Student Loan Changes For Doctors

On Wednesday, August 23, 2022 President Biden announced a new federal student loan relief plan. Altogether, there are 4 big changes that may affect physicians and other young professionals with federal student loan debt:
 
1. Student Loan Forgiveness. Many people on the far left lobbied the President to forgive up to $50,000 in student loans. They cited evidence that college tuition has skyrocketed in recent years and stated that many of the people who took out loans in undergrad did not fully understand the repercussions of taking out such large debt burdens at a young age. Many teenagers were led to believe that the salary they would make after graduating college would make up for the amount they took out in student loans, which has not been true. However, several people on the far right disagreed. They did not want President Biden to forgive any amount of student loans. They feared that wide-spread forgiveness would worsen inflation and benefit college educated individuals who already make a high income. The President compromised and landed somewhere in the middle.
 
His new plan approves $10,000 in loan forgiveness for individuals making $125,000 or less (and couples with a combined income of $250,000 or less) using 2020 or 2021 tax returns. Individuals who went to college on a Pell Grant (and also make $125,000 or less) will qualify for up to $20,000 in forgiveness. The Biden Administration’s goal is to give added relief to Pell Grant recipients who come from disadvantaged backgrounds. The income cap of $125,000 is in place to ensure that upper class Americans aren’t getting debt relief they may not need.
 
This means that most residents and fellows will qualify for forgiveness. It also means that some attending physicians in lower paid specialties and doctors working part time will qualify. Because this income cap is based on adjusted gross income, not salary, doctors who put lots of money into pre-tax retirement accounts may be able to qualify for forgiveness as well.  
 
This student loan forgiveness plan also states that those who have student loan balances of $12,000 or less when they graduated from undergrad will now have the balance automatically forgiven after they make 10 years of payments (although I doubt this will apply to most doctors)
 
2. Extending the Pause on Student Loan Payments. Many people with federal loans haven’t had to pay on their loans in over 2 years. At some point, those payments would need to be restarted. Unfortunately, many people have gotten so used to not making payments on their student loans that restarting them would be a burden. But it is not just the borrowers that would have difficulty restarting payments. Loan servicers were having issues with administration. By law, your loan servicer would need to warn you months in advance of any payment due and they hadn’t yet started contacting borrowers. Plus, large federal loan servicers like Fedloans were in the middle of switching borrowers to new loan servicers like MOHELA. Long story short, the system was not prepared to start the payments in September and with midterm elections on the horizon, it wasn’t politically favorable to start the payments in the fall either. As a result, the payment pause has been extended. Payments will continue to be paused until December 31st 2022. Federal student loan payments will resume in January of 2023.
 
3. Changing The Way IDR Payments Are Calculated. As it currently stands, income driven repayments (IDR) are when you make student loan payments based on your income (instead of making payments based on the total amount of debt you owe). The thought is that basing the payments on your income will make the payments more affordable for low-income and middle class Americans who have high debt burdens and modest salaries. The amount you pay under these income driven repayment plans ranges from 10% of your discretionary income to 20% of your discretionary income depending on the plan. President Biden’s new student loan plan would change that.
 
The Biden administration has pitched a new income driven repayment plan. With this new plan, those who have student loans from undergrad will have their payments capped at 5% of their discretionary income (instead of 10% of their discretionary income). This will effectively cut their monthly payments in half. Plus, the administration will change what is considered “discretionary income.” Previously, your discretionary income was your Adjusted gross income (the amount of money you pay taxes on) minus the 150% of the poverty line for your state and family size. Now it will change. According to the website, “no borrower earning under 225% of the federal poverty level (which is about $15/hour or less) will have to make a monthly payment. In other words, the amount that is considered “discretionary income” will be changed in a way that benefits the borrower and requires them to pay less money per month. People who make around $15/hour might not have to pay anything at all.
 
