input an email for a representative at the qualifying employer. Once it is signed, your form will be sent to MOHELA for processing. If you don't use the help tool, you'll need to procure a wet signature from a representative at the qualifying employer. And later on send the signed PSLF form to MOHELA via their upload portal or fax/mail.

You do not need to add your actual employer that does not qualify for PSLF.

Here are some other questions I've been thinking about.

 

PSLF Loophole Q&A

How Do I Fill Out My PSLF Certification Form if I'm Employed by Kaiser Permanente?

If you are a doctor at Kaiser Permanente, you can now verify your employment to qualify for PSLF. If you work at The Permanente Medical Group (TPMG) or Southern California Permanente Medical Group (SCPMG) here's the information you'll need to enter into the PSLF help tool

EIN: 94-1105628 or 94-1340523

Employer Name: Kaiser Foundation Hospitals or Kaiser Foundation Health Plan

Address: 1950 Franklin Street, Oakland, CA 94612

Email for verification of employment: [email protected] (TPMG) and [email protected] (SCPMG)

When Can The Qualifying Employer Sign the PSLF Certification Form?

The qualifying employer can sign the PSLF certification form if either of these point are true:

1.) You are employed under a contract or by a contracted organization in a position that, under state law can't be filled by a direct employee of the organization or,

2.) You provide services that, under state law, can't be provided by a direct employee of the organization

 

Can I Qualify If I Already Refinanced My Student Loans?

If you have already privately refinanced all your federal student loans, you would not be eligible for the PSLF program. There is no undoing a private refinance. If you’re considering refinancing, make sure you consider this loophole, among other factors, prior to making your final decision.

 

Is This Retroactive?

Yes it is retroactive. Although the change happened on July 1 2023, previous employment is considered for PSLF eligibility back to October 2007.

 

Do Only Doctors Qualify?

No. In the ruling it mentions any borrower that works in a state that has laws that prevents their direct employment at a health care facility can qualify. So, I believe this would be inclusive for PAs, NPs, pharmacists, etc. However, it is our experience with Kaiser Permanente you would have to be a doctor to qualify.

 

Do I Qualify If I Work Outside of California or Texas?

No. This regulation only applies to those who are working in California and Texas.

 

What Impact Could This Have If You Qualify?

Picture this. You’re a new pulmonary critical care doctor working in San Diego at your first attending job making $325,000. You trained for six years at academic institutions and have six years of PSLF credit. You fit the unique situation in this loophole in that you are employed at a hospital contractor that, in the past, wasn’t eligible for PSLF.

You owe $300,000 in student loans at a 7% interest rate. You are trying to decide the optimal paydown plan and whether you should privately refinance or do PSLF.

 

Private Refinance

You privately refinance your loans to a 5% interest rate and a five-year term. You make a monthly payment of $5,661 and pay $39,682 in interest. You’re out of debt in five years, and your total loan cost is $339,682.

 

 

Public Service Loan Forgiveness

You decide to pursue PSLF for four more years. You are on the PAYE program and you just recertified your income from the year prior when you worked half the year as a fellow at $60,000 income and half the year as an attending making $325,000. Over the next three years, your pay increases a little.

Over four years, your monthly payments in PAYE are usually about $2,500 and your total loan cost is $111,550. Your remaining loan balance of $275,000 is forgiven tax-free.

This new attending could end up saving over $228,000 in student loan payments by pursuing PSLF with this newest regulation. For many, PSLF forgiveness might not be life-altering money. However, it could also mean earlier retirement, partial retirement, more money in rental properties, 529 plans for kids, or just more time to spend with your loved ones.

As more information on this loophole becomes available, I will update this post. If you have questions about whether you qualify for this loophole or need general advice on the best way to pay down your student loans, contact our experienced team at studentloanadvice.com today!

If you're a doctor in California or Texas, could this loophole apply to you? Did you even know about this potential PSLF adjustment? How could qualifying for PSLF change your life? Comment below!