5 Questions to Ask Before You Hire a Financial Advisor

Many young professionals are quite busy and don’t want to spend what little free time they do have learning the ins and outs of investing. If you, or someone you know, plan to hire a financial advisor to handle your money, there are 5 questions you should ask before you entrust that advisor to your hard-earned cash.

1. How are you paid? Believe it or not, many financial advisors have incentives to invest your money in suboptimal ways. They get large bonuses from insurance companies to sell you unnecessary whole-life insurance policies that are insanely expensive. They get even more money from their own companies to invest your money in actively-managed mutual funds that tend to underperform market expectations cost of you lots of money in added fees.

As if that weren’t enough, some financial advisors charge too much for their advice. Instead of charging a set rate of a few hundred dollars per hour or a few thousand per year, many advisors are “fee-based.” This means they charge much more than that and can even have rates around 1-2% of all the money you want them to manage. 1-2% may not sound like a lot initially, but average yearly returns are only about 7-9% and 3% of that is inflation. Paying an advisor another 1-2% plus an additional 1% in added fees leaves you with a mere 2-3% return on your money which isn’t much more than what you’d make in a savings account or with a government bond. My point? Ask the financial advisor how much they charge and inquire about all of the other ways that person gets paid or earns bonuses. The goal is to find someone who charges a flat fee at a reasonable price. 

2. How much experience do you have working with people in my career? There are millions of different jobs in a variety of industries. Each job can have different pay structures and hierarchies that may influence your income and level of financial security over time. Make sure the person you hire as a financial advisor is familiar with the financial incentives and barriers of professionals in your field.

If you’re a doctor, you should ensure your advisor is well aware of the pay difference between a new resident and an established attending. There are certain tax-advantage accounts that may only be available to you when you are in the smaller pay range and exclusive investment opportunities that may become available when you get into the large pay range. If the financial advisor you hire is not aware of the way the pay structure works in your field, you may miss out on some of valuable programs and investments that could save you thousands of dollars in taxes each year. My point? If you are going to spend your money hiring someone to handle your finances, make sure you are paying for advice specific to your own situation and financial goals. 

3. Have you assisted clients with “X” amount of student loans recently? Many of us took out a substantial amount of student loans while we were in school. Paying them off is a priority, but navigating the different repayment options without going bankrupt in the process can be challenging. There are so many different repayment plans and some of them may be more or less appealing for people in certain situations. Make sure the person you hire as a financial advisor is well-versed in all of these options.

There are pros and cons of each payment plan and one-size fits all does not exist. Some of the repayment plans are on an expedited schedule to help you pay off your loans in 10 years, others are income-based to ensure they aren’t taking a huge chunk of your income while you are still getting on your feet. There are even plans that provide government subsidies and may lower your taxes. If you have a substantial amount of student loan debt make sure your financial advisor knows about all of the different options and can adequately advise you on which one to choose. 

4. What training did you get to become an advisor? Unlike people in other professions, the vast majority of financial advisors did not go through years of training or have to pass a series of difficult board exams to get their current job. Many of them were trained in sales and became an advisor with a few weeks of on-the-job training. As a result, some of them may not be as helpful as they claim.

Money management can be complicated so ensure the financial advisor you hire is as qualified as possible. Some of the most knowledgeable financial advisors are the ones who elected to get extra certifications to become a certified financial analyst (CFA), certified financial planner (CFP), or a chartered financial consultant (ChFC) so it may be wise to look for someone who has these credentials.  

5. What financial plan do you think would best meet my financial goals and WHY?  Before you hire someone to manage your wealth, you should make sure that person is giving you tailored advice that meets your specific situation and life goals. If you are in your late 20s with student loan debt, get an advisor who can help you make payments that don’t require you to eat Ramen noodles for the substantial future. If you are a young female planning to get married soon, you may want an advisor who can help you save for a wedding or the down payment on a home without charging too much or putting your financial future at risk. If you are a 32-year-old male who wants to save for a new car and lower your taxes, then someone who specializes in tax-efficient investments like real estate may be a great fit.

Although we would all love to be wealthy one day, we each have different financial goals and priorities that change the timeline and route we take to get there. Hire an advisor that takes these things into account to help meet your needs. More importantly, make sure you understand why your advisor has made certain recommendations and investments. The more you understand, the better you’ll be able to predict your investment returns and make better decisions in your life going forward. Once you understand your specific financial plan, follow up with your advisor once or twice a year to make sure you are still on track.

