Student Loans: Public Service Loan Forgiveness (PSLF) for Physicians in 2024

Introduction

Public Service Loan Forgiveness (PSLF) is a fantastic opportunity for early-career physicians with student loans.

Understanding PSLF can save you tens or hundreds of thousands of dollars, making it an exciting aspect of financial planning. After meeting specific requirements, your loans could vanish overnight.

Let’s simplify PSLF and help you figure out if you can benefit from it. The sooner you grasp this concept, the more you can save.

If you’re nearing medical school graduation or transitioning into residency, stay until the end. There will be a strategy that might let you make $0/month student loan payments for the first three years post-medical school.

Introduction

Public Service Loan Forgiveness (PSLF) is a fantastic opportunity for early-career physicians with student loans.

Understanding PSLF can save you tens or hundreds of thousands of dollars, making it an exciting aspect of financial planning. After meeting specific requirements, your loans could vanish overnight.

Let’s simplify PSLF and help you figure out if you can benefit from it. The sooner you grasp this concept, the more you can save.

If you’re nearing medical school graduation or transitioning into residency, stay until the end. There will be a strategy that might let you make $0/month student loan payments for the first three years post-medical school.

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Subscribe to The Dream Bigger – Physician Edition Newsetter

A weekly newsletter designed for early-career physicians and anyone looking to enhance their financial well-being.

Discover helpful tips, strategies, and insights to dream bigger and take control of your financial future. 🥼

Get student loan updates, money-saving tips, and financial strategies – all delivered to your inbox.

Simple Overview of PSLF

Public Service Loan Forgiveness (PSLF) is a special program designed for public service professionals, including doctors who work for the government or non-profit hospitals.

If you follow certain rules, after making 120 qualifying payments (or payments for 10 years), any money left on your student loans gets forgiven, and you don’t have to pay taxes on it.

Now, let’s think about this. When you know that your whole student loan amount can be forgiven tax-free, you can start planning.

Imagine you start with $260,000 in student loans and make 120 qualifying payments. Would it be better to have $190,000 or $60,000 forgiven? Forget the exact numbers, but you’d definitely want the bigger balance of $190,000 forgiven.

Why? Because that means you paid less towards your student loans since a larger amount got forgiven.

So, when you’re going for forgiveness, it’s important to implement strategies that let you pay as little as possible towards your student loans.

After you make 120 qualifying payments, whether your balance is $190,000 or $60,000, it all gets forgiven tax-free! There’s no need to pay extra when, in the end, they’ll forgive everything.

Simple Overview of PSLF

Public Service Loan Forgiveness (PSLF) is a special program designed for public service professionals, including doctors who work for the government or non-profit hospitals.

If you follow certain rules, after making 120 qualifying payments (or payments for 10 years), any money left on your student loans gets forgiven, and you don’t have to pay taxes on it.

Now, let’s think about this. When you know that your whole student loan amount can be forgiven tax-free, you can start planning.

Imagine you start with $260,000 in student loans and make 120 qualifying payments. Would it be better to have $190,000 or $60,000 forgiven? Forget the exact numbers, but you’d definitely want the bigger balance of $190,000 forgiven.

Why? Because that means you paid less towards your student loans since a larger amount got forgiven.

So, when you’re going for forgiveness, it’s important to implement strategies that let you pay as little as possible towards your student loans.

After you make 120 qualifying payments, whether your balance is $190,000 or $60,000, it all gets forgiven tax-free! There’s no need to pay extra when, in the end, they’ll forgive everything.

How to Qualify for PSLF

Public Service Loan Forgiveness (PSLF) is a program that allows the tax-free forgiveness of remaining student loan balances on qualifying federal loans after 120 qualifying payments (equivalent to 10 years).

To be eligible for PSLF, specific criteria must be met:

• • Full-time employment by a U.S. federal, state, local, or tribal government or not-for-profit organization (including U.S. military service).

  • Direct Loans (or consolidation of other federal student loans into a Direct Loan).

  • Repayment of loans under an income-driven repayment plan or the Standard 10-Year Repayment plan.

  • Completion of 120 qualifying payments (consecutive payments are not required).

