If you are a healthcare professional and you have federal student loan debt, there is a decent chance you can have that debt forgiven tax-free through public service loan forgiveness. However, the government has done a great job in making any rules pertaining to student loans as confusing as possible. For some medical professionals, having a thorough understanding of how to qualify for PSLF could mean the difference between saving tens of thousands of dollars or experiencing a lot of heartache. To qualify, you must meet ALL 5 of the following requirements:
- Have eligible loans: These loans must have been received under the Federal Direct Loan Program. The older FFEL Loans and Perkins loans don't qualify. But they may become eligible if you consolidate them under a Federal Direct Consolidation Loan. Keep in mind that whenever you consolidate federal loans, that restarts the clock toward PSLF on any loans included in the consolidation. Even the ones you have already been making qualified payments on. Loans from private lenders do not qualify. This is why you want to carefully consider refinancing federal loans to private loans because that decision can not be reversed.
- Work for a qualifying employer: You must be employed by a federal, state, local or tribal government, or be employed by a not-for-profit organization. If you are banking on PSLF, you want to confirm you work for a 501(c) non profit. Most hospitals qualify. The official rules state that if your employer is not a 501(c) but they provide other public services, they still may qualify. But the rules on this are ambiguous and it seems very few organizations actually fall under this definition. Keep in mind it doesn't matter what type of work you do for your employer. Somebody who mops floors full time at a 501(c) hospital has qualifying employment for PSLF. Some healthcare professionals are independent contractors and this is where the rules can get tricky. If you are doing work for a 501(c) but your actual employer is a for-profit contractor, your employment does not qualify. According to the most recent clarifications provided by the government, if you are a 1099 employee and therefore do not receive a W-2, you will not qualify. In this situation, doesn't matter who you work for. There was a lot of uncertainty around this the past few years but it appears that having the W-2 is a core requirement.
- Have full-time employment: You have to work at least 30 hours per week or meet your employer's definition of full time. This means if your employer defines full time as 32 hours per week, and you only work 30, your employment doesn't qualify. Your qualifying hours don't have to be with the same employer. If you work for 2 separate qualifying employers you are allowed to combine the hours from both to meet the hourly requirement. *TIP- According to the Family and Medical Leave Act, you can take up to 3 months off work for maternity or family leave if it falls under your employer's definition of FMLA, and as long as you keep making payments, they will count towards pslf even though you aren't technically working full time.
- Be making payments under a qualified repayment plan: Basically you have to be making payments under one of the income driven repayment plans (ICR, old IBR, new IBR, PAYE, or REPAYE). Most healthcare professionals on an income driven plan should be on PAYE or REPAYE, unless they have older loans that don't qualify for PAYE, and REPAYE doesn't make sense. The other repayment plans such as extended or graduated do not qualify. Technically the standard 10 year repayment plan qualifies, but if you are on that plan, your loans will be paid off in 10 years anyways, so nothing will be left to be forgiven through PSLF.
- Make qualifying payments: Payments must have been made after October 1st, 2007. They must be made for the full amount due as shown on your bill and no more than 15 days late.
*IMPORTANT: Payments only count when they are required. This means that any payments made while you are still in school, or your loans are under the grace period, are in deferment or forbearance, or bankruptcy, WILL NOT COUNT. This is why if you know you will be aiming for PSLF, you should enroll in an income driven plan as soon as possible. Especially if you have just started your residency as your low salary could allow you to enroll in a plan that starts your PSLF clock, and brings your payments close to $0.
Also keep in mind that your 120 payments do not have to be consecutive. For example lets say you made 36 qualifying payments during your residency at a 501(c) hospital, then leave to become an attending at a private practice. If you go back to work for a 501(c) a few years later, you still get to count the 36 payments you made during your residency towards PSLF.
As you can see, qualifying for PSLF isn't cut and dry. The only way to be sure you are on the path towards forgiveness is to have a thorough understanding of the rules and to keep yourself updated on them.