My point? If you plan to hire a financial advisor to handle your money, make sure you ask the right questions so you can choose the best fit for you.

Think twice before you buy individual stocks

I don’t actively trade or buy individual stocks, much to many of my friends’ surprise. I mention several reasons why in another blog post, but the main reasons are that:

1. It takes a lot of work to try to do it correctly

2. Accurate, timely information on individual companies can be difficult to find

3. It requires a substantial amount of research on various companies and industries.

4. The market is volatile and the purchase of individual stocks is too risky

I keep my investing simple by purchasing well-diversified index mutual funds. The index funds lower my risk of losing money and increase my chance of making money. They also increase the odds that I will make a substantial return on my investments over time.

However, I had a few people reach out to me and question this strategy. They asked “if investing in index funds means you purchase all the stocks, then that means you own both good companies and bad companies. Why not just purchase all the good companies individually?”

My answer was that “It’s not that simple.” Let me explain why.

Good company does not mean good stock. In other words, just because you hear of a “good company” like Apple or Microsoft that does not mean buying stock in that company will make you money.

You make money by purchasing stock in a company and having that company’s stock increase over time. Unfortunately, even if a company is good and profitable, that does not mean buying stock in that company will make you money over time.

A company’s stock price is not determined by that company’s value. Some well-run companies can have low stock values and some poorly run companies can have high stock values.

Stock prices are volatile and change quickly based on a variety of factors. If investors think an industry will do poorly over the next few months, their stock price may go down, even if the company itself is doing very well. If investors think a company’s stock is overpriced, they may start to sell that stock which may drive the price down, even if the company itself is still doing well and making huge profits.

Plus, even if a company is doing well and its stock price has increased recently, that does not mean its stock price will continue to go up in the future.

Sometimes a bad company can have its stock price go up (making you money) and a good company can have its stock price go down (losing you money).

It’s hard to predict what will happen.

Picking the right stock relies too much on luck. It is not dependent on skill, intelligence, having the “right” advisor, or extra knowledge. Because it’s so hard to know which companies will have stock prices that will go up over time, buying individual stocks is like gambling in a casino. Although you hope to make money, you can’t predict what will happen. Even if you got lucky and made money initially, that does not mean you will continue to be lucky and make money in the future.

It’s too risky. I’m not sure about you, but I don’t like to lose money. I want to invest in a safe way that will still give me a good return on my investment over time.

I invest in index mutual funds. By purchasing funds like the Vanguard Total Stock Market Index, I am nearly guaranteed to make about 8-10% profit on my money each year. Each year, this return on my investment will continue to increase and compound. This will build my net worth.

4 Reasons I Don’t Buy or Trade Individual Stocks

Over the last few months, many of my friends have started investing. Because they know I love talking about personal finance, they will often ask me advice on which stocks to purchase. I tell them all the same thing: “I don’t buy individual stocks, I only buy index funds.” They usually seem a bit perplexed and want to know why. Here’s my answer:  

1. It takes a lot of work and timely information is difficult to find. As a busy doctor, I don’t have a lot of free time. Some weeks I work 80 hours in the hospital or have over 20 patient message to review. I barely have time to fold my laundry on a regular basis let alone do extra work, outside of work. When I do get a free afternoon or “golden” weekend in which I’m not on call at the hospital, the last thing I want to do is be productive. Most of the time, I just want to relax with friends and family eating good food or enjoying quality time. Trading stocks or researching companies to invest in, isn’t on my priority list.

Even if I did have the desire to learn more about various companies, finding good, timely, information can be quite challenging. Most of the time when information about a company is finally published it has already been known to Wall Street investors beforehand. This means it’s almost too late to make an investment decision that could make you money. For example, if I turned on the news and heard that Facebook was acquiring another company that could increase its profits, chances are the price of Facebook stock would have already increased to reflect this change. By the time lay people like you or I tried to capitalize on this potential increase in stock value it would be too late.

