Do you believe that PSLF will be there in 10 years?

[Perrotfish]

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Do you guys think PSLF will be around in 10 years? I'm trying to figure out my wife's financial aid, and PSLF is by far the cheapest option. But its not guaranteed and by the time forgiveness rolled around I would owe twice as much as I owe now making just the IBR payments. If the 10 year plan is a viable option, would you hammer on that or trust the PSLF plan to be around?

 

[PAYE1]

Just my opinion, but I think it's EXTREMELY unlikely that PSLF, IBR, or PAYE forgiveness will be retroactively taken away for people already on the program. Additionally, the climate in Washington indicates that loan relief will be getting progressively more generous, not less generous.

 

[RangerBob]

I'm going through the same planning as my undergrad loans go into repayment next month and medical school loans in December.

While I do hope I'm wrong, I strongly disagree with PAYE1--I think there's almost no chance the forgiveness portion of the programs will stick around for high earners such as physicians and lawyers--it's because of physicians and lawyers declaring bankruptcy and the media reporting on that, and the resulting taxpayer outrage, that student loans are no longer dischargeable in bankruptcy. Imagine what will happen when the media reports about a neurosurgeon who makes more than half a million dollars a year getting that same amount forgiven. All it takes is one person like that in the news to create a stir.

Remember that no one is actually "in" the forgiveness portion (you only apply for forgiveness after you've met all the requirements for forgiveness), and loan forgiveness is not written into the promissory note. Also, I really don't think the country can afford to forgive all that debt without saddling taxpayers and future generations with more debt (though some may argue otherwise if GradPLUS rates stay so high...). Considering that students know what they're getting into when the borrow the money, I just think it's a hard sell to the public once they really become aware of it.

In 2017 the first set of borrowers will be eligible for PSLF--I think that's the key date to watch. If there isn't a mass media and public hysteria during that year over physicians/lawyers debt being forgiven, then it may very well stick around. I personally won't finish residency until 2017, so I have nothing to lose by making IBR/PAYE payments with the hope that those 4 years of payments will be PSLF eligible. I'd like to work for a VA anyway, so if if looks like forgiveness is here to stay, I will aim for PSLF. However, I will also pay more than the minimum payment (my debt is high enough that even with an expected salary of ~180,000, I'll still be able to stay in the IBR/PAYE plan...).

I will not count on the 20 or 25 year forgiveness. I don't want to owe money for that long. Also, currently forgiveness through 25 years of IBR payments is considered taxable income--so you will likely end up paying quite a bit more than if you paid the loan off quickly. I'm unsure if this applies to forgiveness from the 20 years of PAYE payments. Important to note is some Congressmen are trying to eliminate the taxation part. Also, there is currently a bill to make everyone eligible for PAYE.

I guess if PSLF looks like it might stick around, I'd try and make the 10 or 15-year payment amount each month for my 6 post-residency years. That way, if PSLF does disappear at the last minute, my bases are covered. And if it stays, I still get a benefit--not as much as if I made the minimum payment, but this way I hedge my bets.

Remember, the worst thing that can happen is you plan for loan forgiveness and it gets taken away, and as you pointed out you've now amassed twice as much debt because you haven't been paying enough to cover the interest. I personally don't want to be stuck with loans for 20-50 years. As the primary breadwinner for my future family I owe it to them to plan responsibly and have a way to pay off the debt. If the government does it, that's wonderful, but the financial aid climate is anything but stable right now--it's been changing far more often than in the past per my financial aid director, and without a signed contract it's not promised.

 

[Perrotfish]

Well those are then two major attitudes I have run into: either it will work or it won't. I HATE that the government puts in a situation where we can end up paying three times more than our peers just because we actually paid down the money we borrowed at the rate we agreed to. I HATE that they make a program so attractive that requires such a leap of faith to buy into: they could just as easily have paid back all the interest and one tenth of the principal for each year of PSLF to show that they were serious about it.