The primary strategy for PSLF involves minimizing payments, with any remaining balance tax-free forgiven after completing 120 payments.

Income-Driven Repayment (IDR) plans, which offer flexibility for smaller payments, play an important role.

Opting for an IDR plan can maximize the benefits of loan forgiveness, resulting in a significantly lower monthly student loan payment and leaving a larger balance to be forgiven.

How to Qualify for PSLF

Public Service Loan Forgiveness (PSLF) is a program that allows the tax-free forgiveness of remaining student loan balances on qualifying federal loans after 120 qualifying payments (equivalent to 10 years).

To be eligible for PSLF, specific criteria must be met:

• Full-time employment by a U.S. federal, state, local, or tribal government or not-for-profit organization (including U.S. military service).

• Direct Loans (or consolidation of other federal student loans into a Direct Loan).

• Repayment of loans under an income-driven repayment plan or the Standard 10-Year Repayment plan.

• Completion of 120 qualifying payments (consecutive payments are not required).

The primary strategy for PSLF involves minimizing payments, with any remaining balance tax-free forgiven after completing 120 payments.

Income-Driven Repayment (IDR) plans, which offer flexibility for smaller payments, play an important role.

Opting for an IDR plan can maximize the benefits of loan forgiveness, resulting in a significantly lower monthly student loan payment and leaving a larger balance to be forgiven.

What Qualifies as Full-Time Employment

Full-time employment requires working for one or more qualifying employers, maintaining a weekly average of 30 hours or more.

For example, if you’re in medical school and employed by the university, you must maintain an average of 30 or more hours per week during the qualifying certified period (1 month) for the payment to qualify for PSLF. However, achieving this requirement is not typically likely.

As a resident, putting in 50-60 hours a week in a not-for-profit hospital ensures that each payment qualifies for PSLF.

However, if you’re an Emergency Medicine attending working for a for-profit hospital, no payments are eligible for PSLF.

On the flip side, if you’re an Internal Medicine attending following a 7 on and 7 off schedule, averaging 80 hours a week for a not-for-profit hospital, your payments are eligible for PSLF.

What Qualifies as Full-Time Employment

Full-time employment requires working for one or more qualifying employers, maintaining a weekly average of 30 hours or more.

For example, if you’re in medical school and employed by the university, you must maintain an average of 30 or more hours per week during the qualifying certified period (1 month) for the payment to qualify for PSLF. However, achieving this requirement is not typically likely.

As a resident, putting in 50-60 hours a week in a not-for-profit hospital ensures that each payment qualifies for PSLF.

However, if you’re an Emergency Medicine attending working for a for-profit hospital, no payments are eligible for PSLF.

On the flip side, if you’re an Internal Medicine attending following a 7 on and 7 off schedule, averaging 80 hours a week for a not-for-profit hospital, your payments are eligible for PSLF.

Which Employer Types Are Eligible

Studentaid.gov offers an employer search tool to check if your employer qualifies for PSLF.

PSLF eligibility is determined by your employer, not a specific job title. For instance, being a doctor employed by a not-for-profit hospital qualifies you for PSLF. However, if you’re a doctor employed by a physician group that contracts with a not-for-profit hospital, you are not eligible because you’re employed by the physician group.

Eligible Employer Types:

• U.S.-based government organizations at any level (federal, state, local, or tribal) – including the U.S. military

• Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code

• Other not-for-profit organizations that devote a majority of their full-time equivalent employees to providing qualifying public service

Ineligible Employer Types:

• For-profit organizations, including for-profit contracted organizations

• Labor unions

• Partisan political organizations

Serving as a full-time AmeriCorps or Peace Corps volunteer also qualifies as employment for the PSLF program. A government contractor is not eligible for the PSLF program.

Which Employer Types Are Eligible

Studentaid.gov offers an employer search tool to check if your employer qualifies for PSLF.

PSLF eligibility is determined by your employer, not a specific job title. For instance, being a doctor employed by a not-for-profit hospital qualifies you for PSLF. However, if you’re a doctor employed by a physician group that contracts with a not-for-profit hospital, you are not eligible because you’re employed by the physician group.