2. It requires substantial research on each industry and company. Although apps like Robinhood and Akorns have made purchasing individual stocks easier, they haven’t necessarily made it more profitable for the consumer. In order to actually make money when you purchase stocks you need to purchase companies that will increase in value and do so in a way that you will still make money even after you pay the taxes on your profits. This may sound easy to do initially. You may be thinking that you’d just purchase stock of Netflix and Facebook or Tesla and Apple then call it day. Unfortunately, it’s not that simple. If it were, everyone would do that.

There are some companies that seem to grow exponentially in ways we could never expect and other companies that seem to implode overnight. It’s difficult to predict which ones will make money over time and which ones will not. In fact, Wall Street companies spend millions, if not billions, of dollars each year on market research to help provide more information to help them make better predictions and investment choices. Even they still struggle to choose the right companies year after year.

3. The market is volatile and things change quickly. If 2020 taught us anything, it’s that life can be unpredictable. Random unforeseen events that happen in other parts of the world can affect us in ways we could never have imagined. These effects not only impact our daily lives, but they can have drastic effects on our economy and the success or failure of certain businesses.

Before the coronavirus, many of us would have assumed that airlines and travel industries would do remarkably well in the summer. The weather is great, kids are out of school, and most people have time off of work to go on vacation. We all got a rude awakening in March when the coronavirus pandemic put a drastic halt to almost all leisure travel and many airline industries found themselves on the brink of bankruptcy. Past performance isn’t always indicative of the future valuations and this makes picking and choosing individual stocks to purchase quite risky. Which leads me to my last point…

4. It adds too much risk and I don’t like losing money. When you buy individual stocks you’re essentially rolling the dice and hoping that the company’s stock you purchased will increase in value over time. As we mentioned before, stock prices are volatile. A company’s stock could be worth $20 today but then drop to $5 tomorrow due to some global tragedy or company scandal that you had no idea about. They best way to mitigate risk and decrease your chances at losing money (and increase your chance of making money), is to diversify your investments.

This means purchasing stocks in a variety of different companies from a slew of different industries. Since it would be too cumbersome to individually purchase all the stocks, most people such as myself, just buy index mutual funds. An index fund does the work of buying all the stocks for you. That way, your investments are diversified in a seamless, stress-free, risk-averse manner.  

5 basic truths about Money and Happiness:

Jonathan Clements in his book How to Think about Money mentions 5 truths about money and happiness that I found particularly enlightening:

“Money can buy happiness, but not nearly as much as we imagine”

When I was in medical school living off of student loans, I didn’t have lots of money. I barely had enough to make ends meet and although I was relatively happy with lots of close friends and family support, I always believed that I’d be even happier if I had more money. Clements, in his book How to Think about Money provides some insight on this idea. He attests that although we can use money to increase our happiness, we can only do so up to a certain extent. A certain level of money will allow us to live more comfortably. We won’t have to worry about paying our bills. We can live in a nicer area, afford meaningful trips with our loved ones, and can purchase more of the things we like. However, that increase in happiness only goes so far. Although our happiness can increase with more money, it usually doesn’t increase to the level that we anticipate.

“We place too much value on possessions and not enough value on experiences”

Many of us have, at some point in our lives, thought that if we had more money we could afford the thing(s) we want. While that may be a true statement, Clements, warns us against this type of thinking. Many of us overestimate how happy we will be when we purchase certain things. Unfortunately, any increase in happiness we get from purchasing a material possession is usually short-lived. To find more lasting happiness, Clements’ suggests that we focus more on experiences. Whenever we spend money on an experience, like a trip overseas, a visit to family, or a getaway vacation with our friends, we have much more happiness and it tends to last longer. We have joy in anticipation of the experience, happiness during the experience itself, and also have fond memories after the experience has ended that tend to get better with time. This is why Clements suggests that if we have extra money, we should forgo buying material things and instead opt for more experiences.

“Spending money on others can deliver greater happiness than spending it on ourselves”

Ironically enough, when we use our money on our ourselves, we get less happiness than if we were to use the money on others. It sounds odd, but many people find that they have lasting joy when they do things for other people. It’s as if knowing we have helped someone else makes us think more positively about ourselves and the kind of person we are. The idea of being a kind and doing something to enhance someone else’s life brings us joy that lasts a lot longer than the temporary happiness we may get from buying ourselves something. Giving is one of the key ways to achieve lasting happiness.

“We adapt quickly to both good and bad developments in our lives.”