Anyway, after much consideration our goal is going to be to pay down the debt fast. If I give away a lot more money than I need to I will fell like a schmuck but it won't ruin my life. If I trust in PSLF/PAYF/IBR/WeverTF and it doesn't come through it will ruin my life. So I will go with the lesser of two evils.

 

[DrBowtie]

Just my opinion, but I think it's EXTREMELY unlikely that PSLF, IBR, or PAYE forgiveness will be retroactively taken away for people already on the program. Additionally, the climate in Washington indicates that loan relief will be getting progressively more generous, not less generous.

You aren't in the program. You apply after 120 payments.
And ask Washington to help the 1%. See how that works out.

 

[notbobtrustme]

You aren't in the program. You apply after 120 payments.
And ask Washington to help the 1%. See how that works out.

actually, it's been working pretty damn well.

Except that doctors aren't in the 1%.

 

[DrBowtie]

actually, it's been working pretty damn well.

Except that doctors aren't in the 1%.

Once the news sees individuals that the public views as rich getting 100-300k of loans forgiven, this won't end well.

 

[notbobtrustme]

Once the news sees individuals that the public views as rich getting 100-300k of loans forgiven, this won't end well.

oh, I agree. I was just pointing out that the 1% is kicking ass and taking names with support from the government.

 

[PAYE1]

You aren't in the program. You apply after 120 payments.
And ask Washington to help the 1%. See how that works out.

Forgiveness is already part of the law and you are making payments in reliance on that law. It's not clear to me that the government could legally change that law for people already making payments.

In any event, I think the current political trends strongly suggest that forgiveness is not going to be removed. Obama has already created PAYE which is more generous to borrowers than IBR. Additionally, he has proposed changing the law to make forgiveness under PAYE nontaxable. I think it's very unlikely they will change the law to make forgiveness nontaxable and then change it again in the future to remove forgiveness entirely.

 

[freaker]

Anyway, after much consideration our goal is going to be to pay down the debt fast. If I give away a lot more money than I need to I will fell like a schmuck but it won't ruin my life. If I trust in PSLF/PAYF/IBR/WeverTF and it doesn't come through it will ruin my life. So I will go with the lesser of two evils.

There's, of course, a third option, which would be to 1) make the standard IBR payments and then 2) place the extra payments you would normally make into an investment vehicle and hope that PSLF comes through. If PSLF is shot down, then you cash out of the investment vehicle and pay down your loans. If PLSF does go through, well, you have an asset that you've saved away and were rewarded for your savings rate.

I wouldn't use your tax-advantaged space (Roth IRA or 401k) for this money, as you should be maximizing both, anyway. Maybe a 457 plan, depending upon your withdrawal rules. I'd probably use a CD fund or (if you feel like gambling) a low tax burden index fund in a taxable account (i.e. S&P 500 index fund).

If you're in a low-risk asset class like a muni bond, you'll probably not hold even with the interest rates on your student loans, but you'll come out way ahead of where you'd be if you didn't save anything or if you anticipated qualitfying for PSLF and it was taken away.

 

[Kal EI]

No.

 

[Perrotfish]

No.

Yeah that was my conclusion too. I ended up deciding on an aggressive 4 year repayment plan. It makes me uber-broke and if PSLF comes through it will cost me about 100K, but I figure the extra 6 years of peace of mind alone are worth that to me.

 

[freaker]

I don't feel like looking all this up

Waiting for the punchline...

... or if it's an application that gets made after the payments have all been sent in, then that changes things, but I've seen nothing that makes me believe this is the case.

DING * DING * DING

First search hit on google reveals you have to submit an application *AFTER* you have made 120 eligible payments, meaning you're not in until you're in.

I'll agree that IBR is much less likely to disappear and that you probably couldn't have that taken away from you, but Congress and the powers that be pretty much do as they durn well please.

As per the studentaid.org:

The U. S. Department of Education (ED) cannot make any guarantees regarding the future availability of PSLF. The PSLF Program was created by Congress, and, while not likely, Congress could change or end the PSLF Program."

