Written By Rob Bertman, CFA, CFP®
We all appreciate the great work that healthcare professionals do for us — particularly since the pandemic. That said, they deserve some tangible financial relief. So, here are some major changes to student loan forgiveness programs for healthcare workers that you need to know about in 2023.
Update on the PSLF Waiver Forgiveness Opportunity for Healthcare Workers
Members of Congress, including Rep. Carolyn Maloney (D-NY), tried to pass the Frontline Health Workers Act to provide student loan forgiveness for front-line healthcare workers but to no avail.
The Department of Education issued a PSLF Waiver program on October 6, 2021, that helped many healthcare professionals get forgiveness years sooner, or even completely wipe away all their educational loans. However, it expired on October 31, 2022. But all is not lost — the IDR Waiver offers many of the same benefits to healthcare workers, whether they're pursuing PSLF or IDR forgiveness. It expires April 30, 2024, and it provides most of the same benefits as the PSLF Waiver.
Here's how it works:
- If you have more than 12 months of consecutive forbearance or more than 36 months of aggregate forbearance, you will receive credit for these months of paused payments towards PSLF and IDR forgiveness plans.
- You'll get credit towards IDR and PSLF forgiveness for any repayment plan, as well as payments and certain types of forbearance and deferment pre-consolidation.
- Economic hardship deferment and other types of deferment (except in-school deferment) before 2013 will count towards IDR forgiveness.
- Some borrowers with loans that did not benefit from the federal student loan pause need to take action before April 30, 2024, to qualify.
The good news is that medical professionals and healthcare workers already have access to some of the best student loan forgiveness programs out there, not just Public Service Loan Forgiveness. Some of these programs forgive loans' remaining balance, while others provide money to student loan borrowers in the form of a loan repayment program (LRP).
Let’s examine the more popular federal student loan programs for those who work on the frontlines of public health and health professionals in general.
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Public Service Loan Forgiveness Program (PSLF) for healthcare workers
PSLF is the broadest and best student loan forgiveness option for medical professionals. Here are its eligibility requirements:
- Federal Direct Loans are eligible (not FFEL loans or private student loans).
- You must work full-time for a qualifying employer (either a nonprofit or government employer, like a hospital, academic institution, Veteran Affairs, etc.). You can also work more than one part-time job totaling 30 hours or more per week.
- You must make payments on an income-driven repayment plan (PAYE, SAVE, IBR).
Once you reach 120 qualifying payments under the above criteria, you can go through the application process for PSLF. If you qualify, your remaining student loan balance is forgiven, tax-free. In the meantime, we recommend completing the employment certification form for the PSLF program.
This program has been managed by FedLoan Servicing in the past, but now it is managed by MOHELA.
Check out our Top 40 PSLF tips to optimize PSLF and make it even better.
Note that with all the changes to PSLF that are coming due to the Biden administration's PSLF order, you need to be doubly sure you're paying attention this year and next, so that you get forgiveness as soon as you deserve to.
National Health Service Corps (NHSC) Loan Repayment Programs
NHSC Loan Repayment Programs are another great option. It’s working to get health care professionals to patients with limited access to health care, often in community health centers.
As an incentive, it offers three programs available. The programs are either two- or three-year commitments and provide $50,000 to $100,000 in loan repayment over the service term.
There are three types of NHSC loan repayment programs (LRPs) available:
- NHSC Loan Repayment Program
- NHSC Substance Use Disorder Workplace LRP
- NHSC Rural Community LRP
These LRPs are available to a wide range of healthcare profession disciplines, including:
- Physicians (MD/DO)
- Nurse Practitioners (NP)
- Physician Assistants (PA)
- Certified Nurse Midwives (CNM)
- Health Service Psychologists (HSP)
- Licensed Clinical Social Workers (LCSW)
- Psychiatric Nurse Specialists (PNS)
- Marriage & Family Therapists (MFT)
- Licensed Professional Counselor (LPC)
This is a great program for healthcare workers looking to help people who can’t access or pay for quality care under normal channels.
Side benefit: Many of these clinics are also PSLF-eligible employers, if the LRP doesn’t pay off the student loan debt in full.
Nurse Corps Loan Repayment Program
The Nurse Corps LRP is a great program for nurses who are looking to provide primary medical care to underserved populations while also benefiting from major loan forgiveness in a short time.
It pays up to 85% of unpaid nursing education debt for registered nurses (RN), advanced practice registered nurses (APRN) such as nurse practitioners, and nurse faculty professionals.
The first two years of service at either a critical shortage facility or an eligible nursing school could lead to a payment of 60% of outstanding qualifying loans. Then, the third year of service leads to the next 25% of repayment assistance.
Keep in mind that this benefit may be subject to taxes, but it’s still a great option for student loan forgiveness for nurses.
National Institutes of Health (NIH) Loan Repayment Programs
The NIH wants to attract health professionals to research positions. To do this, it takes some of the student loan burdens off and makes it more attractive to work in this field.