Eligible Employer Types:

• U.S.-based government organizations at any level (federal, state, local, or tribal) – including the U.S. military

• Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code

• Other not-for-profit organizations that devote a majority of their full-time equivalent employees to providing qualifying public service

Ineligible Employer Types:

• For-profit organizations, including for-profit contracted organizations

• Labor unions

• Partisan political organizations

Serving as a full-time AmeriCorps or Peace Corps volunteer also qualifies as employment for the PSLF program. A government contractor is not eligible for the PSLF program.

Which Loans Are Eligible

The following Direct Federal Loans qualify for PSLF:

• • Subsidized Direct Loans

  • Unsubsidized Direct Loans

  • Direct Grad PLUS Loans

  • Direct Consolidation Loans

However, the following types of loans do not qualify for PSLF:

• • Parent PLUS Loans

  • FFEL (Federal Family Education Loan) Loans

  • Private Student Loans

It’s worth noting that FFEL loans can qualify if included in a Direct Consolidation Loan. Parent PLUS Loans can also qualify through the Double-Consolidation Loophole, involving two separate consolidations. If you are a Parent PLUS loan borrower, it is highly recommended to consult with someone who specializes in student loan planning.

Which Loans Are Eligible

The following Direct Federal Loans qualify for PSLF:

• Subsidized Direct Loans

• Unsubsidized Direct Loans

• Direct Grad PLUS Loans

• Direct Consolidation Loans

However, the following types of loans do not qualify for PSLF:

• Parent PLUS Loans

• FFEL (Federal Family Education Loan) Loans

• Private Student Loans

It’s worth noting that FFEL loans can qualify if included in a Direct Consolidation Loan. Parent PLUS Loans can also qualify through the Double-Consolidation Loophole, involving two separate consolidations. If you are a Parent PLUS loan borrower, it is highly recommended to consult with someone who specializes in student loan planning.

Which Repayment Plans Qualify

Income-Driven Repayment (IDR) Plans:

• • Saving on a Valuable Education (SAVE)

  • Pay As You Earn (PAYE)

  • Income-Based Repayment (IBR)

  • Income-Contingent Repayment (ICR)

Standard 10-Year Repayment Plan

Note: Opting for the Standard 10-Year Repayment plan while pursuing PSLF is not the most advantageous choice. This plan fully repays the loan within 10 years, resulting in nothing left to be forgiven. Although the payments still contribute to PSLF eligibility, sticking to this plan means there won’t be any remaining balance for forgiveness.

Additionally, there are two types of Standard 10-Year Repayment Plans. Click here to learn more.

Which Repayment Plans Qualify

Income-Driven Repayment (IDR) Plans:

• • Saving on a Valuable Education (SAVE)

  • Pay As You Earn (PAYE)

  • Income-Based Repayment (IBR)

  • Income-Contingent Repayment (ICR)

Standard 10-Year Repayment Plan

Note: Opting for the Standard 10-Year Repayment plan while pursuing PSLF is not the most advantageous choice. This plan fully repays the loan within 10 years, resulting in nothing left to be forgiven. Although the payments still contribute to PSLF eligibility, sticking to this plan means there won’t be any remaining balance for forgiveness.

Additionally, there are two types of Standard 10-Year Repayment Plans. Click here to learn more.

What Makes a Qualifying Payment

Qualifying Monthly Payments:

A qualifying monthly payment is one made while employed full-time by a qualifying employer (after October 1, 2007) at any time during that month, while under a qualifying repayment plan, for the full amount due as shown on your bill, or when you are in one of the accepted types of deferments or forbearance at any time during that month.

Conditions for Qualifying Monthly Payments:

Qualifying monthly payments are only possible when there’s an actual payment due. This means that you cannot make a qualifying monthly payment when your loans are in:

• • In-School Status

  • A Grace Period

  • A Deferment

  • A Forbearance

Your qualifying monthly payments do not have to be consecutive.

For example, if you receive 36 months (3 years) of qualifying payments during residency, taking a 6-month break does not count towards credit. However, when you start your attending job at a not-for-profit hospital, your first month working as an attending will qualify for PSLF.

