Loan forgiveness. It’s a big deal, not only for those trying to qualify for PSLF, but it’s also a hot topic on the campaign trail for the Democrat Presidential Primaries. Various candidates have offered different terms on loan forgiveness for both graduate and undergraduate education.
The current administration has offered proposals to limit or eliminate Loan Forgiveness, particularly with their current budget proposal for the 2021 fiscal year. Here’s why this isn’t that big of a deal (yet) and why you, dear reader, shouldn’t be overly concerned:
White House budgets are pure politics – this is their idealized version of what the budget will look like.
Congress – the House and Senate respectively, are the ultimate bodies that create and pass budget legislation. The White House can influence the budget, but that really depends on party composition in the House & Senate, and also how much political capital the White House wants to spend to get what they want.
Since budgets start in the House, and the House is currently Democrat controlled, it is less likely that Loan Forgiveness Programs will be dramatically altered.
There have been Loan Forgiveness modification proposals over the past decade, but they haven’t ever become a part of a voted upon bill. Notably, there have been proposals to both expand and decrease the scope and coverage of loan forgiveness for medical professionals.
If you’re curious, here’s the exact text of the Fiscal Year 2021 White House Budget that refers to Loan Forgiveness (page 41). It’s really pretty vague in reality. Take a look at the last sentence, which ostensibly, is referring to doctors.
Protects Students and Taxpayers from Growing Student Loan Burden. The Budget protects students by eliminating default for impoverished borrowers and providing expedited loan forgiveness for undergraduate borrowers who make 15 years of responsible payments. In addition, the Budget protects graduate and parent borrowers from racking up crushing debt, often never repaid to taxpayers, by instituting sensible annual and lifetime loan limits. In addition, the Budget closes loopholes currently allowing high-earning graduate-degree holding borrowers to avoid repaying their student loans, leaving taxpayers holding the bag.
Now if you take a look at the actual budget line items at the end of the budget document (page 114), there is an actual PSLF call out. Note that figures are in millions:
In Conclusion…
In my opinion, given the current composition of Congress, I don’t see a dramatic change in Loan Forgiveness ocurring. While there can be changes made through the executive branch, drastic changes really need to be passed into law via bills from the House and Senate making their way to the desk of the President.
What is on the horizon, however, is a much larger population of medical professionals with large Federal Loan balances that will begin to qualify for PSLF. Record keeping has improved since the program was first implemented and I believe that this will be the first real test of whether the PSLF program will live on. As larger and larger sums will be forgiven, there will be increased scrutiny of the forgiveness programs.
Have questions or want to leave some thoughts? Drop a note in the comments!
This originally was included inside the post about how to manage loans and finances while in medical school. Though the summary advice of that particular post is: don’t spend too much, get a roommate, and manage your finances closely – perhaps some of you were looking for more salient advice. Given that, I wanted to break out what we did into it’s own post for more detail.
What Did YOU Do During Medical School?
Before Med School
For some personal background about the SurgeonSpouse (tm) here at SurgeonJourney, I worked for a healthcare software company (with a solid 401k & benefits) right after undergrad. Though I had great benefits, I totally didn’t know it at the time. Knowing what I know now, I was lucky I decided to throw a bunch of money into my 401k – I didn’t know about suggested investment strategies and I didn’t know what resources to use on the web.
While I was working at the healthcare company – The Surgeon was doing research and preparing for medical school. At this time we lived in different cities and correspondingly kept our finances separate. To her immense credit, the Surgeon is a frugal BOSS and knows how to stretch the dollars when she needs to.
Med School – The First Year
Fast forward a year or two and the Surgeon is in her first year of medical school. We’re still in separate cities and I visited with my hard earned consulting airline miles (I’ll have to do a post about some frugal travel tips in the future. Would certainly help for residency interviews). The Surgeon, being the frugal badass that she is, lived with a fellow grad student and had a carefully planned weekly food budget and menu. She packed all her own lunches and cooked dinner at home.
Much of this meal planning and living arrangement takes discipline and a healthy amount of delayed gratification. Skills that apply not only to finances, but to a variety of things in life – like staying the course to becoming a doctor. Luckily, the Surgeon has an abundance of both! If you’re reading this blog and have made it this far, you, too, likely have these attributes.
Second Year and Beyond
Through her first year, The Surgeon kept to her budget and did a really good job of limiting expenses. At the start of second year of med school, I left my healthcare consulting job and moved to be in the same city as The Surgeon. We looked around and found an affordable apartment near the school and made the big decision to move in together!
Moving In with a Partner?
There are a lot of practical decisions to make when moving in together, it’s a great step in a relationship. We had to talk about and make decisions on things like:
Who’s paying for groceries?