 

[RangerBob]

Called studentaid.org and asked flat out, and at least was told over the phone that an application for forgiveness can be submitted as soon as someone is under the umbrella, so long before the 120 are in, and so long as the 120 come in and you stay in a qualifying job you're good to go... that's what I was told by the front line phone answer person, so yeah...

Guess we'll find out when someone actually makes those 120.

I think what the phone representative was referring to was the fact that you can apply for credit once you start making eligible payments, so that you officially have those eligible payments on file. Whether or not that amounts to actually being in the program (in the event it gets cancelled, which I think it will, and whether anyone gets grandfathered in, which I don't think anyone will), won't be seen/known either until 2017 (when the first group of borrowers would be eligible for PSLF) or if the government clarifies or changes the program prior to that.

Still, it can't hurt to file your eligible payments--it keeps track of them, and in the event the program IS cancelled but people who filed their payments ARE grandfathered, well, then you're in the money.

There's a form somewhere out there. Either with the Dept of Education website or maybe with your federal loan servicer (FedLoan, NelNet, etc.) It has to be signed by someone in human services at the place you work.

 

[DrBowtie]

I think what the phone representative was referring to was the fact that you can apply for credit once you start making eligible payments, so that you officially have those eligible payments on file. Whether or not that amounts to actually being in the program (in the event it gets cancelled, which I think it will, and whether anyone gets grandfathered in, which I don't think anyone will), won't be seen/known either until 2017 (when the first group of borrowers would be eligible for PSLF) or if the government clarifies or changes the program prior to that.

Still, it can't hurt to file your eligible payments--it keeps track of them, and in the event the program IS cancelled but people who filed their payments ARE grandfathered, well, then you're in the money.

There's a form somewhere out there. Either with the Dept of Education website or maybe with your federal loan servicer (FedLoan, NelNet, etc.) It has to be signed by someone in human services at the place you work.

Yes. It only registers your payments. There is no "in the program" or "out of the program".

 

[Perrotfish]

I have a hard time believing they wouldn't grandfather in those already in the program. Reliance on PSLF, or even the 20 or 25 year private sector repayment plan puts someone in a position where they very well might not even be making the interest payments, meaning that say in year 9 of PSLF or year 15 of regular IBR someone will owe MORE than what they started with, especially if they took out medical schooling type loans and went into government work-can you even imagine them doing this to military physicians/dentists? So that hypothetical person is out all the money they've paid on the loans and ended up with owing even more, and the loans are going to start charging regular monthly payments instead of the reduced % of income... that's just not going to happen, especially since it would hit members of the military. Even the neo-cons wouldn't let that happen.

1) This has nothing to do with members of the military. All but a handful of physicians the military came in via either USUHS or the HPSP scholarship and have no debt whatsoever. Non-physicians either came in through a scholarship (ROTC/academies) or got one when they left that should have covered everything (tuition assistance while they were in followed by the GI bill when they left). One of the reasons that PSLF is such a crappy idea (and so easy to cut) is that its not really forgiveness for actual public service, but rather for anyone who works for ANY non-profit, including civilian physicians making full salaries in major cities, residents who the government is already paying 120K/year to train, etc.

2) Can I imagine them changing the rules and not grandfathering anyone in? Yes, because they did it to my class. With two years of medical education left to go all of our loans suddenly became unsubsidized. Surprise! The cost of the last two years of loans is effectively more than twice the cost of the first two years, unless you can afford to start a 10 year plan your first year of residency.

Again, I'm not saying a rule change definitely WILL happen. In fact I would probably give better than even odds that PSLF will work out for current borrowers, and that some form of IBR/PAYE will survive at the 20-25 year mark. However the odds are just that: odds. You're gambling with your financial security. A bad choice for anyone, but particularly for a physician who faces a much greater financial loss than a gain if these programs don't come through.

 

[Perrotfish]

And didn't you start this thread? If you're so certain it won't be there what's the issue here?

