I want to take some time to talk to you about forgiveness. There are a few avenues towards forgiveness that I won’t recommend or take time to explore (Death, permanent disability to name a couple). But if you hold student debt, you need to familiarize yourself with Public Service Loan Forgiveness (PSLF). Immediately. To say this program benefits physicians (anesthesiologists, specifically) is an understatement. The qualifications are a bit nuanced, but the benefits are life changing. This is not an exaggeration. Life changing.
Established into law in 2007 by the most recent Higher Education Reauthorization Act, PSLF promises total, tax-free forgiveness of a borrower’s student loan balance if they meet the following requirements:
- Have the correct type of loan (Direct Loans. The most common type of medical student loan)
- Make 120 on-time monthly payments in a “qualified” plan. Income-driven plans qualify (even if your calculated monthly payment based on income is 0 dollars).
- Work in “Public Service” defined as the government or most non-religious, non-political 501c3 nonprofits (Most hospitals and universities fit this description)
That’s it. That’s the requirements. Consolidate your government loans at med school graduation into a single Direct Loan. Sign up for an income-driven plan and work for a 501c3 hospital or university. Celebrate the 10th anniversary of your medical school graduation by erasing hundreds of thousands of dollars in student debt.
There are three different “income driven” plans to choose from. The first one is the original “Income-Based Repayment (IBR)”. Under this plan, you pay 15% of your income above the poverty line. The second plan (not available to those with any loans originating before October 2007) is “Pay As You Earn (PAYE).” This plan only requires payment of 10% of salary above poverty line. But here is how these plans benefit anesthesiologists the most. Both PAYE and IBR payments are “capped”. For these two plans, your monthly payment can never exceed what your standard 10-year payment would have been the day you graduated from medical school. Even after hilarious accrual of interest on your journey through residency and multiple fellowships, your payment can never increase beyond that number. Even if you reach a point where 15% of your attending salary is SIGNIFICANTLY above this capped number, your payment will not go up.
The third income-driven option, which is being heavily advertised to new graduates is “Revised Pay As You Earn (REPAYE).” This plan comes with a benefit of delayed interest accrual as well as a 10% payment rate above the poverty line, but does NOT come with a payment cap. You will continue to pay 10% of your salary even if that calculated number exceeds your standard payment number. If you are a new-graduate with above average debt, this is probably not the best choice for you.
All income driven plans are calculated for twelve months, and are always based on LAST year’s income. For new interns, it’s based on your income as a 4th year medical student. For new attending physicians, it’s based on your last year in training. Thus, for an average anesthesiologist completing a residency and a single year of fellowship, they might expect only to pay the “capped” amount for four out of ten years. The other six years will have payments ranging from zero dollars to a few hundred dollars.
There are many negative consequences for anesthesiologists becoming “employees” at hospital systems or universities. But if there is one significant benefit, it’s the potential qualification for PSLF. Approval is completely based upon the EIN number found on your W-2. If you work full-time, and the number correlates to an entity with 501c3 status on the IRS database, then you qualify. Employment Certification Forms (ECFs) were introduced in 2012 to confirm eligibility and can be submitted to FedLoans, the official servicer of the PSLF program. The department of education recommends that borrowers fill out and submit this form annually to keep track of progress.
PSLF has generated some negative press for its low-approval rate, and there are plenty of financial gurus that would (rightly) caution you against putting too much faith in our government to continue this overly-generous program. These are valid concerns, but there a couple of things that should give medical students some degree of confidence. First, the PSLF program is carefully outlined in a borrower’s Master Promissory Note (MPN). Alterations or elimination of PSLF would likely only affect new borrowers. Secondly, the approval rate which was once at a laughable 1% continues to increase as borrowers become more educated, and applications are for forgiveness are submitted by informed borrowers rather than the over-zealous.
The key to realizing the benefits of PSLF for anesthesiologists is early action. To get the most in forgiveness, you need to start immediately. After you graduate medical school you should enter repayment the moment you are permitted. Even if you ultimately accept a private practice job, your years of payments in an IBR format will delay capitalization of your balance and could also help you take advantage of government subsidies with interest payments. But as more of us are completing fellowships and ultimately working for large non-profits, the potential rewards for anesthesiologists are enormous.
There are entire online communities dedicated to your successful navigation through PSLF, a couple of my favorites are on Reddit or the physician-specific group on Facebook. This brief post is by no means a comprehensive review of the program. I would urge you to look at your finances and career goals before deciding whether PSLF is a good fit for you.