PSLF - Facts vs. Alternative Facts


Since the very beginning of FPMD, I've been recommending all graduating medical students to consider signing onto Public Service Loan Forgiveness (PSLF) if their residency training institution qualifies.  PSLF was literally the first post on FPMD.  Despite the uncertainty regarding the future of PSLF, the program remains an attractive option for past and current grads.  Yet I still get resistance from some students for reasons I will discuss below.  Let's address each of these commonly held "alternative facts".  Fortunately, the "facts" can be easily found at the Department of Education's publically available website on PSLF.

Alternative Fact - "If I end up having loans forgiven at the end of PSLF, I have to pay income tax on the forgiven amount."

Fact - No. According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF are not considered income for tax purposes. For more information, check with the IRS or a tax advisor.  (Source: Public Service Loan Forgiveness: Questions and Answers for Federal Student Loan Borrowers).

Alternative Fact - "I don't want to be stuck working for a public service employer if I change my mind in the future."

Fact - PSLF is not an obligatory program.  If you choose to leave your PSLF-qualifying employer for a non-qualifying employer, then your monthly payments will not count toward the 120 required payments for PSLF.  In short - you are not stuck, but you do give up the benefit of loan forgiveness if you choose to work for a non-qualifying employer.  Seems fair.

Alternative Fact - "It would be near impossible to find a job that qualifies for PSLF when I'm done with training."

Fact - According to the American Hospital Association (AHA), there are a total of 5,564 registered hospitals in the US.  Of which, 2,845 are Nongovernment Not-for-Profit Community Hospitals; 983 are State and Local Government Community Hospitals; and 212 are Federal Government Hospitals.  That means greater than 72% of all hospitals in the US would be qualifying employers under the PSLF.  Of course, not everyone will choose to become a hospital employee and your particular employment situation may vary, but I would not be overly worried about your employment prospects.

Alternative Fact - "I am almost done with my residency, there is no point in signing up for PSLF now." 

Fact - A PSLF-qualifying monthly payment is a payment that you make

  • after October 1, 2007;
  • under a qualifying repayment plan;
  • for the full amount due as shown on your bill;
  • no later than 15 days after your due date; and
  • while you are employed full-time by a qualifying employer.

What this means is that Fedloans will examine your PSLF Employment Certification Forms (ECFs) and count all of your qualifying payments retroactively dating back to 10/1/2007.  You will receive a letter that looks like this when they're done informing you of how many qualified payments you have made. 

There you have it - 4 commonly encountered "alternative facts" regarding Public Service Loan Forgiveness (PSLF).  As we near October 2017 when the very first batch of borrowers become eligible for forgiveness, I anticipate to hear more about the program, especially bumps along the way (See Work as a public servant and get your student loan forgiven? Not for these people).  There are some who believe that the entire program is a ticking financial time bomb waiting to blow up in Uncle Sam's face.  Even so, I continue to recommend all graduating medical student to at least consider PSLF in managing their student loan debt.  In its current form, PSLF remains a generous program and may end up saving you hundreds of thousands of dollars in the long run.

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Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.