NIH loan repayment programs (LRPs) pay up to $50,000 per year of a researcher’s qualified educational debt, whether it’s HHS debt, federal debt, or sometimes even private student loans.
Physicians, pharmacists, psychologists, dentists, nurses, physician assistants and others are eligible. The qualifying employment can be extramural (outside of the NIH) or intramural (inside the NIH).
Indian Health Services Loan Repayment Program
If a medical professional would like to serve the Alaska Native or American Indian Communities, they can serve a two-year term for $50,000 of loan repayment through IHS.
After the two-year commitment, you can sign on for successive one-year terms for as long as you’d like.
Any healthcare professional can apply, but it gives priority to providers within the service communities.
Perkins Loan Cancellation
The Department of Education has made certain healthcare professionals eligible for Federal Perkins Loan Cancellation after five years of qualifying full-time service. These are mainly nurses, including:
- Registered Nurses (RN)
- Licensed Practical Nurses (LPN)
- Certified Nursing Assistants (CNA)
- Medical Assistants (MA)
- Advanced Practice Registered Nurse (APRN)
- Licensed Medical Technicians (LMT)
Most of the time, healthcare professionals don’t have a bunch of Perkins Loans; but every little bit of forgiveness helps.
If you don't qualify for cancellation, note that you can include Perkins with a consolidation loan for the PSLF fix above.
Income-driven repayment plans and taxable student loan forgiveness for medical professionals
Even if you don’t qualify for any of the above programs, there’s another student loan repayment option available that offers taxable student loan forgiveness: income-driven repayment.
You may have heard of these IDRs, such as Pay As You Earn (PAYE), Saving on a Valuable Education (SAVE, which replaced REPAYE) and Income-Based Repayment (IBR).
These loan repayment plans are best for student loan borrowers who owe more than their income in student loans ($100,000+ in debt vs. $100,000 income). Income-driven repayment forgiveness is the most flexible repayment strategy available.
You can work part-time or full-time for any type of employer. Even if you’re out of a job, you can still stay on income-driven repayment. You can adjust your payments to $0 without having to go into forbearance, and even those $0 payments count toward the 20- to 25-year loan forgiveness.
The goal here is to keep monthly payments as low as possible and maximize the amount of loan forgiveness. That way, you have more money to put toward other financial goals, like maxing out retirement plans, buying a house, etc.
The other benefit is that you keep the door open for PSLF if you end up working for a qualifying employer during a 120-month time frame.
SAVE Plan Forgiveness
President Biden announced the SAVE plan on June 30, 2023. It will replace the REPAYE plan and allow healthcare workers to pay 5% to 10% of income, depending on how much of your debt is from grad school.
You also get a deduction of 225% of the poverty line before you pay anything.
How does this work in practice?
A single parent with 2 children could earn about $55,000 a year before having to pay a dime on the new SAVE Plan.
If half her debt is from grad school and half is from undergrad, she would pay 7.5% above that $55,000 a year based on her family size of three. The government calculates that 7.5% by adding 0.5*0.05 + 0.5*0.1.
That's just the weighted average between 5% and 10% because 50% of her debt is from grad school and 50% is from undergrad.
Recall that the SAVE plan is just a repayment plan. You can use it for the PSLF program as well as taxable forgiveness options. It's not always the best option though.
Need student loan help?
Student loan repayment can be complicated for medical and healthcare professionals. Often, it’s not always the best option to get the lowest interest rate and pay it back in full. Sometimes, that can be a more expensive option because of the different ways to qualify for forgiveness and the loan repayment plans available.
When you add the complexity of your career path and how marriage affects student loan payments and other financial goals, it can be tough to figure out a clear path on your own.
If you’re tired of spending hours doing confusing research and are looking to finally get a solid student loan strategy, schedule a six-figure student debt consult.
By the end, you’ll have a clear path ahead that’ll fit around your career and life goals rather than feeling like your decisions are dictated by your student loans.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
Comments
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Is the NIH program taxable after forgiveness?
From the NIH website: Will I incur taxes on LRP payments? Yes, but each time NIH issues a payment to your lender, 39 percent of the payment amount is also sent to the IRS as a federal tax payment. An additional tax payment at the rate of 7.5% of the loan repayment amount is also made to cover social security and FICA taxes for intramural LRP awardees only.
As a physician I receive a base pay with additional “Z payment” four times a year. The combo of those Z payments is almost more then my base pay. Am I allowed to report just my base pay by providing one of those pay stubs for income recertification?
Thanks!
Hi Anthony, here is what our consultant Molly has to say: Accepting paystubs is up to your loan servicer’s discretion, but it’s a big risk to leave a large portion out to calculate your payment. Your reported income when you recertify is supposed to be an accurate representation of your income. “Lying” on your IDR recertification can carry hefty fines and prison time if caught. It’s best to maximize your pre-tax deductions and report your income accurately.