Rundown of recent student loan updates: What physicians need to know

Let’s cut through politics and get to the root of what changes were announced by the White House and how they can affect those student loan borrowers in the medical arena. There have been several updates in the student loan world over the past couple weeks and so here is a rundown of the noteworthy updates, potential new opportunities, and important action items that medical professionals need to know.

Forbearance Period Extended Through the End of the Year.

Yet again, the White House has decided to push off the restart of Federal student loan payments and interest accrual. Although this was somewhat anticipated, this is still a huge relief for borrowers. This is especially helpful for those seeking forgiveness through the PSLF program or any of the Income Driven Repayment (IDR) forgiveness programs as these months can still count towards that forgiveness.

Opportunities:

Recertification date extension:

This forbearance period extension also brings about other questions as to when borrowers need to recertify their income as many have not needed to do so for over 2yrs now. Each previous extension has also come with extensions in the recertification of income dates and so it will be interesting to see if they push out the recertification dates again as well. If your recertification date falls between now and March 2023, it will be pushed out one year, but this is subject to change with this new extension. This is going to be especially important for those new attending physicians as this could mean another year or more of artificially low payments based on your income from training.

Income reporting

When pursuing an income driven repayment plan, borrowers have two main ways of reporting income: their most recently completed tax return or their paystub. Many new attending borrowers will feel proudly inclined to recertify their income off their new high income, but this is not necessarily the best option since they can often report based off their last year’s tax return which is likely much lower. If you play the “game” right, you can typically get roughly two years of reporting artificially low payments after realizing a higher income. This is important for those trying to maximize savings for those pursuing PSLF.

When reporting based off one’s tax return, the Department of Education looks at the borrower’s Adjusted Gross Income (AGI). In layman’s terms, this means your Gross Income subtracted by any pretax deductions like retirement savings or HSA account contributions. Given that, this may be a good time to max out those pretax deductions to proactively reduce your future reportable income. Since most of the repayment plans are based off 10% of discretionary income, this would mean that if a borrower were to max out their 401(k) at $20,500 in 2022, it would reduce their student loan payment by $170.83 per month!

Deadline for refund extended

If any borrowers have made payments throughout COVID, they can request a reimbursement from their loan servicer. This is simply a reimbursement and so when the borrower requests their payments back, they will add that amount back to their outstanding balance. This is particularly helpful for those borrowers who have recently come to realize that they may qualify for substantial forgiveness through the new programs available. The deadline to request this reimbursement has now been extended through the end of the year.

Residents “Born” into COVID Forbearance

For those “born” (AKA graduated) into the COVID forbearance period, it is critical to still enroll in an income driven repayment plan as these months will not count towards any forgiveness plan unless the borrower is enrolled. Even if a borrower enrolls in an income-driven repayment plan, the COVID forbearance will keep your payment at $0 through the end of the year. Borrowers should keep in mind that reporting income from their last year’s tax return (or filing taxes showing $0 income for those just graduating) could be quite advantageous.

Action Items:

1. Work with someone who has experience with student loans- possibly a financial advisor with a Certified Student Loan Professional designation (CSLP) to identify your income recertification date. This is only available on your official Department of Education record. (Makes total sense, right?!)
2. Sign up for an income-driven repayment program if you graduated during the forbearance period and have not done so yet.
3. Consult a financial advisor familiar with student loan options and your tax professional to identify the best income reporting strategies and tax filing statuses.
4. Request a refund on any student loan payments made throughout COVID, if applicable. Consult a financial advisor (perhaps with that CSLP I’d mentioned before) if you are unsure if you qualify for any new forgiveness.

$10k of Forgiveness on Federal Loans and $20k of Forgiveness if You Took Out Pell Grants.

Qualifier: Only if income is under $125k (single) $250k (married).

This is the news that is getting the most publicity these days, yet it is mostly a drop in the bucket for most physician borrowers with six-figure student loan debt. Most attending physicians will not qualify for forgiveness; however, we do not know how they will be asking for proof of income. Some new attendings may still qualify for forgiveness if they allow borrowers to report their last year’s tax return which is typically standard practice for the Department of Education. Once we get more clarification on how they will require borrowers to report their income, this will allow us to see how those married couples filing taxes separately will be treated with regards to forgiveness as well.

Action Items:

Most will likely receive automatic forgiveness but for those without income documentation in the Department’s records, borrowers will be required to complete a simple application. This application is set to become available in October of this year. You can enroll in the Federal Student Loan Borrower Updates to be notified of this here: https://www.ed.gov/subscriptions

Any changes to PSLF?

