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 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:
- Have direct federal student loans. If your loans aren’t direct, consider a direct federal consolidation.
- Enroll in an income-driven repayment (IDR) program such as REPAYE, PAYE, IBR, or ICR.
- Work full-time or the equivalent of full-time across multiple agencies or organizations (minimum of 30 hours per week).
- Make on-time monthly payments.
- Complete an employer certification form.
- 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?
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. However, it is unclear if you will certify using your nonprofit/501(c)(3) where you have privileges or through your contractor (who’s paying you) on the PSLF certification form. Perhaps in the unique circumstance of California and Texas doctors, the government would allow the nonprofit/501(c)(3) to sign it on your behalf of your actual employer. This would require less database work on the government's end and reduce the minutiae of adding all the different contractor organizations that would qualify under this new regulation.
But what LIABILITY would this present since you’re not actually an employee of the nonprofit/501(c)(3) where you spend your work hours? Maybe both your employer and the nonprofit/501(c)(3) where you're contracted would be required to sign the form. It would be a bit of a pain to get a signature from two organizations, but it'd be worth the hassle if it can save you that much money in student loans. I will update this post when we have a definitive answer on employment verification.
Here are some other questions I've been thinking about.
PSLF Loophole Q&A
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?
It is still uncertain if this PSLF adjustment would be retroactive for borrowers. In my opinion, the fact these state rules have made it particularly difficult for this small segment of borrowers for years, I think the DOE will make this retroactive. So, there is a chance you could have been denied for years and still become eligible or move closer to eligibility.
Do Only Doctors Qualify?
In the ruling, it only mentions doctors in California and Texas that can qualify. It's possible other providers—such as PAs, NPs, and nurses—could also be included. I will continue to update this post as more details are released and if there are additional professions that become eligible.
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!
Could this apply to other states as well, like Utah? In my field of anesthesiology I’m not aware of any hospitals that directly employ anesthesiologists, though the service is rendered at an eligible hospital. Most are always contracted out.
It would have to be expanded. You’re allowed to be an employee of the hospital in Utah. That’s apparently not the case in those other states. Here’s the Utah law:
58-67-802 Form of practice.
Utah Code
Page 21
(1) A physician and surgeon licensed under this chapter may engage in practice as a physician
and surgeon, or in the practice of medicine only as an individual licensee; but as an individual
licensee, he may be:
(a) an individual operating as a business proprietor;
(b) an employee of another person;
(c) a partner in a lawfully organized partnership;
(d) a lawfully formed professional corporation;
(e) a lawfully organized limited liability company;
(f) a lawfully organized business corporation; or
(g) any other form of organization recognized by the state which is not prohibited by division rule
made in collaboration with the board.
Nothing in there about not being allowed to be employed by a hospital or any other person that isn’t licensed to practice. Utah is so pro-business I wouldn’t expect a restriction like that in Utah.
What a potential windfall for the top 5% of wage earners!
No different than PSLF. If we’re going to have PSLF, might as well make it fair and this change makes it more fair.
I don’t understand your comment – “No different than PSLF.” Isn’t this an DOE policy change to PSLF. But, you probably understand this was not the spirit of the original legislation. The title of article of the even describes it as a loophole. And if fairness and equity are a priority, why not allow all physicians to PSLF qualify? There are already comments about KP physicians outside of CA & TX being eligible.
As I have written before, not too long ago federal student programs were projected to generate a surplus. CBO analysis now projects $100s of billions in deficit. With changes like this, the 10-year projected deficit might exceed $1T.
I would argue the opposite, that this WAS the spirit of the original legislation, to reward those working in a non-profit setting.
Now whether the original legislation was good policy or not, we can debate elsewhere.
I’m sure we’ll need to agree to disagree. My understanding of the original spirit of the legislation that it was intended for teachers, law enforcement, social workers, those professions with limited income potential. And if I researched your past comments, I’m fairly confident you’ve expressed the same position.
We’re talking about two different things. I’m saying this particular change is c/w the rest of PSLF.
You’re talking about PSLF as a whole. While most public service fields earn less than their non public service counterparts, that’s not necessarily the case for docs. In many situations, they can have their cake and eat it too. Same pay as private practice, plus PSLF. But in lots of other cases (like academics, VA, CHC, military etc.) those docs really are being paid less to be in public service. PSLF helps make up for that.
I’m not really sure the government should be in the student loan business anyway to be honest. I’d almost rather see the schools doing the lending. Then when a borrower defaults because they got a crappy education, the school has some skin in the game.
This law was not written to apply to specific jobs or careers. There is no mention of specific jobs that are favored or excluded. It was purely written to include people working in “public service” which was defined in certain ways to include primarily government and non-profit jobs. If it was intended to not apply to top earners or certain professions such as physicians, then the law would have been written that way.
Look, I think the law is bad policy and should be eliminated entirely for future borrowers, but it is the current law. If legislators want to change or eliminate the program to exclude a certain set of future borrowers, then they would need to pass a law to that effect. But to say it wasn’t intended for high earning physicians is false.