4. Preventing Your Student Loan Balance From Growing. Another feature of the new student loan repayment plan mentioned in the proposal is that student loan balances will not grow from year-to-year while in repayment. This is likely the most meaningful change for doctors and young professionals because one of the biggest complaints about student loans has been the high interest rate. It is discouraging to have to take out six-figure student loan debt in medical school and then have the balance grow while you were in training as a resident and fellow. Under the proposed new student loan repayment plan, this will never happen again.

The current proposal is for the government to have a new income driven plan that will automatically forgive the unpaid interest on your student loans (think of it like the REPAYE plan, but better). This means if you are in-training as a physician and you have $250,000 in student loans with an interest rate of 5% on your loans. Your balance will never grow to be more than $250,000. Why? Because the government will pay the unpaid interest. What do we mean by “unpaid interest?” Let me give you an example.
 
If you have $250,000 in student loans with an interest rate of 5% and your income driven repayment amount as a resident is $200 a month then your monthly payments (of $200x12 months) will not even cover the interest that is accruing on your loans. This means that even if you make your payments on time, your student loan balance will grow from year-to-year. With this new student loan repayment plan the government will forgive all that unpaid interest which will prevent your balance from growing year-to-year. Not having your student loan balance grow while you’re in training will save lots of docs tens of thousands of dollars in interest payments. (And basically eliminates the need for any trainee to refinance their loans) This is HUGE.
 
While I’m excited about the changes there are still a few questions and details we need to explore such as:

• How to handle people with undergrad and grad school loans. With the new changes, people with loans from undergrad only pay 5% of their discretionary income. But what will happen to people who have loans from undergrad and grad school? Will they pay 5% or 10%? Will it be a weighted average?

• The overall structure of this new IDR plan. Will high earners be able to make payments based off of the 10-year standard repayment plan? Will married couples be able to exclude their spouses income? Will they remove interest retroactively or just going forward? This all remains to be seen.

 
While there are many questions left to be answered, these changes are considered a step forward in the right direction. Another change would potentially be to put some sort of cap on tuition rates or make college more affordable. You can stay up to date on all the changes by clicking here: https://studentaid.gov/debt-relief-announcement/.

9 Things I Learned When I Signed Up for Public Service Loan Forgiveness

As someone who graduated from medical school with 6-figure student loan debt, I’ve looked into several different loan forgiveness programs that will help repay what I owe. One of the most popular loan forgiveness programs is Public Service Loan Forgiveness (PSLF). Through PSLF, doctors can get hundreds of thousands of dollars in student loans forgiven, tax-free. Although this seems great, when I attempted to enroll in the program last year there were several shocking truths I became aware of quite quickly. Here are some things I learned after enrolling in PSLF: 

1. Not everyone who works for a nonprofit is eligible. In order to qualify for PSLF, you must work for a 501c nonprofit or government institution. Ironically, even if you do work for a non-profit, you still may not qualify. It all depends on your employment classification. If you are classified as an “independent contractor” at an academic institution who only has “hospital privileges” or gets 1099-income instead of W-2 income, then you are technically not a “employee” by that hospital. Thus, you likely don’t qualify for PSLF. If you’re unsure which category you fall in, check how you get paid.

2. You may have to bypass the grace period to start your qualifying payments. When you first graduate you will be automatically placed in a 6-month “grace period.” The good thing about being in this grace period is that you are not required to pay back your loans. The bad thing about the grace period is that this time does not qualify as one of the 120 monthly payments needed to get your loans forgiven. To my surprise, you can’t just waive this grace period to start your qualifying payments. When I contacted the Department of Education, I was told that the only way to bypass the grace period is to consolidate your loans. The consolidation can be done online, but it often takes weeks to process.

3. No digital signatures are allowed, you must sign the form by hand. As a millennial who doesn’t own a printer, I attempted to complete the PSLF employment certification form online and submit it with my digital signature. My application was rejected. In fact, I got a notice from FedLoans a few weeks later stating that my enrollment into the PSLF program was denied because I didn’t provide a “hand signature.” I’m not joking. I literally had to find a printer, fill out the form a second time, sign it by hand, then ask my boss to scan and fax it to them. A few weeks later they told me the application was approved.

