By Dr. James M. Dahle, Emergency Physician, WCI Founder
The Public Service Loan Forgiveness (PSLF) program is one of the best possible ways to manage federal loans. If you are eligible for this government program by virtue of your employment situation, you should almost surely take advantage. PSLF offers tax-free forgiveness of any remaining direct federal loans after 10 years of payments have been made.
Public Service Loan Forgiveness Requirements
Obtaining PSLF is not particularly complicated, but news stories continually show many people applying for it that do not meet the requirements. If your student loan management plan is obtaining PSLF, you should have these requirements down cold:
- Only direct federal loans are eligible
- Must be employed full-time (30+ hours/week) by a non-profit 501(c)(3) or governmental employer
- Must make 120 on-time (i.e. < 15 days late) monthly payments
- Payments must be made in an eligible program—usually an Income-Driven Repayment (IDR) program such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), or Income Contingent Repayment (ICR)
- Must fill out the annual employer certification forms and application correctly
Each of these bullet points represents a reason why people who thought they should get PSLF did not qualify to receive it. Your loans must qualify, your repayment program must qualify, and your employer must qualify. Payments do not have to be consecutive but they must be on-time.
After 120 eligible payments, you can qualify for 100% loan forgiveness. With the PSLF Program, it's frequently possible, especially if you have dependents, large debts, a long training period, and/or a low-paying job, to have the program pay more money than you borrowed!
Examples of Jobs Qualifying for PSLF
A significant percentage of physician jobs are qualifying employers for PSLF, including almost all resident, fellowship, and academic positions.
- Employee of a non-profit, tax-exempt 501(c)(3) organization (almost all university hospitals and many community hospitals)
- Military or Public Health Corps positions
- VA Employees
- Employee of a non-profit public health organization
This means you can't go into private practice, be self-employed, or work for a for-profit hospital or group. But there are still a lot of good physician jobs out there that would qualify. If I had a massive student loan burden and was considering IDR forgiveness, I would first try to go get a PSLF-qualifying job!
What Types of Loans Qualify for PSLF?
The program allows any remaining Direct Federal Loans to be forgiven once 120 qualifying on-time monthly payments have been made while directly employed by a qualifying employer. Direct Federal Loans include Stafford Loans, PLUS Loans, and Direct Consolidation Loans.
FFEL, Parent Plus, and Perkins Loans do not qualify until they have been consolidated into a Direct Consolidation Loan. Private student loans do not qualify, including federal student loans once they have been refinanced with a private lender. Thus, it is critically important that you do not refinance your federal student loans until you know for sure you're not going for PSLF.
How Do I Apply for Public Service Loan Forgiveness?
- Fill out the PSLF employer certification form (aka the PSLF Form) each year
- Verify eligibility and qualifying payments each year with FedLoan Servicing (highly recommended, but not technically required)
Public Service Forgiveness Form
The PSLF Form should be filled out every time you change employers and at least once annually. Keep a copy. Technically, this form can be filled out retrospectively, but when so much money is on the line, it pays to be on top of all the details. Certify early and often!
The form is very easy to fill out. You fill out the first page:
And your employer fills out the second page:
Possession of years of forms certifying your participation in the program may also come in handy in the event the program changes and you wish to be grandfathered into the old terms or simply if those administering the program do not keep track of your forms as best they should. In fact, I would keep careful records of every qualifying payment I ever made, just in case.
How Do I Apply for PSLF?
It used to be that once you had made your 120 qualifying payments and filed your employer certification forms for all of the (10+) years you made payments, it was time to fill out another form, a PSLF Application. That form no longer exists. You simply need to submit enough annual certification forms (now simply called The PSLF Form) for years you made 120 qualifying payments and they're supposed to then inform you that you received it. I would follow-up with a phone call after sending in my final form, of course, just to make sure they got it and agree I qualify for it.
What Is Temporary Expanded PSLF?
Now you can even use the PSLF Form to apply for Temporary Expanded PSLF (TEPSLF). This is a potential workaround for people who were not actually in an approved payment plan such as the IDR programs. If the only reason your payments don't count is due to the payment program you were in, you really need to look into TEPSLF. You still have to meet all the other requirements (employed full-time by a non-profit, 120 on-time payments, etc.). The payments you do make, at least for the 12 months prior to getting TEPSLF, do have to be at least as large as what they would be under an IDR program.
Are People Really Getting PSLF?
