Graduating from medical school is a tremendous achievement. But it also comes with a hefty price tag.
According to the Association of American Medical Colleges, the average debt of a class of 2016 medical school graduate was $190,000. That loan balance can be difficult to manage as you start your career.
For doctors, nurses, and other healthcare professionals, loan forgiveness through Public Service Loan Forgiveness (PSLF) may be an option. However, not everyone will qualify.
Here’s what you need to know about PSLF and how to apply.
What is Public Service Loan Forgiveness?
Under PSLF, the government will forgive the remaining balance on your federal Direct Loans after you’ve made 120 qualifying payments while working full-time for an eligible employer, such as a non-profit or government agency.
To qualify for the PSLF program, you need to make loan payments under an income-driven repayment (IDR) plan.
As part of IDR plans, your loan servicer caps your payments at a percentage of your discretionary income and extends your repayment term. Depending on your loan balance, family size, employer, and income, an IDR plan could not only qualify you for PSLF, but also dramatically lower your monthly payments.
For example, pretend you were a nurse. If you had $190,000 in student loans at 7 percent interest, your monthly payment under a 10-year Standard Repayment Plan would be $2,206. Over the course of ten years, you’d repay a total of $264,727.
But if you were married with two children and had a household income of $110,000—the average salary for a nurse practitioner —and signed up for an IDR plan like Revised Pay As You Earn (RePAYE), your monthly payment would drop to just $603. Over ten years, you would repay $96,432. The remaining balance would be forgiven.
Thus, enrollment in PSLF would help you save over $160,000.
The following table illustrates how IDR plans can reduce your overall cost of repayment. Note that with RePAYE, your payments rise as your income does, so we’ve allowed for a gradual raise in income.
Best of all, unlike other forms of forgiveness, the remaining balance that is forgiven isn’t taxable as income, which means you won’t get any surprises in the form of a giant tax bill.
Who is eligible for PSLF?
First, to qualify for PSLF, nurses, doctors, and other healthcare professionals must work for a qualifying non-profit or government agency. Professionals in private practice, or those who work for for-profit businesses, are not eligible.
Other professionals who work for non-profit organizations or government agencies are also eligible. Teachers, lawyers, and first responders are just a few professions that qualify for PSLF.
Second, only applicants with federal Direct Loans qualify for forgiveness. Applicants with private student loans, FFEL loans, and Perkins loans are ineligible.
How to apply for PSLF
To apply for PSLF, follow these three steps:
1. Sign up for an income-driven repayment plan
There are four plans to choose from:
- Income-Based Repayment: If you took out your loans after July 1, 2014, your payments would be capped at 10 percent of your discretionary income. Your payments would never exceed what they’d be under a Standard Repayment Plan.
- Income-Contingent Repayment: Your payments would be the lesser of 20 percent of your discretionary income or the amount you would pay on a fixed payment plan over the course of 12 years.
- Pay As You Earn: Payments would be capped at 10 percent of your discretionary income, but would never be more than they’d be under a Standard Repayment Plan.
- Revised Pay As You Earn: Payments would be capped at 10 percent of your discretionary income.
You can apply for an IDR plan online.
2. Submit your certification every year
Too many borrowers wait to submit their information until after they have been making payments for years, only to find that their employment or loans are not eligible for PSLF.
Avoid that nasty surprise by completing and submitting the Employment Certification form every year for the entire ten years during which you make payments.
Your loan servicer will review the form to ensure you’re on the right track.
3. Apply for PSLF
After making 120 qualifying payments, you must submit an application for PSLF before your loans will be forgiven.
The application requires information about your employer. Your current employer will have to complete a section, too. Mail your completed application to:
U.S. Department of Education
P.O. Box 69184
Harrisburg, PA 17106-9184
What do I do if I’m ineligible for PSLF?
Unfortunately, not all healthcare professionals will qualify for PSLF, either because of their employer or because of the type of loans they have.
If that’s the case, two other options are available to lessen the burden of debt:
1. Sign up for an IDR plan
Even if you don’t qualify for PSLF, you can still sign up for an IDR plan.
If you have federal student loans, and IDR plan can result in a much lower monthly payment. And, after making 20 to 25 years of payments, the remaining balance on your loans will be forgiven.
Unlike PSLF, the forgiven amount is taxable as income, but it can still provide much-needed relief.
2. Student loan refinancing
If you aren’t eligible for loan forgiveness or have private student loans, another option is to refinance your student loans.
When you refinance, you work with a private lender like CommonBond to take out a new loan for the total amount of your outstanding student loans.
Your new loan will have different terms than your old loans, including a new repayment term, interest rate, and monthly payment amount. If you can’t afford your current payment, refinancing and opting for an extended repayment term can help reduce your monthly bill, so you will have more breathing room in your budget.
Managing your loans
Becoming a healthcare professional takes a lot of time, dedication, and money. If you’re feeling overwhelmed by student debt, PSLF may offer significant relief in return for your service.
That said, only a small percentage of applicants are accepted, so it makes sense to have backup plans.
If you decide that refinancing is right for you, get a quote within just a few seconds with CommonBond without any change to your credit score.