Lump-sum or early payments will also count toward the 120 needed for forgiveness. You can make these payments multiple times each year up until your annual IDR Anniversary Date. For instance, if your monthly bill is $100 and you paid $1,200 at the beginning of the year, that would count for your next 12 payments.

However, it’s important to note that you are still not eligible for receiving forgiveness until you complete the required 120 qualifying payments.

What Makes a Qualifying Payment

Qualifying Monthly Payments:

A qualifying monthly payment is one made while employed full-time by a qualifying employer (after October 1, 2007) at any time during that month, while under a qualifying repayment plan, for the full amount due as shown on your bill, or when you are in one of the accepted types of deferments or forbearance at any time during that month.

Conditions for Qualifying Monthly Payments:

Qualifying monthly payments are only possible when there’s an actual payment due. This means that you cannot make a qualifying monthly payment when your loans are in:

• In-School Status

• A Grace Period

• A Deferment

• A Forbearance

Your qualifying monthly payments do not have to be consecutive.

For example, if you receive 36 months (3 years) of qualifying payments during residency, taking a 6-month break does not count towards credit. However, when you start your attending job at a not-for-profit hospital, your first month working as an attending will qualify for PSLF.

Lump-sum or early payments will also count toward the 120 needed for forgiveness. You can make these payments multiple times each year up until your annual IDR Anniversary Date. For instance, if your monthly bill is $100 and you paid $1,200 at the beginning of the year, that would count for your next 12 payments.

However, it’s important to note that you are still not eligible for receiving forgiveness until you complete the required 120 qualifying payments.

Accepted Types of Deferments or Forbearance

As per studentaid.gov guidelines, if you find yourself in any of the following deferments or forbearances during a month, that particular month can be considered a qualifying payment, provided you also certify your employment for the same period:

• • Cancer treatment deferment

  • Economic hardship deferment

  • Military service deferment

  • Post-active-duty student deferment

  • AmeriCorps forbearance

  • National Guard Duty forbearance

  • U.S. Department of Defense Student Loan Repayment Program forbearance; or

  • Certain administrative forbearances related to local or national emergencies or military mobilizations and or mandatory administrative forbearances provided to borrowers for collecting supporting documentation.

     

Accepted Types of Deferments or Forbearance

As per studentaid.gov guidelines, if you find yourself in any of the following deferments or forbearances during a month, that particular month can be considered a qualifying payment, provided you also certify your employment for the same period:

• Cancer treatment deferment

• Economic hardship deferment

• Military service deferment

• Post-active-duty student deferment

• AmeriCorps forbearance

• National Guard Duty forbearance

• U.S. Department of Defense Student Loan Repayment Program forbearance; or

• Certain administrative forbearances related to local or national emergencies or military mobilizations and or mandatory administrative forbearances provided to borrowers for collecting supporting documentation.

   

PSLF Payment Tracking and Servicer

Mohela is the student loan servicer responsible for PSLF. While it’s not mandatory, it is highly encouraged to fill out the PSLF Help Tool annually to certify and document your progress towards PSLF. This is far more convenient than attempting to revisit past employers after completing 120 qualifying payments.

If you opt for a Direct Loan Consolidation and affirm, “Have you been or are you currently seeking to be employed full-time by a public-sector organization, and are you consolidating for the purpose of Public Service Loan Forgiveness (PSLF)?”, your loans will automatically transition to Mohela as your student loan servicer.

PSLF Payment Tracking and Servicer

Mohela is the student loan servicer responsible for PSLF. While it’s not mandatory, it is highly encouraged to fill out the PSLF Help Tool annually to certify and document your progress towards PSLF. This is far more convenient than attempting to revisit past employers after completing 120 qualifying payments.

If you opt for a Direct Loan Consolidation and affirm, “Have you been or are you currently seeking to be employed full-time by a public-sector organization, and are you consolidating for the purpose of Public Service Loan Forgiveness (PSLF)?”, your loans will automatically transition to Mohela as your student loan servicer.

Michael Putterman, CFP®

☁  Virtually serving clients nationwide  ☁

Michael Putterman, CFP®

☁  Virtually serving clients nationwide  ☁