Well, if you read the thread you'll see I started the thread in May, when I was going through financial aid counseling, just learning about all of my options, and trying to figure out what my plan of action was going forward. Three months of research later I'm now much more certain about how I feel about this program and have a 5 year plan to pay these things down without banking on forgiveness. I've also developed some very strong opinions about federal student loans and forgiveness programs in general.

 

[Gunninforpeds]

One of the reasons that PSLF is such a crappy idea (and so easy to cut) is that its not really forgiveness for actual public service, but rather for anyone who works for ANY non-profit, including civilian physicians making full salaries in major cities, residents who the government is already paying 120K/year to train, etc.

This is what really seems unrealistic about the program's survival to me. It's so broad because basically every academic medical center is technically a 501(c) nonprofit. And especially for people who figure to spend 6-8 years in residency+fellowship, they'd accrue almost the whole 120 payments under a hilariously low repayment plan. Seems like a ripe target for a politician trying to cut pork.

I have a friend (2nd year med student) who outlined his whole plan to do PSLF through 8 years of training +his first two years of practice. He ran the numbers and figured to have over 400K of debt forgiven. I don't begrudge him the right to wheel and deal and look for loopholes, but it just seems like exactly that: a loophole. I feel like the program will possibly find a way to allow current payers to be grandfathered in, but I wouldn't bet my family's security on it.

 

[Mac or Miller]

If a Democrat follows Obama, I'd say that it will almost definitely remain in place. If the GOP makes a comeback, then I'd say that it is still likely to survive but may have some modifications.

Let's look at a couple of examples of people benefiting from PSLF:

1) Somebody who does 5 years of general surgery, picks up a government-funded research fellowship for 2 years, and then eventually makes it into a pediatric surgery fellowship before taking a position at an academic medical center. This person would probably get almost all of his or her loans forgiven in the hundreds of thousands of dollars range and then probably become a millionaire afterward.

2) Somebody who does 3 years of family medicine and practices at a medical school for 7 years. This person may wind up with close to 50% forgiveness which would be substantial for a DO graduate who took out a lot of money.

3) Anesthesiologist does 4 years residency, 1 year fellowship, and works for a nonprofit for 5 years. He or she will be on an attending salary for the last 4 full years of the commitment and get greater than 50% forgiveness. At that point, he or she can still go over $300,000/year in the midwest in private practice but will probably have lost earning potential in the meanwhile.

If over 5 years the income difference between academic and private practice is $50K/year, then PSLF does not make financial sense, especially if the private group can arrange to cover your loans on a pre-tax basis for you. In the center of the country, this clause will likely ring true until the system becomes too socialized nationwide.

There are at 3 reasons why I think PSLF will remain intact for the foreseeable future:

1. Congress appears to be at a permanent stalemate regarding almost every issue that anyone can think of. Granted, they do like to toy with student loans a lot, but major changes are not that common.

2. PSLF is about forgiving money that has already been spent rather than an actual new spending program.

3. PSLF requires a great deal of premeditation on the part of the new medical school graduate, and at least where I live, almost nobody puts enough thought into it from the outset. I have only met 2 residents out of about 100 that I have asked who have even heard of it; and almost all of them I have talked to don't even consider consolidation because they think they will make a ton of money down the line anyway.

PSLF requires you to consolidate with the feds and sign up for the appropriate payment plan. Almost every resident I've ever talked to is only interested in forbearance or making the payments to their old private Stafford lenders as prescribed in their promissory note from way back when. Thinking about planning your financial future soundly is a skill that few 25-year-olds have.

If your family needs your resident salary, then forbear and worry about it later.

If you can make the IBR payments (which start out at $0 for many of those who have not had income previously), then I'd consolidate. There are benefits realized from this, i.e. continued subsidy for unpaid interested on subsidized loans, student loan interest payments deducted from your taxable income, and the ability to prevent too much interest from capitalizing or maybe even slicing into the principal.

I say just relax, do the IBR thing, and if PSLF works out for you down the road, then great. If not, then it wasn't meant to be.