Absolutely! People were a bit disheartened to not see gobs of people receiving it in 2017, 10 years after the program was put in place. But in reality, few really knew about PSLF until 2010-2011. When I have polled doctors going for PSLF in the past, there were very few expecting to receive forgiveness in 2018-2020, but increasing numbers in 2021 and large numbers beginning in 2022 and 2023. There is a Facebook Group dedicated to docs going for PSLF with 8450+ doctors in it and this was a poll done there at the beginning of 2020:
As you can see, there are very few people who have been forgiven so far in that group, but that's simply because they are nowhere near the 120 required payments. However, look at those lines of people who have 50-80 payments! By 2025 or so, every doc is going to know someone who has received PSLF. By 2030, it may be the majority of mid-career academic docs!
Also, when the government reports things like “only 1% of those who applied received it”, they often fail to mention that the vast majority of those who applied didn't qualify for it and didn't even fill out the PSLF Forms correctly. It would be a real shame to see people bail out of going for PSLF after reading that statistic when it is so misleading. We have had numerous docs on The White Coat Investor Podcast and Milestones to Millionaire Podcast who have received PSLF. Here are a few examples:
- A Public Service Loan Forgiveness Success Story
- Pediatric Intensivist Gets PSLF with No Hassle
- Family Physician Receives PSLF
Here are a few examples off of Facebook:
So yes, emphatically yes, this program is real and real docs receive PSLF all the time. There is no reason you should think you could not receive it if you qualify.
How to Make Sure You Get Your Student Loans Forgiven Through PSLF
Let's review the requirements and my recommendations one more time:
- Enroll in a qualifying payment program
- Work full-time for a qualifying employer
- Make 120 ON-TIME monthly payments
- Keep careful records
- Certify early and often
Avoid errors and find helpful tips for receiving forgiveness by reading Don't Give Up on PSLF.
A typical physician with a typical medical school debt burden wouldn’t have any debt left to forgive after making 120 monthly payments under the standard 10-year repayment plan. The secret to actually receiving economic benefit under this program lies in enrolling in one of the other programs.
The Income-Driven Repayment (IDR) programs such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) will all help you do this. PAYE and REPAYE have the lowest required payments—10 percent of discretionary income, which is defined as the difference between your income and 150 percent of the poverty line for your geographic area and family size. (Note that the payments have nothing to do with the amount or interest rate of your debt.)
During residency, REPAYE is often the best program to enroll in because it may actually waive up to 50% of the interest on your loan, lowering your effective interest rate.
PAYE is often a better program after residency because doctors usually no longer qualify for a REPAYE subsidy and unlike REPAYE, PAYE caps payments at the 10-year standard repayment plan amount. The amount left to be forgiven after 10 years of payments is often just the difference between what you would’ve paid under the standard repayment plan and what you did pay under an IDR plan, plus the effects of compound interest for a few years.
So, a typical medical student may graduate with $250,000 in debt, which grows to $300,000 during residency (IDR payments don’t even cover the interest on the debt). The borrower then pays it down to perhaps $150,000 as an attending, at which point the rest is forgiven. The more payments you make that are less than the standard payments (i.e. payments you make in residency and fellowship), the more debt that is left to be forgiven after 120 total payments.
Strategies for Maximizing the Amount Forgiven Through PSLF Program
Doctors use a few strategies to try to maximize the PSLF amount forgiven.
- Enroll in an IDR program and start making payments late in your fourth year of medical school—essentially increasing the percentage of payments you make while your income, and thus your payments, remain low.
- Complete a direct federal consolidation right after medical school graduation and opt-out of the 6 month grace period. This will allow you to start making IDR payments 3-4 months earlier. This means 3-4 more IDR payments as a resident vs a high-paid attending.
- Contribute to tax-deferred retirement accounts during residency, which further lowers your income and your required payments.
- If married to a high earner, it may be advantageous to file your taxes as “married filing separately” while enrolled in an IDR program. Even though this often increases your combined tax burden, it can significantly reduce your student loan payment in IBR and PAYE.
- Choose a longer training period, which can help maximize forgiveness. A physician who spends seven years in residency and fellowship may need to make full payments for only three years as an attending before receiving forgiveness.
Private student loans are never eligible for PSLF, and the best strategy for managing those usually involves refinancing to a lower rate as soon as possible (usually shortly after medical school graduation or as soon as you can receive an interest rate lower than the effective interest rate after REPAYE subsidy is applied) and paying them off early in your career. Several lenders allow very low payments during training, just like the federal IDR programs.