Are we splitting rent? If so, how are we going to do that – evenly or based on income?
Are we putting both our names on the lease?
Which name(s) are we going to use for utilities?
Are we sharing streaming accounts?
What do we do with our furniture?
Which way does the toilet paper face? (FACT: there’s only one right answer to this and I’m sticking to it)
Sure, the questions can go from the more practical and reasonable to slightly more esoteric – but you’ll encounter every aspect of a partner when living together. It’s important to have these discussions upfront – especially about the TP.
Some of the financial conversations can get sticky if not broached early, by talking about them ahead of time, it can save a lot of angst down the road. Alas, I digress, back to financial advice.
Being a Partner of a Med Student
I found a job in the same city as The Surgeon, which worked out well while she was in school. We were fortunate that her med school was in a larger metropolitan area but still relatively affordable – in the Southeast, I’m sure you can guess which city. There’s a vibrant startup community and I was able to get a great job while The Surgeon finished the remaining three years of med school.
Having an income really helped out our financial situation while The Surgeon was in school. Since we lived together, I tried to pick up expenses where I could to minimize loans. It should also be noted that we had been together for four years at this point (since senior year of undergrad), so sharing expenses and living together was the next ideal step for us.
Fourth Year!
Until forth year, spending is fairly predictable. It is worth noting, amusingly, that generally med school tuition goes up for third and fourth year. Of course this is when you’re done with your didactic years and moving to clinical rotations. You’ll have sparing classroom time once clinicals start, though it was always strange to me that tuition goes up for your final years when you’re not really in a classroom.
What throws a wrench in finances for your forth year is residency interviews. Once you choose a specialty, you’ll start picking out residency programs based on your scores and aspirations. Depending on what you choose, you may end up applying to a few dozen programs. For every program that extends an interview, that travel is on your dime.
We also got married, which isn’t exactly cheap endeavor – but still file taxes separately! #PSLF.
For The Surgeon’s residency interviews, we used a combination of airline miles, low cost carriers, and creativity to keep costs low. But when you don’t have a lot of scheduling flexibility nor advance notice – flights can get expensive. To save on hotels when she could, the Surgeon would find a friend who lived in the interview city, if possible. Otherwise, it was AirBnB and hotels.
You might end up spending a few thousand dollars on interviews once you’re done. Between all the travel, and also the interview attire, it adds up. In the future, I’ll do a post on some credit cards I’d recommend to take advantage of all that travel spend, something I wish I thought of sooner.
Final Thoughts on Med School Finances
Overall, you’ll make it through! We did it with a combination of saving and careful planning, coming out with federal loans just shy of $200,000 (that interest was already adding up) – hooray! I made some loan mistakes that I definitely will cover in the rest of the loan and PSLF series.
What questions do you have about finances during med school? Questions for The Surgeon and The SurgeonSpouse?
Congratulations! Your hard work through your undergrad years has paid off – that GPA and MCAT score and your summers spent doing research and shadowing have prepared you for the next four years, studying to become a doctor. As the glow fades from your monumental achievement, reality set in as you must figure out how to finance this expedition. (If you found this post by accident and you don’t require loans for medical school, go have a mai-tai and then come back for other info).
Let’s jump into the different ways one can pay for school. You’ll likely have information from the medical school you plan on attending to secure funding to pay for tuition and living expenses. You can skim through this section if you took loans out for undergrad. Keep in mind, the type of loan you accept will alter the different repayment options you can choose down the road. This decision, though seemingly minor, can have a large impact on a doctor’s financial situation for potentially decades.
Once you accept an offer, get your checkbook out – typically there’s a deposit required to hold your spot, and the school will provide resources to you for financial assistance depending on your situation. In my anecdotal experience, it seems that these Financial Aid offices can be anywhere from mildly helpful to possibly committing willful malfeasance. Your mileage may vary. Nevertheless, there are a TON of resources to talk you through the different options.
Since this blog is focused largely on surgeons with a residency of at least five years (my surgeon is in the greater than five year category), plus an additional one or two (or possibly three) year fellowship, I’ll focus on the decisions you need to make that will allow you to qualify for PSLF. I should note, also, that there are some longer residency + fellowship combos with medicine specialties that make this information helpful (cardiology, for one).
What’s PSLF? I’m Glad you Asked!
PSLF is an acronym for Public Service Loan Forgiveness, and the Consumer Financial Protection Bureau has a great summary of the program:
The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your federal Direct Loans after you make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying public service employer.
This means that the US Department of Education (and Betsy DeVos) is your lender. Basically you’re securing your loan directly from the Department of Education.
Qualifying Monthly Payments, 120 of them
Meeting the required payment each month as specified by your payment plan is all you need to do here. If you are attempting to qualify for PSLF, you should choose FedLoan as your servicer – they’re the only loan servicing operation that will manage PSLF.
