We have helped many physicians, dentists, and medical professionals analyze the financial decisions that life throws their way. From student loans, home purchases, buying into a practice, maximizing retirement savings, education funding, and retirement income needs, Soundmark Wealth can help with these decisions, allowing you to focus on the things that matter most in life.
Much has been written on the complexities of the Public Service Loan Forgiveness (PSLF) program, which is sponsored by the federal government and forgives a portion of your school loans while working for a qualifying public service employer.
It can be tricky to navigate through the options due to confusing eligibility requirements and poor coordination with the federal student loan providers. According to a recent article in Forbes, 99.5% Of People Are Rejected For Student Loan Forgiveness Program, less than 1% of those applying for the program received the student loan forgiveness. With the many stories shared in the news, it should make us think about the viability of choosing to follow the Public Service Loan Forgiveness path.
Let’s take a closer look at some of the potential pitfalls of the program.
1. What is my motivation for working in the public sector?
If the entire reason for pursuing work in the public sector was to receive loan forgiveness, I would encourage you to meet with a loan professional to analyze your situation and provide guidance. Please review all eligibility requirements and have frequent communications with your student loan provider to ensure you are on the right path. Studentloans.gov has a tool to help you understand the eligibility requirements.
2. What is the total amount that I will be forgiven?
Here is an example using some typical numbers that we see from new medical professionals.
- $300,000 in student loan debt
- 6% average interest rate on Federal Student Loans
- Using the Pay As You Earn (PAYE) Repayment Strategy
- Assume an Adjusted Gross Income (AGI) of $70,000 if working in the public sector
If you meet all the eligibility requirements, you could receive over $400,000 of Public Service Loan Forgiveness. However, there are a few considerations:
- You may not qualify for the Public Service Loan Forgiveness, even after 10 years of service.
- Your loan amount will continue to increase due to the interest accruing faster than your payments can pay off the loan.
- Your monthly payments are based on 10% of your discretionary income. If you decide to forego the public sector and join a private practice along the way, your payments will rise dramatically, and you will have a larger loan to pay back. (If you decide to no longer pursue Public Service Loan Forgiveness, it may be advantageous to refinance to a private student loan provider.)
Is there another option?
- Work in the private sector making significantly more income.
- Use your extra discretionary income to pay down debt in three to five years, depending on how aggressively you work to pay off the loan.
- Eliminate the stress of whether you will have your loans forgiven.
- Feel free to rejoin the public sector, but do it without the burden of student loans.
3. What will my monthly payments be? Will they change?
If you have not already, use the Student Loan Repayment Estimator to give you an idea of which repayment plan will help you reach your goals. Input your student loan information and it will give you an idea of the monthly payments based on the plans available. Depending on the repayment plan you select, your monthly payments can vary.
We typically see graduates select the PAYE option for those who want to work in the public sector and qualify for PSLF. It is vital to know that the PAYE option bases your monthly payment on 10% of your discretionary income. Many factors contribute to this calculation:
- Your Adjusted Gross Income
- Single or Married
- State of Residence
- Family Size
If you do get married, or your income goes up significantly, you need to evaluate whether your current strategy is still allowing you to reach your goals.
If you are married and are concerned about its effect on your eligibility for PSLF, you may want to consider filing your taxes as Married Filing Separately. However, check with a CPA to ensure it makes sense for your overall tax situation.
Consult with a Professional
Many factors will affect your ability to meet the eligibility requirements for PSLF. I would encourage you to seek advice from a qualified financial planner who has successfully helped others navigate these impactful money decisions.
If you are a medical professional and have questions regarding your student loans or other financial decisions, let’s connect. We can help you make sound financial decisions wherever you may be in your career.
Taylor Vance is an Advisor at Soundmark Wealth Management, LLC. Taylor works closely with individuals and families to help define their financial goals and implement an ongoing financial planning process.