This quote may seem a bit odd but has a lot of truth. As humans, we are great at learning how to adapt. Life circumstances may change but we change and adjust accordingly. Although our mood may sway from time to time, the majority of us, have a natural inclination to adapt. Our flexibility is good for survival but can really make us scratch us our heads in regards to money. If we are living in poverty, living with less may bother us initially but we quickly learn to adjust to our life circumstances and find some sort of happiness, even while working harder to improve our finances. In contrast, if we find ourselves in a position where we are upper class, making more money than average, we adjust to that as well. Clements’ point is that our life circumstances, and “becoming rich” won’t give us the long-lasting happiness we may expect. The key, he states, is to focus on intangible sources of happiness like family, experiences, and giving to others.

“Happiness depends on how we stand relative to others and we each have genetic ‘set points’”

Another truth in Clements’ book is that our happiness is shaped by our comparisons. If we are doing the same as, or better than, people around us, we tend to feel much happier about ourselves. However, if we are doing worse than those with whom we compare ourselves, we tend to be less happy. Our baselines degree of happiness or “set point’ is based on genetics and how we were raised. If we come from an optimistic happy family, we tend to be happier at baseline than others. The point is to be mindful of your happiness set point and increase your happiness by refusing to compare yourself to others, especially to those you perceive may be doing better than you.

The Power of Delayed Gratification

As someone who spent most of my most of my life in school or training, delayed gratification is something I know firsthand. There are so many things I was unable to purchase or trips I couldn’t take during my twenties due to cost or scheduling conflicts that delayed gratification become quite the norm. Although it made me sad initially, I got used to it and now as I look back I realize that this helped develop me into the person I am today. Those times I spent in school delaying gratification had several benefits:

1. Taught me to live within my means

Spending 4 years in undergrad, then electing to get a master’s degree and doctorate degree meant that I spent most of my time as a full-time student. It also means that I spent most of my life not working. The one full year I did work, I lived in an expensive city and barely made enough to cover my rent, let alone “enjoy life.” By my mid twenties I owed so much money in student loans that I couldn’t fathom racking up even more debt for unnecessary things. This period of financial instability forced me to live within my means. For most of my years in school I lived off of bi-annual lump sum student loan checks. I had to budget how much I could spend each month knowing that if I didn’t keep track of my expenses, I may not have money for food during the last few weeks of the semester. I purchased items that were on sale, didn’t travel much, and tried to stay away from the malls. My roommate and I spent the weekends finding sources of free entertainment avoiding expensive outings and restaurants. Although I liked the finer things in life, this period of my life forced me to be happy with less and live within my means.

2. Helped me learn to stop comparing myself to others

For most of my twenties I was a broke college student, or post-graduate student, who couldn’t do the things that most people with stable careers could do. My friends from undergrad would go on elaborate international vacations, purchase the newest smartphones, or drive luxury cars but I couldn’t do any of that. The only vacations I took were trips that were funded by parents which were few and far between. The only time I traveled was to visit family or go on some recruiting trip or national conference for whatever school I attended at the time. Because I couldn’t live like some of the other people my age and realized it would be a long time before I would have the money to upgrade my lifestyle, I had to learn to stop comparing myself to other people. Constantly envying what they had would drive me insane. My mental health depended on my ability to be genuinely happy for others without any associated jealousy or animosity. As I look back on my life, that habit of not comparing myself to others has been extremely helpful. Nowadays, when I look on social media and see something I like, I use it as a source of inspiration to work even harder and can be happy for those around me and remain satisfied with my own life.

3. Made me less materialistic

One of the good things about having to delay gratification so long in my life is that I no longer need nice things in order to be happy. I drive a cheap used car that is in dire need of a new paint job. I don’t own really expensive designer handbags and most of my clothes were purchased on sale or with a discount. Although I make a decent amount of money today, living as a student for most of my life made me less materialistic. I no longer run out to purchase things just because I can afford them which means I have a lot more money left over each month than I would have otherwise. Instead of using money to buy more “stuff,” I have more funds available to save and invest for the future.

