Guest post by Travis Hornsby, Chief Student Loan Planner at Student Loan Planner
As a physician, you’ve likely taken out some student loans to get your education. Paying off those loans is a major hurdle, but if you can work for the U.S. government or nonprofit employer, you might be eligible for Public Service Loan Forgiveness (PSLF).
The PSLF program enables student loan borrowers who work in a qualified public-service field to have a portion of their loans forgiven. If you’re a physician in a hospital that is compatible with the PSLF program, you could potentially save thousands of dollars on your physician loan debt.
How to know if you’re eligible for PSLF
Here are the key PSLF qualifications that determine whether a borrower is eligible for loan forgiveness through the program.
- Employed by a U.S. federal, state, local, tribal government, or nonprofit organization. If you change employers during repayment, you can still qualify as long as your new employer is also PSLF-approved.
- Full-time employment. You must work full-time for the organization while participating in the program.
- Must have federal Direct Loans. If your loans aren’t already Direct Loans, you’ll have to consolidate your ineligible federal loans through Direct Loan Consolidation. Private loans aren’t eligible.
- Enroll in an income-driven repayment (IDR) plan. Qualified payments must have begun after October 1, 2007 to count toward PSLF.
- Make 120 qualifying payments. These payments don’t have to be consecutive, but you need to pay each within 15 days of the due date.
When PSLF is a good option for physicians
Medical fields are well-suited for student loan forgiveness for several reasons.
Medical school loans are on average much higher than those for many other public-service careers. In 2019, the American Association of Medical Colleges reported that the median debt for medical school was $200,000. Since you’d have to make 120 payments regardless of your loan balance, you stand to have a much higher amount of debt forgiven than in other fields.
PSLF requires that you make payments under an income-driven repayment plan. These plans offer a lower monthly payment while your salary is lower, which is common during residency and early in your career. Keep this in mind when negotiating your employment contract.
Check with your employer to learn if it is PSLF-compatible. If your employer is a 501(c)(3) nonprofit organization, you’ll likely qualify for the program. Working at a government hospital also qualifies you for PSLF. Remember — it is not your specific duties at your job that is a factor, but the entity that employs you.
Understand potential savings with a PSLF Calculator
A valuable tool for physicians looking to do the math on whether PSLF makes sense for them is Student Loan Planner’s PSLF calculator This online calculator physicians input key figures such as their total federal student loans, average interest rates, and how long they’ve made payments toward PSLF if they’ve already started.
To use the calculator, gather relevant information, like the year you began making qualified payments, and confirm that you took out the loan before Oct. 1, 2007. You’ll need to input your family size, your total federal student loan balance, the average interest rate of your loans, and your adjusted gross income.
The calculator automatically assumes a 3% annual salary increase unless you specify a different percentage. If you aren’t sure how your income might change, that 3% is a good starting estimate.
After entering your information into each field, the calculator tells you the total amount you’d pay under PSLF, the total amount you’d pay without PSLF, and the difference between each repayment path.
Sample PSLF savings calculation
We can test out the Student Loan Planner PSLF calculator with a hypothetical physician’s student loan debt. Imagine an OB/GYN with a family of five, and earning a $200,000 annual salary. Let’s say she started paying off loans four years ago and has a $300,000 balance remaining when she starts the PSLF program.
For simplicity, let’s use an average of 6% interest rate for all of her Direct Loans and keep the automatic 3% annual salary bump. After inputting all of the numbers, you’ll get instant results.
- Total PSLF Payments Over 6 Years: $99,251
- Total Standard 10 Year Payments: $399,674
- Total Savings if You Pursue PSLF: $300,423
This physician would save $300,423 under the PSLF program. However, that’s not even the entire picture, because you also need to consider the actual value of the $300,000 that’s forgiven.
Her forgiven amount works out to a $50,000 after-tax value per year over the six years remaining in repayment. This would be about $79,000 in pre-tax salary. If she chose to work in private practice where she wouldn’t be eligible for PSLF, she’d need to earn $79,000 more per year to reach the equivalent of her nonprofit salary working toward PSLF.
Of course, you can input your own specific loan totals, interest rate, and salary to find out your potential savings through PSLF.
Under the “Totals” drop-down menu, click on “show” to view what your monthly payment would be each year. That number will increase annually since you’d be on an income-driven repayment plan and assuming a modest annual raise.
Applying the PSLF calculator to your physician loans
If you’re a full-time practicing physician working for a public or nonprofit institution, use this handy PSLF calculator tool to determine how much you might save through this program. Be sure to include only federal loans — not private loans — in your calculations, and check regularly for any government updates for the PSLF program.
With the right type of loans and employment situation, PSLF could save you thousands of dollars in student loan debt, and this calculator can show you the numbers clearly.