Refinancing your federal direct loans can be a big mistake if you later end up working for a 501(c)(3) after residency graduation.
Another common error is putting your loans into forbearance or deferment during training, which prevents the accumulation of lower IDR payments that would later allow for significant forgiveness under PSLF. If you make IDR payments throughout residency and work full-time for a 501(c)(3) after residency, going for PSLF instead of refinancing the loans generally works out better mathematically than refinancing, even if the interest rate is higher. It is very difficult for me to think of a situation where forbearance or deferment is the right move for anyone, but it is especially terrible for someone who ends up qualifying for PSLF. It is a very expensive mistake and I am sick of informing doctors that they have made it. So please don't make it!
Is the PSLF Program Going Away?
Many students, residents, and attendings worry Congress will change the rules and take PSLF away. That is a significant risk—both the Obama Budget of 2013 and the Trump Budget of 2018 proposed doing away with the program as we know it. The Prosper Act (never passed) would have also caused significant changes to the federal loan programs if it had become law. However, in the past when federal student loan programs were changed, those currently in the program were usually grandfathered into the old program. Just having a student loan probably puts you into the program, but certainly having filled out at least one PSLF Form would put you in.
Some worry about the morality of not paying back borrowed money when you have the means to do so. My response? Hate the game, not the player. I see loan forgiveness no differently than using a tax-advantaged retirement savings account or taking the child tax credit. We have no duty to leave money on the table that we legally qualify for, even if we disagree with federal student loan policy.
Since PSLF was instituted in 2007, the first borrowers are now starting to receive forgiveness after making their 120 monthly payments. As the years go by, you’ll see more and more physicians receiving this federal benefit. Managing your student loans well will increase your financial security and allow you to take better care of your family and patients.
Save Up a PSLF Side Fund
A good way to hedge legislative risk (or even career risk—such as you want to leave your 501(c)3 job or work part-time for some reason) is to make large student loan payments as an attending that would allow you to pay off your loans within two to five years after residency completion, but make those payments to your own investing account. Then, if something happens to PSLF, you can simply take those funds and pay off the loans. If you do receive forgiveness, you can use that money to bolster your retirement nest egg or other savings goals. The idea behind a PSLF Side Fund is that if for some crazy reason Congress changes the law AND doesn't grandfather you in, the bureaucrats can't find record of all those payments you made, you take a non-qualifying job, or you cut back to part-time, you now have a pot of money you can instantly use to pay off your student loans. If PSLF does materialize, then you can use that money for a house down payment or add it to your retirement stash.
Do I Still Have to Live Like a Resident Even If I'm Going for PSLF?
Short answer: Yes. Long answer: Getting rid of your student loans quickly is only one of the purposes of the 2-5 year Live Like a Resident period. The other purposes include:
- Saving up a real emergency fund
- Paying off credit card and auto debts
- Saving up a down payment for your dream home
- Catching up to your college roommates with regard to retirement savings
- Learning the true limitations of the after-tax income of a physician
- Putting yourself on track to have financial freedom by mid-career that you can use to maximize career enjoyment and longevity
- Saving up a PSLF Side Fund, just in case something happens to PSLF or your career
So yes, you should still live at least somewhat like a resident for a little while after you finish your training, even if you're going for PSLF.
PSLF vs Refinance
Many wonder if they should go for PSLF or refinance their student loans. It's really a pretty simple proposition.
- Private loan → Refinance
- If you work for a qualifying employer or think you might → Don't Refinance
- Debt to income ratio of 1.5+ and not working for a qualifying employer → Consider IDR Forgiveness and Get Advice. Or better yet, go get a job at a qualifying employer!
- Debt to income ratio of < 1.5 and not working for a qualifying employer → Refinance
It's really no more complicated than that.
To learn more about if refinancing or PSLF is right for you check out Refinance Student Loans and Pay Off or Go for PSLF?
If you do choose to refinance, please do so through our links. It helps support the site and gets you a much better deal than you would get going directly to the lenders.
Hypothetical PSLF Situations
Many medical students with a high loan burden will use these programs (especially REPAYE/PAYE) to reduce payments during residency. You may be able to reduce your payments by hundreds or even thousands a month. But even these reduced payments count toward the 20-year mark for PAYE forgiveness, the 25-year mark for REPAYE forgiveness, and the 10-year mark for PSLF forgiveness.
