What is one thing that most doctors all have in common? Student loans. I know, not the most uplifting observation, but it is true. A majority of doctors need to take out student loans in order to get to where they want to be. When we as advisors ask physicians about their student loans, one of the most common responses we get is: “Is PSLF worth it?”
In short, there a quite a few factors that determine whether the public service loan forgiveness program could make sense for you.
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Who Qualifies for PSLF?
In order to qualify for the public service loan forgiveness program, you must meet a few requirements:
- Work full-time for a government agency or for certain types of non-profit organizations. The employer must be 501c3 employer.
- Have direct federal loans (or have consolidated other federal student loans to qualify).
- Enroll in an income driven repayment plan.
- Make 120 qualifying payments (a payment every month for 10 years).
To learn in more detail about how to qualify for the public service loan forgiveness program, please the blog post from August titled How to Qualify for Public Services Loan Forgiveness.
PSLF Residency Programs
One thing to be aware of if you are trying to qualify for the PSLF program, is that not all residency programs qualify for forgiveness. Most residency programs do qualify; however, you will want to double check that you are working for a 501c3 employer. A quick email to HR should provide you with this information.
If you are trying to qualify for the public service loan forgiveness program and are working for a qualifying employer, any payments made in an income-driven repayment plan during residency and fellowship should count towards your 120 monthly payments needed. If you make 3-7 years of payments while in training, you will only need to make a few more years of payments once you are in that attending role.
Since you are making less income in training than you will in the attending role. It is advantageous to make income-based payments while in training if the budget allows for it. The more qualifying payments that you make in training, the less you will have to pay into this program. The less you pay into the program, the more loan forgiveness you could potentially qualify for.
Should I pay off Student Loans Early?
Another answer that may surprise you, this depends entirely on your situation. There are some circumstances where it would make sense to pay off your student loans more aggressively. There are also circumstances where it makes sense to pay the minimum amount. For example, when trying for the PSLF program, it makes sense to pay the minimum amount on your loans, in order to get the maximum amount forgiven.
There are a few factors that could help determine if it makes sense to pay your loans off early. It would be helpful to know the loan balance, monthly payment, the interest rate, other debts in the picture, etc.
If you don’t qualify for the PSLF program, and take your time paying off your student loans, you will end up paying more in interest than if you were pay your loans off quicker. On the flip side, if you pay your student loans off more aggressively, the extra payments could possibly go towards other areas in your plan that are more efficient uses of those dollars.
In a previous blog post, we walked through when it makes sense to pay debt down quickly and when a slower approach is recommended. Please review the 7% Rule in our blog post for a few weeks ago: Should I invest or Pay off Debt.
How much Student Loan Debt is too much?
This is also a question that I get a lot. I will never be surprised by the amount of student loans some of my clients say they have. I have seen dual doctor couples with student loans combining for over a million dollars. This may be a lot, but if you have a gameplan in place to pay your loans back in the most efficient manner, it isn’t something to be too concerned with.
What do I do if I find out the PSLF program will no longer work for me?
Public Service Loan Forgiveness can be a great option for you if you meet all the requirements. If you are reading this blog and are thinking the PSLF program may not be for you, there are a few options available to you.
One popular option is student loan refinancing. Refinancing is when a private company will pay off your loans and issue you a new loan with new terms. The advantage to refinancing is that the private company will often offer a lower interest rate.
If you are thinking about refinancing, I would move slowly with this process. There is no undo button. Once you refinance, the private company will require you to make payments based on the terms you agreed to. If you are thinking about refinancing, it would be helpful to have someone review your offer to make sure the interest rate is competitive and that you can afford the monthly payments.
Is PSLF Worth it?
In summary, the public service loan forgiveness program could be an efficient way to pay off your student loans if you satisfy the requirements needed and have a decent student loan balance. If you are trying for the PSLF program, it is important to communicate with you loan servicer. It is important to double check that your payments are being tracked. It is much easier to review this on an annual basis opposed to checking this at the 10-year mark.
If you are wondering if the public service loan forgiveness program could be a good fit for you, please meeting with a financial advisor to discuss your specific circumstances and goals.
Related Blog Posts
- How to Qualify for Public Service Loan Forgiveness
- Concerned about PSLF Loan Forgiveness?
- Should I Refinance My Student Loans?
- Refinancing Medical School Loans
Related Podcast Episodes on Financial Clarity for Doctors
- PSLF: What Doctors Need to Know
- Student Loan Management for Doctors
- Debt vs. Investment – What Should You Do First?