Kaiser Permanente Physicians Could Now Get PSLF

Editor's note: Kaiser Permanente physicians in California have historically been blocked from receiving PSLF, but that has changed as of July 1, 2023.

Under new changes to the PSLF program, physicians working at not-for-profit employers, like Kaiser, who have previously been barred from being directly employed by these organizations under state law, now have a pathway to having their loans forgiven. Before July 1, 2023, this was not the case.

The Biden administration cited the example of physicians working in settings like Kaiser Permanente in California specifically as inspiring this rule change. The California Hospital Association states that these new Kaiser PSLF rules will be retroactive for 10 years.
Clearly, the next step for any affected workers would be to file a PSLF certification form with all employment since 2007 ASAP. Simply applying though does not mean you will be minimizing your future stream of payments.

If you were previously denied for PSLF, you need to apply again. For certifying PSLF with Kaiser, use “Kaiser Foundation Hospitals” as your employer on the PSLF certification form.
Note that this only applies to physicians. Unfortunately, other professions at Kaiser Permanente remain ineligible for PSLF.

You'll have to decide whether to file taxes separately or jointly and even whether to take advantage of the unique married filing separate tax rules in community property states like California using form 8958. To get a custom plan for your student loans as a Kaiser Permanente employed healthcare professional, you can hire our team at Student Loan Planner to discuss.

Historically, I would get emails from frustrated readers who work at groups like Kaiser Permanente about getting rejected for PSLF. State law in California bars the direct employment of physicians. Since PSLF requires that your employer be 501c3, that effectively meant most physicians in California were unable to access this program. No longer.

Fortunately, the U.S. Department of Education made some course corrections to the PSLF program that could help borrowers who were previously excluded from loan forgiveness due to this oversight in how physicians are employed in certain states.

In this article, we'll dive into the obstacles that healthcare professionals face when for-profit group practices or hospitals are their employers. We'll also explain how they could still qualify for PSLF and some other federal programs or employer-sponsored programs, like the Kaiser Loan Repayment program.

Some lawmakers have long sought to include Kaiser Doctors in PSLF

There’s a fantastic explanation of the historical physician PSLF employment problem in the initial version of the Aim Higher Act that House Democrats proposed in 2018:

“The Aim Higher Act also makes it explicit that physicians working at a non-profit hospital or other health care facility in states that prohibit the direct hiring of these individuals, such as California, can also have their loans forgiven through PSLF.”

University hospitals in states like California had no such problem. They can hire clinicians directly since they’re faculty members. That’s why physicians in California who met the PSLF loan criteria usually worked at places like the VA, UCLA or the University of Southern California (USC) instead of Kaiser Permanente.

For whatever reason, certain state laws in places like California prevent hospitals from employing physicians and nurses directly. This probably originated from fears that physicians would lose compensation and/or autonomy.

Lawmakers tried to make the change to PSLF in law, but they were unsuccessful. That's why President Biden directed the Dept. of Ed to initiate a rule change. What we've seen in the past is rule changes that affect relatively small numbers of borrowers tend not to be challenged in court. So it's likely going to stand long term.

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How the Biden Administration PSLF Kaiser expansion could impact you

The Biden Administration released new PSLF guidelines for 2023 and beyond, which include expanding eligibility for physicians who work in nonprofit hospitals but are required to be employed by for-profit groups due to state regulation.

Here's the language that was used:

“Allow a qualifying employer to certify employment for a contractor if that individual is providing services that by State law cannot be filled or provided by an employee of that organization. The Department is aware of specific circumstances where existing state laws generally prevent doctors at nonprofit hospitals in California from working for the hospital directly. This change would cover those individuals as well as any other contractor whose employment is similarly barred by state law.”

So, a Kaiser Permanente physician in California is eligible for PSLF now. In some cases, you might even be eligible for a refund of PSLF payments.

Additionally, considering most physicians wrap up training with three to six years of PSLF employment, young Kaiser Permanente providers could have their federal debt forgiven in only a few years. You need to fill out the PSLF certification form ASAP.

This PSLF rule change impacts more than just Kaiser doctors. It's any contractor working at a non-profit where direct employment is prohibited by state law. If you fall into this category, I encourage you to book a consult with our student debt team to discuss these potential changes that could impact your eligibility for loan forgiveness.

What if you did your residency at a for-profit hospital?

Another issue is that there are huge hospital chains, like the Hospital Corporation of America (HCA), that don’t meet the eligibility requirements for PSLF. Why? Because they are for-profit entities. Here’s what one physician reader wrote to us:

“Unfortunately my residency was sponsored by a for-profit hospital chain and I could not qualify for PSLF status although the funding for residency was through government-sponsored Medicare. I am currently employed by a non-profit hospital chain. But my group practice is a for-profit organization. So PSLF is not available.”

A reader suggested looking at Sound Physicians and EmCare as other examples of for-profit physician groups that lack PSLF eligibility. It's impossible to make qualifying payments for PSLF while working for any of these groups. So, should these doctors just refinance during residency? Not so fast.

First, using an Income-Driven Repayment plan during residency would probably have been the best choice. REPAYE / SAVE, for example, gives interest subsidies that often result in the effective interest cost being lower than what you’d get by refinancing as a resident.