I’m a new attending in California, working for a company similar to KP, where the group is a for profit entity paid by a finance partner agreement with a 501c. I would like to say I pay very close attention to student loan news, but I had no idea this was in the new DOE regs. I had my whole plan worked out when SCOTUS makes their decision, this changes things entirely! Very excited to keep following along!!
Any word on if this will apply to Kaiser Colorado (or for that matter Kaiser Washington/Oregon). Those states were set up the same way as the Kaiser California model due to the way state laws were in California. Ie while you work for a non-profit you are paid by a contracting company that is not considered a non-profit.
It seems distinctly unfair to expand the program to Kaiser California/Texas and not Kaiser Washington/Colorado/Oregon. This will put the other states at a huge 6 figure recruiting disadvantage for trainees coming out of fellowship/residency.
Akwho,
For now it is only those in Texas and California that will qualify for this loophole. If it changes, I’ll updated the post.
Andrew SLA
Would this only apply for Kaiser doctors working in the hospital setting? Any word if it would also include clinic doctors how are employed by PMG (one of the permanente medical groups)?
I bet it would but we won’t know for a while.
I agree this would be distinctly unfair and I don’t understand how, from a legal perspective, this could apply only to certain geographical regions of a national company with the same business model (albeit with different contracting groups, such as CPMG in CO). When will we get updates on KP Colorado? Thanks
I started working as a doc at Kaiser in California two years ago, and I have $100k in direct federal loans. I’m currently 68 payments towards 120, as prior to Kaiser I was at an academic institution.
My federal loan payments have been zero per month due to the covid pause since I started at Kaiser. If the changes you describe above go through, and as of 7/1/23 Kaiser docs can apply for PSLF, do you think I could retroactively count each “zero dollar monthly payment” that I’ve had since starting at Kaiser as a payment towards PSLF? If so that would catapult me towards forgiveness by like 24 additional payments, which would be awesome. Thanks for thoughts.
Yes. I would expect that to happen for you.
I’m shocked by this change because I never thought they would make this kind of accommodation since it mostly relates to physicians. I think it will even affect where new physicians choose to practice. It’s certainly in line with the spirit of the law and seems fair to make this change. These laws were a major reason I didn’t take a job in Texas or California, which were both places that were otherwise top on my list.
The potential changes in CA and TX came up at a Kaiser CA meeting recently. They are still unclear on how this will be applied and are waiting for their lawyers to receive more information. But they mentioned some Kaiser hospitals might qualify and others might not based perhaps on the county or payer composition of the area they are in. Is PSLF applied this way in any other states or is it purely based off the non-profit status of the hospital?
Laura,
Currently, PSLF is based on who pays you directly. If you are directly employed by a non-profit or 501(c)(3) then your employer would qualify. If you work at the aforementioned but are paid by a private contractor, you would not qualify. This is the impetus for the article, because it could change the paradigm of what counts as a qualifying employer now that there is potential you could qualify working for a contractor with a non-profit hospital. For now, this would only be happening in California or Texas.
Andrew SLA
Well, the expectation would certainly be that the hospital would be non-profit.
I should clarify- they seemed to imply that some Kaiser CA hospitals might qualify and some might not based on the county or payer composition. Last- have you heard anything about this applying to some specialties but not others ie. primary care but not EM or rads, which are historically though for-profit groups in most states?
No, I haven’t heard anything about it only applying to certain specialties.
Curious to Where you heard about this kaiser meeting?
I work for a private practice in California but my hospital where I round as a contractor is a county hospital. Would I qualify for PSLF under these new changes?
Hi Mark,
If you feel like your employment fits this scenario
“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.”
Then, you should try to qualify when more details surface on which employers/contractors would be eligible in July.
Andrew SLA
It’s supposed to be full time for the profit. “Rounding as a contractor” doesn’t sound like full time.
Along a similar question- I am a private practitioner in California that provides procedural care for patients within one non-profit hospital system. I am full time providing care for patients in this non-profits system with procedures and surgeries and call. Would that count?
I believe so but details not all out yet.
Thank you for this information!! I’m a current full time Kaiser employee in California & this would be life changing if implemented and retroactive. I had a question on the one time IDR account adjustment and PSLF.
In 2016, I consolidated $210K of my loans as an intern and left $10K separate (it was a no interest loan while in training).
In 2020, I graduated residency, and thinking I would never qualify for PSLF, I re-consolidated my loans taking the $210K (that I had made 4 years of payments on) with the $10K remaining, for my total consolidated loan of $220K
Do you know if I would qualify for the one time IDR account adjustment to allow for my previous 4 years of payments on the $210K to count for PSLF?
I’m kicking myself for consolidating in 2020 and potentially losing credit for 4 years of payments for if this loophole for Kaiser passes.
Thank you!
I don’t know the answer to your question but I’m sure Andrew does. You can book an appointment with him here:
https://calendly.com/studentloanadvice/student-loan-consult?month=2023-04
I’m also assuming you’re using the word consolidation properly and not saying consolidate when you mean refinance. If you refinanced your loans, they are no longer eligible for IDR/PSLF.