4. The certification form takes weeks to process, so upload a copy to your online account. When I finally did get my loans consolidated and resubmit the form with my hand signature, it still took weeks to process. I called Fedloans to see how to expedite the process and was advised to upload the employment certification form to my online Fedloans account. As one can imagine, it takes days if not weeks for them to catch up on all the faxes they receive. Uploading the form directly to your account speeds up the process and they can make a decision faster than if you just fax in the form.

5. The “end date” on the form isn’t really an “end date.” Once I was accepted into PSLF, I received a notice indicating that I was only enrolled into the program for one month. The form showed a start date of 07/2019 and an end date 08/2019. I was confused and frustrated to say the least and promptly called Fedloans for an explanation. The representative assured me that I was still enrolled into the program. Apparently, the Fedloans employees need a way to process the form and then “close out the task.” The “end date” listed on the form isn’t an actual “end date.” It’s the date that your employer signed the form. Why they don’t simply call it a “processing date” or “employer verification date” is odd, but nevertheless, that’s what it says.

6. The payments they calculate may not be correct. A few weeks after notifying me that I was enrolled in the program, Fedloans sent me another notice estimating how many qualifying payments I had. The form listed zero. That wasn’t correct. Although I had just started residency 6 weeks ago, they should have at least recorded 1 payment, especially since I went through the process of consolidating my loans and waiving the grace period. When I called Fedloans to inquire about this issue, the representative said there was an error in updating my loan status from the consolidation but that it would be fixed soon. Ladies and gentlemen, double check your payments and count them yourself.

7. Your number of qualifying payments will not be updated in real time. Fedloans does not track your qualifying payments month to month. Instead, they check the number of payments you’ve made once a year when you re-submit the employment certification form. They then send you another notice with an arbitrary “end date” and update your account with the number of qualifying payments you’ve made up until that date.  Ironically enough, the PSLF program does not require you to re-submit the certification form each year, but doing so is the only way to make sure Fedloans is keeping track of your qualifying payments.

8. You must submit another certification form when you change employers. In order for Fedloans to ensure that you continue to qualify for the PSLF program, you must show proof. I highly recommended that you submit the enrollment certification form each year so they can better track your payments, but it is required that you submit this form each time you switch employers. You have to notify them about the change in your employment status so they can update things in their system and verify that you still qualify.  

9. It could take another 6 months for your loans to be forgiven after all 120 payments are made. Yep, you read that right, 6 months. Once you make the 120 monthly payments, you have to submit a different form called the “PSLF loan forgiveness form.” Unfortunately, it can take another 6 months after submitting the form before a person is notified that their loans have been forgiven or not. Because of this delay, you have the option to stop paying towards the balance of your student loans and go into “forbearance” while you wait to hear back on the status of your forgiveness. You can also just keep sending extra payments and hope for a refund at the end.

To be brutally honest, PSLF has a lot of inefficiencies. I’ve been enrolled in the program for a little over a year and have already had to call Fedloans half a dozen times. To say it’s a hassle is an understatement. Hopefully, it won’t be like this going forward. When all federal student loans were placed into forbearance during COVID, it took them a few months to catch up with processing but eventually they got my payments right without me having to call them every other day. Learning the ins and outs of this program and dealing with its quirks is a bit cumbersome, but the opportunity to get hundreds of thousands of student loans forgiven tax free is too good of a deal to pass up. Keep track of your payments and may the odds be ever in our favor.