Also, there’s a chance a resident at a for-profit hospital could get an attending job at a not-for-profit hospital. In almost every case I’ve seen, physicians in this situation with more than $200,000 in loans should still utilize PSLF instead of refinancing. But what if you start at a for-profit hospital for residency and follow that with a non-qualifying job as an attending? In that case, getting PSLF will be very challenging.

Note that the Kaiser PSLF change primarily impacts non-profit hospitals and not the for-profits like HCA.

Utilize PAYE or REPAYE / SAVE as a holding strategy for your loans

Imagine this scenario: Congress passes a law that makes all hospitals count for PSLF, even if a for-profit group employs you. If you had refinanced within the past few years, you’d feel pretty annoyed at not being eligible for the hundreds of thousands in potential forgiveness you could have gotten.

Let's take a look at an example outside of California. I had a physician client in the Midwest who was a part of the last physician group not brought under the hospital’s umbrella. The plan was that they would be employees within a few years.

In his case, I suggested forbearance while he waited since none of his loan payments were PSLF-qualifying. You could certainly do that, but then the interest compounds. And you only get three years of total forbearance to use in the first place.

So, most physicians seeking loan forgiveness while employed at Kaiser Permanente could enroll in an IDR plan to keep the interest costs down. REPAYE / SAVE or PAYE are two popular options. Both qualify for PSLF.

Note that PAYE and REPAYE still allow you to qualify for a mortgage, especially if you use a California physician loan.

Related: Kaiser Permanente Home Loan Program Review: A Complete Guide

Take advantage of employer-provided loan repayment programs

Employer student loan programs are not likely to be anywhere near as lucrative as PSLF. But they could still help you pay off thousands of dollars of student loan debt. We provide the details for one of the most well-known of these programs below, the Kaiser Loan Repayment Program.

Kaiser Loan Repayment Program

The main Kaiser Loan Repayment Program will pay up to $20,000 of student loans for its medical personnel. RNs, nurse practitioners, or any other medical professions that require a bachelor's or master's degree can receive up to $10,000. Doctors, meanwhile, can qualify for the full $20,000 through the Kaiser Loan Repayment Program.

If you happen to be attending the Kaiser Permanente School of Allied Health Sciences, you may be able to apply for a forgivable loan through the Kaiser Permanente Student Financial Aid Program. To qualify, you must be a Diagnostic Medical Sonography student. Loan sizes range from $9,000 or $18,000 per recipient to help cover the cost of tuition. You do not need to demonstrate financial need.

To have your loans forgiven, you'll need to secure a qualifying employment position with Kaiser Permanente in Northern California. The maximum amount of forgiveness per year of employment is $3,375. The application deadline for this loan program is typically set for the end of March.

The Kaiser Loan Repayment Program is just one example of the types of employer-provided programs that may be out there. If you're currently working for a for-profit hospital, it might be prudent to explore these options instead of refinancing. You can take advantage of a private student loan repayment program today while retaining eligibility for PSLF.

We would encourage Kaiser employees to ask HR about revising their student loan program in light of the change to PSLF. A reimbursement program on payments would make a lot more sense, given most borrowers need to pursue IDR plans.

Who shouldn’t be on PSLF if employed at a for-profit group practice affiliated with a hospital?

First, it's important to understand that only Direct Loans qualify for PSLF. If you have other types of federal student loans, such as Federal Family Education Loans (FFEL) or Perkins Loans, they aren't eligible. However, if you consolidate them into a Direct Consolidation Loan, they will become eligible.

If you have a DTI ratio over 1-to-1 as an attending, you likely have a ton to gain with PSLF. You might even be better off going for loan forgiveness under PAYE or REPAYE in the private sector. IDR forgiveness takes 20 to 25 years.

Borrowers with a debt-to-income ratio between 0.5 to 1 should make the decision based on their individual situation. Preferably, it would be after consulting with a group like ours. Before refinancing, a physician at a non-PSLF-qualifying hospital with a DTI over one-to-one definitely needs a professional review before jumping into refinancing.

Many non-PSLF-qualifying hospitals are in community property states

No offense to California, but the more I learn about these states’ rules, the more complicated it gets.

Both states are community property states. In these states, you can utilize something like the breadwinner loophole to cut your monthly payments by as much as halfcompared to someone living in a regular state like New York.

That means a lot of Kaiser Permanente physicians will refinance for a lower interest rate when they could put their loans onto a plan like PAYE or SAVE / REPAYE. And they’d be potentially giving up large student loan forgiveness benefits that don’t even involve PSLF.

Look into other student loan forgiveness programs if you’re at a non-qualifying hospital

Many more physicians could benefit from the 20- to 25-year private sector forgiveness available under PAYE and REPAYE.

Yes, you may have to pay taxes on the forgiven balance. But a pediatrician with a $300,000 loan balance working part-time at Kaiser Permanente might pay way less under PAYE for 20 years compared with a 10-year private refinance. That would result in a lower total cost in today’s dollars by as much as six figures.

Clearly, the options are more complex for physicians like those working at Kaiser. If you have more than $100,000 of student debt, you probably need a custom student loan plan. Book a consultation with a Student Loan Planner® here.

Have questions about your loans? Or do you have questions about programs provided by for-profit groups such as the Kaiser Loan Repayment Program? Comment below!/