I usually run into complex locum tenens physician loan repayment questions. With that said, you can be a locum tenens CRNA, PA, or NP and still have questions about how to pay back your student loans with your locum income.
Here are the main challenges I see if you’ve got a locum tenens lifestyle with a lot of student debt:
- Inability to access Public Service Loan Forgiveness (PSLF)
- Difficulty verifying your income
- Uncertainty surrounding your long-term employment
- Potentially harder time refinancing
Luckily these challenges can be easily dealt with through a smart student loan plan. We specialize in helping folks working in a locum tenens physician role figure out their student loan debt, particularly if that debt is between $100,000 and $1 million.
Paying back loans as a locum tenens doctor presents opportunities that others don’t have. Here’s some of those:
- Reducing Adjusted Gross Income (AGI) more easily than employed peers (good for 20-25 year loan forgiveness)
- Providing your own benefits
- Income and location flexibility
We’ll tackle the challenges of locum tenens first then show the opportunities available.
You can’t get PSLF with locum tenens
The biggest drawback I see to working a locum tenens job is similar to that faced by private practice physicians. You cannot utilize the PSLF program while engaged in a locum position. The reason?
The definition of locum tenens is from a Latin term meaning “holding a place.”
That means you’re a 1099 independent contractor in a locum role. Only full-time employees can utilize the forgiveness offered under PSLF.
Hence, locum healthcare providers must pay back their loans either through IDR loan forgiveness over 20-25 years or through paying their debt back with a strategy like refinancing.
How to get loan forgiveness with a locum job
Even though your time as a locum tenens doctor doesn’t count towards PSLF, you might eventually get a full-time job at a qualifying not for profit employer.
It would be a big mistake to immediately refinance or pay back your loans aggressively unless you’re sure that this possibility will not happen for you.
I’ve seen plenty of stories of physicians who do some locum work during fellowship or early in their career as attendings only to switch to permanent roles a couple years later.
Keep in mind that PSLF payments are not consecutive but cumulative. That means you could make payments on the REPAYE or PAYE plan while doing locum tenens and if you switch to an eligible job, you might eventually get PSLF.
Also, if you’re a fellow or doing a small amount of locum work on the side, you can still qualify for PSLF if your primary job is full time at a 501c3 or government employer. In other words, a small amount of locum tenens work does not derail you.
Verifying your income with loan servicers is a pain with locum tenens
Do you need to include all of your 1099 income as a locum tenens doctor when applying for income-driven repayment (IDR)?
The answer is yes according to the definition the government uses of taxable income. If you look at the IDR verification form that you’re required to submit annually, here’s what the government wants to know:
“You must provide documentation of all taxable income you and your spouse (if applicable) currently receive. Taxable income includes, for example, income from employment, unemployment income, dividend income, interest income, tips, and alimony.”
Clearly, income as an independent contractor constitutes income from employment.
However, that income varies a lot depending on your current employment arrangement. For that reason, I suggest checking the box that says “My income has not significantly changed” unless you feel a strong need to say otherwise.
Using your tax return to certify income-based payments as a locum tenens worker
When you say that your income hasn’t significantly changed, you’ll be asked to provide your tax return to the loan servicer. They’ll then use your Adjusted Gross Income (AGI) to figure out what your loan payment should be.
If you called your loan servicer with updates every time your income changed while doing locum tenens, you’d be spending a huge amount of time doing so.
Hence, I view submitting tax returns only as the best method of certifying payments.
The temporary nature of locum jobs can make planning difficult
If you’re not working in a position for the long term, you might have a hard time planning your future.
The reason this matters if you have student loans and accept a locum tenens opportunity is that you may or may not be employed full time by a not for profit or government hospital one day.
For example, say you do locum tenens for two years. There’s a solid chance your full-time position when you leave could be at a not for profit institution. If that’s the case, you’d still be eligible for PSLF if you completed 10 years of service. Your total repayment length, in that case, would be 12 years if you did 2 years of locums and 10 years of full-time service.
If you try to make a full plan before you know what your future will look like, you might make the wrong decisions.
In general, never refinance your student loans from med school until you’re sure a 501c3 or VA job is not in your future.