5 Things To Do Financially In The Month of July:

July 1st is a big day in the medical world. It’s when graduating medical students start their first day as doctors, and experienced resident physicians get “promoted” with more responsibilities and a pay raise to match. Whether you’re in the medical field or not, the start of July marks the halfway point of the year and can be a great time to re-evaluate your finances and make any necessary changes. Here are 5 things we should all be sure to do in July:

1. Create a spending plan. For the interns who are now getting paid, the residents physicians experiencing a salary increase, or the attending docs that have more money than they ever have before, now is the time to create a spending plan. Going from barely having any money to a steady [large] paycheck can be exciting. However, if you don’t manage your money wisely, you may find that your money is gone sooner than you think or realize that you wasted it on things you didn’t need. Having a spending plan can help prevent this from happening. It’s having a basic outline of the things you need to purchase and reserving money for other things that may be important to you, without going overboard. It’s determining which bills and other costs you need to cover each month (rent, electricity, internet, car insurance, etc) and thinking about how much money you also need to set aside for other things like groceries, gas, personal grooming, etc. The goal is to figure out the max amount you can afford to spend on certain items each month so that you never have an issue paying your bills and have also managed to save money for other priorities and still have some money left over to enjoy.

2. Make sure you have insurance. You can try your best to plan for certain life events and expenses, but you can’t predict everything. For large expenses that we can’t predict, we need to have insurance in place to cover those costs. Although signing up for insurance may not be the most exciting task to complete, it’s absolutely essential. We all need some form of medical insurance to cover basic health expenses, prescription costs, and any hospital bills. We also need long term disability insurance so that we have income security in case we get diagnosed with an illness or get an accident that precludes us from working at our full capacity. Lastly, those with families or other people who rely on their income also need term-life insurance so that their families have a means of financial support if they happen to die before they have become financially independent.  

3. Get a handle on your student loans. Many people have student loans. Physicians who are in residency or young professionals who work for non-profit hospitals and public institutions may qualify for public service loan forgiveness (PSLF) or some other type of student loan forgiveness plan. In order to sign up for this program or ensure that your payments over the last 12 months were properly counted, it is essential that you complete the employer certification form each year. Anyone with federal student loans may also want to consider signing up for an income driven repayment plan like PAYE or REPAYE so that your monthly payments are based on your income instead of a much higher amount that you may not be able to afford. Those who are already enrolled in an income driven repayment plan must complete the mandatory annual recertification to remain in the same plan each year. Once you determine a repayment plan and re-certify any forms, it may also make sense to have your monthly payments automatically withdrawn from your bank account. Many loan servicers will even lower your interest rate if you sign up for these automatic payments.  

4. Pay down your debt. For those who want to build wealth and become less reliant on each paycheck, it’s imperative that you prioritize paying off your debt. Many people accumulated credit card debt in their early twenties or have used credit cards to cover moving expenses, furniture costs, or previous vacations. Other people may have taken out car loans or borrowed money from other sources to make ends meet. Although it may not be feasible to pay all of our debt off instantly, it’s important to come up with a feasible payment schedule to get rid of the debt sooner rather than later. Simply paying the minimum amount each month will cause us to pay a lot of extra money in interest and may really impede our ability to build wealth and financial security. Making a goal of having at least one of our credit cards or loans completely paid off within the next 12 months might be a decent place to start.

5. Start investing. Part of adulting means setting aside money for retirement, creating a savings account and investing money in a way that helps build your net worth. Many people have elaborate investment plans or try to play the exhausting game of picking individual stocks to purchase. While that may work for them, investing doesn’t have to be complicated. You can start by funding your employer-sponsored retirement account and a Roth IRA (or backdoor Roth IRA). Simply choose a percentage of your income you want to contribute towards retirement (ideally, you’d want to start off around 10%) and choose to invest the money in various index funds or a target retirement fund that invests your money in thousands of different stocks and bonds. When I started residency, I prioritized paying off debt and only contributed about 5% to retirement. Once I paid off the debt, I drastically increased that percentage and started fully funding my emergency fund and other savings.

My point? If you want to ensure you’re on the road to financial stability and independence, start by completing the 5 steps above.

Trying to get your student loans forgiven? Consider public service loan forgiveness

Public service loan forgiveness got some bad press in the news in the past, but as a physician, I am still enrolled in it. Just in case you have some questions about the program, I’ve answered some common ones below:                                                                                                          

1.     What is Public Service Loan Forgiveness?

Public Service Loan Forgiveness (PSLF) is a government sponsored student loan forgiveness program. If you work in public service for a non-profit organization, academic institution, or government agency and make 10 years of on-time qualifying monthly payments towards your student loans, the government will “forgive” your remaining student loan balance.