Jessica,
The IDR account adjustment is now moved back to the end of 2023 from May 2023. If your employment starts to qualify this year, I’d assume it would be retroactive and you would be eligile for PSLF credit back to 2016. In the meantime, I would resubmit your PSLF forms for residency if you haven’t done so.
Andrew SLA
Cma website on serval occasions have spoke about being able to retroactively count up to 10 years. Haven’t heard this anywhere else. Curious if you’ve heard anything about how long we can apply this retroactively?
https://www.cmadocs.org/newsroom/news/view/ArticleId/49970/CMA-advocacy-ensures-more-California-physicians-eligible-for-federal-loan-forgiveness
https://www.cmadocs.org/newsroom/news/view/ArticleId/50068/Physicians-seeking-federal-public-service-loan-forgiveness-must-have-direct-gov-t-loan-by-May-1
Hi James,
CMA doesn’t specifically cite where they are getting the retroactive from. I’ve dug into the literature on the regulation changes and it doesn’t make specific reference to retroactive credit at all yet.
In my opinion, the fact a particular state rule have made it particularly difficult for a small segment of borrowers for years (in CA & TX), I think the DOE will make this retroactive.
Andrew SLA
This seems like it would apply to me! I just passed the 120 payment threshold, though of course haven’t made any actual payments since COVID relief was implemented.
Right now I have about 100K in direct loans and 20k in non-direct(indirect?) loans. Based on the comments above, I am wondering if it makes sense for me to consolidate my loans?
I had previously assumed that it didn’t matter since I wouldn’t be getting PSLF. Now I guess I am realizing that I don’t really understand the consolidation process.
Richard,
You only need to consolidate the non-direct loans. You can leave the direct loans as is since they would already be eligible for PSLF.
https://studentaid.gov/app/launchConsolidation.action
Andrew SLA
It is the “corporate practice of medicine act” that prohibits any hospital (for profit or not for profit) from directly employing doctors. I’ve been practicing in Texas since 1984 and this act is very jealously guarded by the legislature and the state AG. I’m frankly very skeptical that this loophole will allow hospitals to employ doctors directly. Since the practice of medicine is state regulated, even if the DOE somehow trumped the state on employment rules, the state of Texas could say that’s fine but you still cannot practice medicine.
You’re missing the point. The point isn’t to be employed directly, it’s to get PSLF despite NOT being employed directly.
I have been a physician in KP California for over 10 years. My consolidated loans are with Mohela. However, I’ve been repaying using the Standard (level) method (>120 payments) with a remaining balance of $25k. If I switch over to an IDR program, would I qualify for PSLF?
Hi KC,
Typically you need to be in an IDR plan or the standard 10 year plan to qualify. The standard plan you describe would probably not qualify. However, with the IDR waiver that is currently in place until the end of the year, you would qualify as it allows any payment plan on any student loan to qualify as long as you have qualifying employment.
Enroll into an IDR plan before they issue the final ruling on KP qualifying for PSLF. At the time of forgiveness, you need to be working at a qualifying employer AND in a qualifying repayment program such as IDR to have your loans forgiven.
Andrew SLA
What are the pro and cons of PSLF and HRSA Primary Care Loan? I do not know which one to choose .
They’re dramatically different. PSLF is loan forgiveness of your federal student loans. HRSA is a loan program that you have to pay back. More info on HRSA here:
https://bhw.hrsa.gov/funding/schools-apply-loan-program
I don’t see much attractive about that unless you somehow got a much better rate or something.
Lynn,
I would highly recommend you borrow federal student loans (eligible for PSLF) over HRSA loans. They have way more flexibility with repayment plans and forgiveness options.
Andrew SLA
Any updates since this was first posted? I have 100 out 120 qualifying payments towards PSLF, but am not currently with a qualifying employer. I have a substantial amount that would be forgiven (>300K) if I change employment back to a position that would qualify. It sounds to me like changing to a Kaiser job in CA still is not a “safe bet” at this point for those 20 months to get PSLF. Is that a correct read of your article? And is there any way to tell right now if (and what) other similar systems will qualify (ie. Sutter Health, Sansum Clinic, etc)?
Hi Britt,
No additional updates on what employers in CA and TX qualify yet. The rules still require you are directly employed by a nonprofit/501(c)(3) to qualify.
Andrew SLA
I agree this would be distinctly unfair and I don’t understand how, from a legal perspective, this could apply only to certain geographical regions of a national company with the same business model (albeit with different contracting groups, such as CPMG in CO). When will we get updates on KP Colorado? Thanks
Hi Nase,
Whether or not you agree, it only mentions CA and TX. And, this ruling is specific to a state law that directly prohibits certain physician employment at nonprofit hospitals in CA and TX. We don’t know if other states that KP resides like CO or WA will ever be considered. It would purely be speculative at this point.
Andrew SLA
Curious to see if this will also impact allied health professions (PT/OT/SLP)? I hope so! Looking forward to hearing more updates. Thank you!
Sure. Why not?