How to refinance in a locum tenens role
Many of the student loan refinancing companies I work with have an easier underwriting process for W-2 employees. Employee incomes tend to be more stable than independent contractors, so that makes sense.
However, with the big increase in the number of health practitioners providing temporary help to employers, most of the major refinancing companies have changed their policies for some folks to make it a little easier to get a lower interest rate on your student loans.
I reached out to Commonbond for this article (SLP readers get a cash bonus through that referral link) on what documentation they would need from a borrower in a locum tenens job, and here’s what they said:
“Refinancing with a locum tenens employment situation would depend on the degree type that the borrower has. If the borrower received their MD, DO, DMD, or DDS then Commonbond should only require a one-year history of income documents (1099 or a full tax return). Similarly, if the borrower has one of those degree types and operates as an LLC, then we would require a 1-year history of business tax returns for them.
However, If they have a different degree type, we will generally require a 2-year history of income documents.”
If you’re a dentist or a physician, you’ll be able to qualify more easily for student loan refinancing. Needing only a single year of tax returns is a pretty low bar to clear.
Also, keep in mind that if you consolidate your loans immediately after graduation, you could get a $0 payment on REPAYE with a huge interest subsidy the first year anyway.
Hence, even though refinancing isn’t a cake walk with a 1099 locum employment situation, it can be done. This is especially true for all your physicians and dentists out there.
Other folks like PAs, NPs, and CRNAs can still refinance with locum tenens income history, but it sounds like companies would tend to prefer two years of tax returns.
Student loan forgiveness options for locum tenens
Even though locum jobs don’t qualify for PSLF, you can still get student loan forgiveness while working locum tenens positions.
You simply need to have a high enough debt to income ratio to make the math make sense.
For example, 1099 contractors can start a solo 401k and contribute up to $56,000 pre-tax in 2019.
Here’s how this could work.
Timmy will do long term locum tenens work and earns $250,000 per year as a 1099 contractor. He works with a CPA who sets up an S corporation with a “locum tenens salary” of $120,000 per year.
You could make a contribution of $19,000 as an employee plus 25% of your W-2 wages. That would lower your AGI by $49,000.
Now, instead of making $250,000 for tax purposes, you actually make $201,000.
If you had $400,000 of student debt from med school at 7%, here’s how the math could look (Cost is in 2018 dollars):
|PAYE (20 year)||$492,212||$467,788||$187,115||$679,327||$377,587|
(10 year at 5%)
Notice how the cost of paying the 20 years of payments on the Pay As You Earn plan (PAYE) plus the tax bomb gives a lower cost in today’s dollars. That’s a lower present value, which means you would save a lot of money (assuming a 5% investment return).
Most forgiveness options with locum tenens would involve working with someone like us and a CPA to figure out if lowering your taxable income could give you projected forgiveness with today’s rules.
Employers might be willing to make contributions towards your loans as well in exchange for specific service length.
Locum tenens benefits: income, location, and job flexibility
As a locum tenens doctor, you can set up your own health insurance and potentially get deductions off your income for that too.
You’ll be able to deduct other expenses like travel and anything your CPA says counts as a business expense.
In addition, if you want to make more money, you can. If you’d rather work less, you can do that too (and rely on income driven forgiveness math to make it financially viable).
Maybe you’re not ready to commit to working for a big hospital system, so you use locum tenens to see the country and visit a bunch of out of the way locations you wouldn’t live in otherwise.
I can see a lot of benefits to trying out locum tenens for a period of your life.
Get a plan that reflects why you’re doing locum tenens work
Most healthcare professionals are going to move on to a permanent role at some point.
What you can do right now is to make sure the way you manage your student loans reflects what you’re thinking.
If you want to pay the debt off quickly, you might think about the Revised Pay As You Earn (REPAYE) plan or refinancing.
If you’re unsure but might want to do PSLF, keep your options open and your debt with the federal government.
If you think you want to do temporary roles long-term as a lifestyle play, then you might even think about doing taxable forgiveness.
Regardless of what path you take, have fun and don’t stress about your loans. We can help you navigate what to do if you want the professional guidance since nobody else is thinking about locum tenens and loan strategies the way we are.
What are your thoughts about locum tenens work? Do you recommend it or is there something you wish you had done differently?