Medical school can be one of the most expensive endeavors, leaving you with significant debt. But don’t panic—student loan planning is crucial to navigating the complexities of repayment, forgiveness programs, and strategies to manage your financial future.
This guide will walk you through the essentials of student loans, focusing on Public Service Loan Forgiveness (PSLF), other forgiveness options, and smart repayment strategies.
Understanding loan types
When it comes to student loans, there are two main categories: Federal loans and Private loans.
Federal loans
There are two primary types of federal loans that you might have:
- Direct Subsidized and Unsubsidized Loans are federal loans where the interest rate is fixed. In some cases, the government may pay the interest while you’re in school.
- Federal Direct PLUS Loans are for graduate and professional students, and they tend to have a higher interest rate compared to subsidized and unsubsidized loans.
Interest rates for these loans are set by the government and tend to be lower than private loans. According to the U.S. Department of Education, current interest rates for federal loans range from 6.39% to 8.94%.
Private loans
Offered by banks, credit unions, and other lenders, private loans typically have a variable interest rate. They may also lack the protections federal loans offer, including income-driven repayment options or loan forgiveness.
Interest rates for private loans are typically 3-12% higher than what you’ll find for federal loans. Rates in this case are dependent on your credit score and the loan terms, which can also impact the percentage rate.
💡Pro Tip: Understanding your loans and their interest rates is essential when developing a repayment strategy. If you have both federal and private loans, you may want to prioritize paying off high-interest private loans first. There are a number of different options and strategies available, specifically to physicians; that may allow you to refinance those loans at a lower rate and make minimal payments during training.
Exploring Public Service Loan Forgiveness (PSLF)
PSLF is a program designed to forgive the remaining balance of your federal student loans after you make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. As a physician working in a public hospital or non-profit organization, you may be eligible for PSLF.
Requirements and eligibility
Only federal Direct Loan qualify for PSLF. If you have other types of loans (FFEL or Perkins), you may need to consolidate them into a Direct Loan to qualify. The additional eligibility requirements, once you have a federal Direct Loan are:
- Qualifying Employers: Federal, state, or local government organizations, and non-profit organizations that qualify as public service employers.
- Qualifying Payments: You must make 120 qualifying payments under a qualifying repayment plan. PSLF requires payments under Income-Driven Repayment (IDR) plans. Standard 10-year repayment does not count.
- Full-Time Work: You need to work at least 30 hours per week for a qualifying employer.
Applying for PSLF
While it can take a while to get through the qualification process to have your loan balance forgiven, the process is pretty simple.
- Submit Employer Certification Form: Each year, submit the Employer Certification Form (ECF) to ensure you’re on track. Failure to do so can lead to disqualification.
- Track Your Loans: Keep a file or record of each qualifying payment made each year. An easy way to do this is save or print a copy for ALL payments during the year.
- Make 120 Payments: This requires 10 years of qualifying payments, so plan ahead to make sure you meet the necessary conditions. In many cases, anomalies are found when loan payment history is reviewed. Clearing these up early can prevent you paying thousands in unnecessary payments.
- Submit PSLF Application: After 120 payments, submit the PSLF application to request forgiveness.
Other Loan Forgiveness Programs for Physicians
While PSLF is a great option, there are other forgiveness opportunities available for physicians, including:
- National Health Service Corps (NHSC) Loan Repayment Program: If you work in a high-need area, the NHSC offers loan repayment assistance in exchange for your service.
- State-Specific Loan Forgiveness Programs: Many states offer loan forgiveness programs for physicians who work in underserved areas or specialty fields.
- Income-Driven Repayment Forgiveness: If you’re on an Income-Driven Repayment Plan, you can qualify for forgiveness after 20 or 25 years of payments, depending on the plan and your employer.
Should You Refinance Your Loan?
Refinancing may be a good option once you’re no longer seeking PSLF, or if you’re sure you won’t be eligible. If your credit score is strong and you can get a lower interest rate, refinancing can be a great way to reduce your total loan cost. Before deciding, though, it’s best to weigh the pros and cons of refinancing.
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Paying back your student loan
The best strategy for paying down your student loan debt depends on many factors specific to you. You’ll need to take into account your income, how quickly you want to pay the loan off, and whether you’re looking for an option that may eventually offer loan forgiveness.
Income-Driven Repayment (IDR)
Income-driven plans like REPAYE, PAYE, and IBR are ideal for residents and fellows, as they base payments on your income, and they offer forgiveness after 20-25 years.
Standard repayment
For someone interested in paying off their loans quickly, who also qualify for PSLF, standard repayment is an ideal plan.
Hybrid Strategy
To balance both short- and long-term goals, you can adopt a hybrid payment plan. This is a combination of standard payments for some loans and income-driven payments for others.
💡Pro Tip: No matter which strategy you adopt, it’s important to stay on top of the latest developments as they relate to loan payment parameters, forgiveness opportunities, and more. Reaching out to a financial advisor can ensure you’ve got the most current information to make the best decision for repayment.
Case Study: Navigating PSLF and loan forgiveness as a resident
Meet Dr. Jane, a 3rd-year resident. Jane has $200,000 in federal student loans and $50,000 in private loans. She works at a non-profit hospital and plans to work there for the foreseeable future.
Developing a loan strategy
Jane chooses an Income-Driven Repayment (IDR) plan to reduce her monthly payment and qualify for PSLF. If her income during residency is $70,000 with no moonlighting, her payment could be as low as $300 per month.
She submits the Employer Certification Form yearly, ensuring all her payments count. During this time, each year she keeps track of the monthly payments to confirm all 120 payments have been counted.
Jane’s remaining loan balance is forgiven after 10 years of service, leaving her with little debt once she finishes her residency.
Hypothetical examples for illustrative purposes only. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. This material is intended for general use. Please contact a financial representative for guidance and information that is specific to your individual situation. REF#: 8702404.1 (Exp. 02/28)