If you will be training for a long time, such as a surgery residency with or without fellowship, or just about any specialty with an additional fellowship, you ought to give serious consideration toward trying to reduce your payments as much as possible using REPAYE or PAYE and then working for a PSLF-qualifying employer. 3-5 years of slightly reduced pay is well-worth having a couple hundred thousand dollars worth of loans forgiven. Many non-profit positions pay just as well as private practice in many specialties.
If you will be in a relatively low-paying specialty, such as primary care or a pediatric subspecialty, and have a high loan burden, there's a good chance you'll be able to get significant loans forgiven and you would do well to work for a PSLF-qualifying employer if you can possibly get a job there. It may be worth the equivalent of an extra 1, 2, or even 5 years of after-tax salary!
When choosing residencies, fellowships, and your first job, an important consideration is whether your employer qualifies under the PSLF program. This may be the most important benefit on the table and is likely worth taking a lower salary.
Should You Take Out Extra Loans in Expectation of PSLF?
The moral hazard (an economic term, not a judgmental one) behind any forgiveness program is that its presence will cause people to do things they otherwise would not. Many people are now asking if they should take out the maximum debt possible during school since it is going to be forgiven anyway. I can see why they would be tempted to do so, but I think it is a mistake for a number of reasons:
#1 Bad Things Happen
Think of all the bad things that could happen over the next decade plus that would keep you from receiving PSLF. I'm not just talking about death and permanent disability (in which case federal loans are canceled, although that cancellation would be taxable). What if you don't match? What if you lose your job due to malpractice issues, fraud issues, discrimination issues, or due to an accusation of harassment?
#2 Life Changes
What if you get married and your spouse needs to live in a town where there is no PSLF qualifying job available to you? What if you want to go part-time to raise kids? What if you just hate being an academic?
#3 You Gave Your Word
When you signed your student loan promissory note, you stated that you would use the money only for school. So why are you borrowing more than you need for school? Honesty seems like an important attribute for a future physician. It is not only illegal but unethical to fraudulently stick the taxpayer with additional costs; that money could have been used to help someone else. Ethics also seem like an important attribute for a future physician. Here's the relevant section of the Master Promissory Note for federal loans:
#4 Legislative Risk
Remember the principle of easy come, easy go. The government can change this program at any time. What a shame it would be if you intentionally paid as little as possible in hopes of getting the loans forgiven, then the government changed the program or you lost your job or became disabled. While I think this is a very unlikely scenario, unlikely things do happen from time to time.
Best PSLF Scenario
Imagine a medical student who attended not only an expensive medical school but also an expensive undergraduate institution. Let's imagine this doc racked up a cool half-million in loans and is married to a stay-at-home spouse and has 4 kids. Our doc has decided to become a pediatric nephrologist. Without the IDR programs, this doctor would make payments of perhaps $3,800 a month. Instead, they pay $0 a month.
Meanwhile, their debt burden is increasing at over $40K a year. So after residency, the student loan totals $625K. Enter fellowship. As a fellow, the salary is now $70K a year and so the doctor is now making payments of $310 a month, or a total of about $11K a year. Meanwhile, the debt load continues to increase. The doc now owes something like $750K. After fellowship, our doc obtains a job at a PSLF-qualifying employer which pays $180K a year.
The payments are now $1,055 a month (still reduced thanks to REPAYE). After four years of making those payments, paying a total of about $50K, the doc still owes about $685K, all of which will now be forgiven, tax-free.
Pretty sweet windfall. Fair? Probably not, but when have benefits from the government ever been fair? No wonder the rates on student loans have gotten so high when there are benefits like this attached to them.
Should YOU Go for Public Service Loan Forgiveness?
- If you work for a 501(c)3 as an attending and have any sort of significant federal loan burden, you should go for PSLF.
- If you are not sure if you will work for a 501(c)3 yet, don't do anything that would jeopardize your ability to get PSLF (like refinancing your federal loans).
If you still aren't sure whether you should refinance or go for PSLF, we recommend you hire Andrew Paulson at StudentLoanAdvice.com to help you run the numbers and make a decision.
If you are sure you should refinance, please do so through the links in the chart below. It helps support the site and gives you a better deal than you would otherwise get.
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Fixed 2.15%-9.15% APR
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† 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 October 31, 2021. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.
What do you think? Are you going for PSLF? Why or why not? Have you obtained it already? Tell us how it went! If you have not yet obtained it, how many payments do you have left until you get it? Comment below!