Qualifying Repayment Plan
This is where some real value can come into play with the PSLF program. Federal loans can qualify for a number of different repayment plans, I’ll dig into this with lots more detail in a post dedicated to PSLF, but know for now that it can dramatically decrease your monthly payments to as little as $0.00.
Working Full-time
At least 40 hours a week. If you’re a general surgery resident, this will be less than half your week (unofficially; of course your week is officially 80 hours).
Qualifying Public Service Employer
In nearly all cases, as a resident you’ll be employed by a non-profit – 501(c)(3) – organization affiliated with your teaching hospital and have nothing to worry about here. (I’ve heard reports that Kaiser in CA does have their physicians, including residents, employed by a for-profit entity; I’ll do some more research on this).
So there it is! Work ten years for a non-profit while meeting the payment required each month and the remainder of your loan will be forgiven (principal and interest TAX FREE!) by good Ol’ Uncle Sam.
Too much of a good thing?
I have heard that there is brewing interest in Congress to institute caps on forgiveness, but for now there aren’t any. At the time of this post, it’s still safe to go for PSLF as a med student. If there are changes, most speculate that existing borrowers won’t be affected – depends how the US Treasury is looking.
I digressed a bit with the PSLF intro, but let’s get back to paying for med school – it’ll all fit together, I promise. Once you get over the sticker shock, put together a rough budget of your expenses you think you’ll have each year, broken down by semester – there are lots of guides online for this, so I’ll just create an example here:
By Semester:
Cost:
Tuition
$25,000
Miscellaneous and spurious fees
$4,000
Living costs: Housing ($1000/month), Food ($400/month)
$8,400
Total (per semester):
$37,400
Depending how frugal (or not) you are, you’ll be spending at least $70,000 per year between tuition and living expenses.
Getting that Cheddar, Public or Private?
Two main options are private and public loans. In order to qualify for PSLF, you must use a public loan. After submitting a FAFSA form, you’ll likely be approved for two federal loans, Direct Unsubsidized and Direct PLUS. The former are capped at $40,500 per year, though Direct Unsubsidized Loans don’t have any strict requirements, like credit checks, and come with a pretty reasonable fixed interest rate.
You might be wondering what’s the difference between Unsubsidized and Subsidized Loans – I sure did when I first saw it. It has to do with how the interest on your loan is handled. For Subsidized Loans, the kindly U.S. Department of Education will pay the interest accrued while you’re in medical school. They do come with more restrictions than unsubsidized loans and are based on financial need. You’re responsible for the interest accrued on unsubsidized loans while you’re in school – if you choose not to pay interest while you’re in school, it will capitalize (your interest accrued gets added to the principal) on your loan.
If you find yourself needing more than $40,500 per year in loans, and you very well might, Direct PLUS loans are your next stop. These do come with more requirements, like a credit check, and may have more restrictions for borrowers with an adverse credit history.
SurgeonJourney’s Suggestion
From my perspective, I didn’t fully understand how PSLF worked until my spouse’s last year of medical school. By that time, we had maxed out the Direct Unsubsidized option every year and covered the rest of tuition with private loans. Were we to do it again, I would likely try to take out all public loan options for the purpose of PSLF.
We were fortunate that while my spouse was in school, I was working a full time job at a software startup, which certainly eased concerns for living expenses. I know that not everyone will have this situation, so it’s important to know your loan options and also focus on managing your expenses wisely. There are some great budgeting tools out there I’ll cover in later posts.
Let me know your thoughts and questions in the comments!
Loan decisions start as soon as an aspiring doctor receives their acceptance to medical school. After the wave of excitement passes, assuming you don’t have a trust fund, the next question is invariably: how am I going to pay for this education? Navigating loan options is complex and confusing – having first hand experience (well, via my spouse), I’m here to help!
This is going to be a multi-part series focusing on different phases in the progression of loan acquisition, spending, and eventual payoff or forgiveness.
Residency & Fellowship – Loan Consolidation, Management, and More
Attending Time!
With the rising cost of medical school – even for state schools, it definitely is important to evaluate payment options and consider your residency and speciality wisely. Each of these decisions will have an impact on your future finances, from the type of loans you choose to your income as an attending. The length of residency and potential fellowship you choose will also affect which loan forgiveness and payment plans you will qualify for if you have federal loans.
We’re going to start at the beginning, right after you accept an offer to attend medical school. From there, each segment will focus on a different phase of the medical education and training process, culminating in graduation from residency and fellowship.
Along the way, we’ll look at different ways to manage student loans for medical school. If you have any questions, comments, or suggestions for this series – let me know in the comments!