4. Forced me to prioritize the intangible things in life

Having to delay getting many of the things I desired forced me to find other things that would make me happy. Although I would love to travel more, buy new clothes, purchase a dream home or drive a better car, I’m happy and content while I wait. All those years of delayed gratification taught me that my worth as a person is not dependent on how much money I have or how fancy my lifestyle is. I started doing things to make myself happy and stopped looking to others for approval and validation based on what I have. Nowadays, I am more focused on the intangible things in life. I strive to strengthen relationships with my family and friends each day. I recognize the importance of sacrificing now for future benefits so I prioritize saving and investing for the future. I once heard someone state that one of the things she learned in her twenties was that the benefits of discipline, hard work, and delayed gratification are bigger than one could ever imagine. For me, this couldn’t be truer.

3 Ways I Increase my net worth each month

Our net worth is an important financial number. It’s the value of our assets (things that increase in value) subtracted from our liabilities (expenses and debts we owe). The higher our net worth, the more financial security we have. Increasing our financial security gives us more freedom to do the things we love and live the life we desire. It means we can retire from our jobs early or work fewer hours if we want. We can spend each day doing what we love and can easily sell our assets to generate more revenue and money if needed. Because I want this level of freedom in my life, increasing my net worth is a continuous goal. Here are the 3 ways I’m doing that:

1. Investing money in my retirement account. As a physician who is employed by a large academic institution, I have the option to invest in employer-sponsored retirement accounts. Since I work for a non-profit hospital, I have access to a 403b which is quite similar to a 401K. Through this type of retirement account, I can invest money for the future which increases my net worth. Each month I put 10% of my income into my work 403b and invest the money in this account in index mutual funds, which are low cost funds that purchase a variety of stocks and bonds. Money in these index funds earn an average return of 8% per year. This means that each year I invest money, I earn about an 8% profit on my investment and that interest compounds each year as I continue to contribute money in the account. With an average interest rate of 8% per year, my money increases in value annually and doubles every 9 years. Putting pre-tax money from my salary into retirement accounts that are invested in low cost index mutual funds is one of the best ways I increase my net worth each year. The fact that these investment contributions also save me money in taxes each year is a bonus.

2. Paying down debt, early. Most adults have some form of debt, whether it’s a credit card balance, car loan, or home mortgage. This debt is a liability that subtracts from our net worth. Although many of us are fiscally responsible and pay a portion of the debt down each month, one of the things that has increased my net worth even more over recent years is paying the debt down sooner than required. In other words, instead of making the minimum payment, I pay more than what is required each month. Simply paying the minimum will cause me to pay extra fees in the form of interest and takes away money I could be using to invest or spend on other things. Paying more than the minimum each month, and eventually paying off the debt early, decreases my liabilities. As I mentioned earlier, decreasing liabilities increases my net worth.

3. Saving money in a separate account. One of the major ways I increase my net worth is by saving money. Although it’s sounds simple, it’s easier said than done. I’ve learned that unless I’m intentional about saving money, I’ll inevitably buy extra clothes or shoes I don’t need and find myself wondering why my bank account balance is near zero at the end of the month. One way I avoid overspending, is by saving money in a separate banking account. I have a certain “savings goal” each month and to ensure that I achieve that goal, I have a certain percentage of my paycheck that is automatically deposited into a separate account on the first of each month. Since this account isn’t connected to my debit card or credit card, it’s almost impossible for me to spend. Since I can’t spend it, I save it, and as a result, the value of my savings increases each month. As my savings increases, my net worth increases.

Although each person is different and may have various other financial priorities, we can all increase our net worth through at least one of these ways. Tell me, which method have you chosen to focus on to increase your net worth?

4 Reasons I’m not a big fan of financial advisors

Every now and then I’ll get a spam email to my work account from some financial advisor offering an expensive dinner in exchange for an hour or two of my time. I usually ignore them. As a resident physician working 80+ hours a week, my time is valuable. Unlike a struggling college student, free food, even if it’s free good food, isn’t enough to get me to go somewhere or do something I know will waste my time. That being said, something unusual happened last week.