This program was designed for public servants like teachers and police officers who have lots of student loan debt but may be unable to pay it off in a reasonable time, partly because the salary they receive working in public service is less than the salary they would have received in a different profession. The goal of the program is to allow people with a passion for public service to pursue careers in that field without saddling them with an eternal burden of student loans.

The great thing about this program is that many health care professionals qualify too. Before you roll your eyes, hear me out. Many doctors, such as myself, obtained an average of $200,000 in student loans during medical school. Then we entered residency where we were mandated to spend 3-7 years earning a government salary of around $60,000 while working 80 hours a week before we could make “the big bucks.” If we choose to continue working in an academic setting or for a nonprofit health system, we qualify for public service loan forgiveness as well.

2.     Wait, isn’t it sketchy?

I’ll admit, there was some bad press about public service loan forgiveness (PSLF) in the past. During that time, people who thought they met the requirements were finally able to apply for loan forgiveness. Unfortunately, many people were not granted this forgiveness and hearing this news scared many people who were depending on this program.

Although this is less than ideal, there are several reasons why previous applicants were unable to get their loans forgiven. When the program first came out, the rules were vague. There was a lot of misinformation about how to enroll and many people who thought they qualified for the program did not actual qualify for it. Nowadays, the requirements for PSLF are much easier to understand. Now that people are more aware of how to properly enroll into the program, many people who have met the qualifications have gotten their student loans forgiven.

3.     Is it wise to depend on this program?  

A few years ago there were some proposals to eliminate PSLF, or potentially limit how much money can get forgiven through it. Many people got worried that the program would change and didn’t want to depend on it. Nowadays, most of that worry has gone away.

The department of education has made several changes to the program that 1) make the rules much easier to understand and 2) have expanded the number of people who qualify for forgiveness.

As of 2024, many many physicians and other professionals with $200,000 or $300,000 or more in student loans have gotten their debt completely forgiven with the PSLF program.

4.     How do you qualify?

According to the website, you need to have direct federal student loans, work full-time in public service via a 501(c)(3) nonprofit or academic institution, and submit 10 years worth of on-time qualifying payments (i.e. Pay the full amount of your student loan repayment each month through one of the income-driven repayment plans).

5.     How do you actually enroll?

Go to the student loan website, complete the PSLF form, and have your employer sign off on it. Your employer can submit it themselves once they sign it electronically, or you can upload the form yourself, if you have your employer sign the form on paper. Once you’ve submitted the form, the federal loan servicer “Mohela” will verify whether you submitted the paperwork correctly and confirm whether you qualify. Mohela is the official servicer of the PSLF program (they took over for the pervious company Fedloans). You must contact Mohela annually to verify all of your payments and re-submit the employer verification enrollment form so that they know you still work in public service for a qualifying organization. If you have a different loan servicer (such as Nelnet, Navient, Great Lakes, etc), your loan servicer will be switched to Mohela as soon as you enroll into Public Service Loan Forgiveness.  

6.     Do you need to protect yourself if something goes wrong?

I understand that going for PSLF is a risk. There is a chance that the government could change the rules of a program that allows relatively high earning doctors to avoid paying hundreds of thousands of dollars in student loans. If you’d like to protect yourself you can consider creating a “student loan investment side fund.”

Instead of using the money you’re saving in PSLF to buy a better car, a larger home, or have a wealthy “doctor” lifestyle, you can save that money. Specifically speaking, you can take money from each check and put it into a high-yield savings account or put money in an account that is invested in a combination of real estate deals, index mutual stock funds, and money market funds. That way, if PSLF changes in the next few years or for some reason you can’t get your loans forgiven, you will have created a nice nest egg of money that you can use to quickly pay off the rest of your student loans.

If the PSLF program stays the same, then you can keep on investing that money and use it to pay for your retirement or your kids’ college education.

Tell me, are you thinking of going for Public Service Loan Forgiveness too?