The White House made it seem like they made changes to the PSLF program, but they simply re-announced the PSLF Waiver, which still expires on October 31st of this year. This waiver allows any borrowers to get retroactive credit towards forgiveness for any time while working full time for a federal, state, Tribal, or local government; military; or a qualifying non-profit. This now even includes certain periods of time while the borrower was in deferment or forbearance on their loans, which is remarkable.

Opportunities:

Attendings with high income and close to the 10yrs for PSLF

Those borrowers who are attendings with outstanding loan balances, please do not discredit this program as there could still be solutions to identify a substantial amount of forgiveness even with a high income. One of the less common repayment plan that has proven to be fruitful for many attendings is the Income Contingent Repayment (ICR) Plan. This plan allows the borrower to pay based off 20% of their discretionary income OR a payment commensurate with a 12yr repayment of the loan balance multiplied by a factor based on their income. The nice thing is that the highest income “factor” is 200%; meaning it would only be double that of the 12yr payment. As an example, if a physician has a $60k loan balance and $600k of income, their payment would be roughly $1,221/mo (assuming 6.8% interest). This is usually low enough to help the borrower realize a good amount of forgiveness if they are close to the end of the 120 months. Keep in mind that most calculators online do not factor this into their calculation and so be sure to consult a professional to assist.

Action Needed:

• Make sure all Employer Certification Forms (ECF) are up to date and submitted to Mohela.
  • https://studentaid.gov/sites/default/files/public-service-application-for-forgiveness.pdf
• If you haven’t been moved to Mohela yet, please upload the ECF forms to FedLoan.
• If you still need to enroll in the PSLF program and are with another servicer, please reach out to your current loan servicer and let them know that you want to enroll in the PSLF program, and they will send your loans over to Mohela to service your loans.
• Consider consolidating any loans outstanding that are not “Direct” loans in order to get qualified payments. Be sure to consult someone with the knowledge to ensure those loans don’t qualify for other forgiveness programs like the Perkins loan forgiveness program or the like before consolidating though.
• Consider the Income Contingent Repayment plan if you have a high income, moderate loan balance, and just a few years left for forgiveness.

Other Proposals Announced… None are official yet.

There were several other proposals announced that are interesting, but none are law yet. Generally, nothing that is being announced is anything but positive news for those with Federal Student loans. Below are a few of the noteworthy ones:

Proposed:

New repayment plan with a 5% of discretionary income payment for those with undergrad loans.

1. For those with some grad school loans and some undergrad loans, the borrower’s payment percentage will likely be proportionate to how much of the borrower’s loans outstanding are undergrad loans. As an example, if you have a 50/50 split between undergrad and grad school loans, your percentage of income would be 7.5%. Leave it to the government to make these things even more intricate!

1. Raising the discretionary income amount to 225% of the poverty line instead of the current 150%.
   1. This would mean lower payments for everyone across the board if they make this the new standard rule for all repayment plans. It is likely that this could reduce income-driven payment amounts by about $125/mo which could be helpful albeit not earth shattering.
2. No accrual of any “unpaid” interest.
   1. This is the proposal to keep an eye on as this would be HUGE for our medical professionals with high loan balances. As an example, if a borrower’s payment is $300/mo but their loans are accruing $2000/mo, this new proposal is suggesting the government pick up the tab on the $1700/mo. This could be a gamechanger for many seeking forgiveness or trying to simply repay their loans more efficiently as it could open more repayment strategies.

Overall, the recent news around student loans, albeit controversial, has been positive for student loan borrowers. The biggest thing to note is that with all the recent changes, it is important for borrowers to lift their heads up and reconsider their existing repayment or forgiveness game plan. With all the recent changes, there are oftentimes many new and more efficient strategies that have become available for borrowers. Just like you don’t want your patients reading WebMD and making medical decisions, be sure to seek counsel from an advisor who is trained in the intricacies of Federal Student loans and allow them to guide you through the chess game that is student loan repayment.

Michael Foley, CFP, CSLP, is a comprehensive financial advisor who runs his practice out of Scottsdale, Arizona, under North Star Resource Group. Michael was trained at Duke University and holds his Certified Financial Planner designation alongside his CSLP®. Although Michael serves a diverse group of clients with their financial and student loan needs, with two physician parents, Michael has found a specialty in working with those in the healthcare space. To schedule an initial consultation, click here.

Michael is a registered representative and investment advisor representative of Securian Financial Services, Inc. Securities and investment advisory services offered through Securian Financial Services, Inc. Member FINRA/SIPC. North Star Resource Group is independently owned and operated. 2701 University Ave SE, Minneapolis, MN 55414.4926950/DOFU 9-2022