A business associate I met a few years ago reached out to me. He told me that he was starting a new personal finance company and asked if I would be interested in hiring him to manage my finances. I told him congrats on starting his new firm but made it clear that I didn’t plan on working with him or any other financial advisor any time soon. He seemed a bit taken aback and asked why. I stated that many financial advisors don’t have my best interest in mind. Here were my top 4 reasons why:

1. Many financial advisors sell subpar financial products to increase their own commissions

This is one of my biggest gripes with many financial advisors. They get paid a lot of money in commissions when they sell products like whole life insurance. Although life insurance gives us a way to provide for our families and loved ones after we die, term life insurance is sufficient. Whole life insurance, on the other hand, has poor investment returns, doesn’t pay out nearly as much as we may need, and is insanely expensive. Most of us can provide for our families by investing a certain amount of money each month in index mutual funds. We can also purchase a cheap term life insurance policy to cover us in case we die before we are able to make enough money in profits. Despite this fact, many financial advisors try to convince their clients to purchase whole life insurance instead.

They claim it’s a guaranteed death benefit that is better for the client but the real reason they sell that type of insurance is because they make tens of thousands of dollars in commission when they get their clients to purchase a whole life insurance policy. All the money in premiums you pay for the policy for the first 6months to a year goes directly into the financial advisor’s pockets. I don’t want to be affiliated with someone who is incentivized to make money by selling me something I don’t need.  

2. Many financial advisors encourage their clients to invest in actively managed funds or individual stocks which have higher fees and add unnecessary risk

Financial advisors who have their clients’ best interest in mind, should encourage their clients to invest in diversified low cost funds. The goal is have the client invest money in a way that maximizes profits and minimizes risks. One of the best ways to do this is to invest money in many different stocks in a variety of industries through index mutual funds. That way, if one company’s stock goes down, you have investments in many other companies that can cushion the blow.

The index funds are weighted so that a larger amount of your money is invested in the stocks that are larger and more likely to increase in value. This kind of investing helps minimize the risk that you could lose a large portion of your money and increase your chance of making a profit. Unfortunately, many financial advisors don’t advise their clients to invest money in this way. Instead of explaining to their clients why trying to “beat the market” via individual stocks or actively managed funds is a terrible idea they encourage their clients to invest their money in funds that charge high fees or take on too much risk.

3. Many financial advisors over-charge for advice

Some financial decisions aren’t as clear cut. While some parts of personal finance such as investing in mutual funds, saving money for retirement, and getting a 401K match from our employer are relatively easy decisions to make, others are not so clear. Should we focus on paying off debt or investing money for retirement? Should we purchase a house or keep renting? Should we do a pre-tax account or opt for a Roth? The answers to these questions vary depending on our individual circumstances and this is why some people seek out a financial advisor. There are other people who simply need help getting started and want to make sure that they have various accounts set up correctly. Whether which camp a person is in, we all want to get great advice at a good price.

Unfortunately, many financial advisors over-charge for advice. Instead of charging a flat fee, may financial advisors base their rate on the value of the investment you want them to manage and can charge 1-2% per year. A 1% fee per year may not sound like a lot initially, but given that average yearly returns (after inflation) are only about 4% per year, giving 1% of that to a financial advisor can really eat into your profits. If you have a portfolio valued at $500,000, paying $5,000 a year to keep doing the same thing you did last year is quite a bit of money. The truth is, unless you’re ultra-rich, it simply doesn’t take much more energy to manage $20,000 vs $200,000. Once you have a solid financial plan in place, you just have to follow it each year as your money grows. If you want some help managing your finances, find an advisor that won’t overcharge for advice. Paying a few hundred bucks an hour or a flat fee of a few thousand dollars to get started seems fair. If they are charging a lot more than that, think twice.

4. Many financial advisors fail to help their clients lower their biggest expense – taxes

If you ask people what their biggest expense is each year many of them will mention their mortgage, student loan payment, or childcare. Although these payments can be high, most people’s largest expense each year is actually taxes. Many people, especially those in the upper middle class pay 20-30% of their entire income in taxes. Finding ways to lower this expense can have a drastic impact on our income. While we will likely still pay a certain percentage in taxes each year, finding a way to lower them, by even a few thousand dollars, can make a big difference.

One of the best ways to do this is to invest in index funds thorough you work-sponsored retirement plans. Many of these plans give you a pre-tax deduction so maxing out this account can reduce your taxes by $4000-$5000 each year. Unfortunately, many financial advisors don’t emphasize this tax advantage. They instead convince their clients to set up brokerage accounts, with after-tax money which has higher fees and results in higher taxes. If I’m going to pay someone to manage my money, I’d at least like to make sure they are helping me invest in ways that will reduce my tax bill, not add to it.

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.