Medical student loan forgiveness: Programs exist to wipe away debt

Many physicians have medical student loans of $180,000 or more, and are interested in finding ways to eliminate this debt through forgiveness. During the last decade, and especially since 2009, the changes to the student loan environment have been staggering.

With the new federal loan repayment programs of Income-Based Repayment (IBR) in 2009, the Pay As You Earn (PAYE) repayment in 2013, and Public Service Loan Forgiveness (PSLF), many physicians are on a trajectory to have a significant amount-and potentially all- of their student loans forgiven. 

The PSLF program was designed to forgive loans that were consolidated through the federal Direct Loans program if the borrower achieved 120 qualifying payments while working at public service jobs such as 501(c)(3) organizations.  In order for payments to be “qualified,” a physician must be enrolled in a qualifying repayment plan, and working at a qualifying public service organization. Only payments made after October 1, 2007, qualify.

The IBR program was designed to provide a lower monthly payment for people with high debt and low income. In order to qualify a doctor must have a “partial financial hardship”.

The criteria used to determine an individual’s monthly payment are whether one’s income is more than 150% of the poverty level, the number of dependents one claims, and the amount of loans one has. The monthly amount that is paid will vary by year based on the income documentation submitted. However, the maximum repayment amount would be the equivalent of a 10-year level of consolidation repayment.

Physicians can achieve loan forgiveness through the PSLF program after 10 years of working at a qualifying public service organization or 25-year loan forgiveness if working at a for profit organization.

There are a few differences between PAYE and IBR. They are: The loan forgiveness provided to for-profit employees is reduced to 20 years, and one must be a new borrower as of October 2007 and must have received funds of a Direct Loan on or after October 2011.

These programs can be helpful for physicians faced with a long period of training, large federal loans, and who are confident they will be taking a job at a qualifying public service organization out of training.

The key to maximizing these programs is paying as little on these loans for as long as possible. This can work nicely for a physician in training since the salary during training is minimal compared to post-training.

 If a physician has eight years of training, he or she is able to qualify 96 of the 120 payments before his or her income increases significantly. Once income has increased, the repayment schedule will increase as well. However, it will be “capped” at the equivalent of a 10-year-level repayment note.

Since there will still be significant amounts of interest still paid on this note, this individual would be slated for more than 80% of loans forgiven by the federal government.

Craig Molldrem, is a certified financial planner with North Star Consultants of Texas, in the Lonestar Medical Division. Send your financial questions to medec@advanstar.com.

Financial Advisors do not provide tax or legal advice and this should not be considered as such. Please consult a tax or legal professional for advice regarding your specific tax or legal situation. North Star Consultants, Inc.-Insurance Products and Services. CRI Securities, LLC-Securities and Investments. Securian Financial Services, Inc.-Variable Products and Securities. Securities and investment advisory services offered through CRI Securities, LLC and Securian Financial Services, Inc., Members FINRA/SIPC. CRI Securities, LLC is affiliated with Securian Financial Services, Inc., North Star Consultants, Inc., North Star Consultants Texas, Inc., and North Star Resource Group. North Star Consultants, Inc., North Star Consultants Texas, Inc., and North Star Resource Group are not affiliated with Securian Financial Services, Inc., they are independently owned and operated. North Star Consultants, Inc. doing business as North Star Resource Group in the state of PA and as North Star Consultants Texas, Inc. in the state of TX.