PSLF 2017?

[Yadster101]

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So I believe that 2017 was the year when we would find out about the results of PSLF. Does anyone know when in 2017 we should expect this to happen? I'm assuming around August, since that's when most med schools start..? Is there anyone, on SDN, using PSLF that started the program back in 2007?

From my understanding, when you take student loans, from the government, PSLF, as one of the repayment options, is written in as a contractual obligation. Is this true?

Could someone work through an example of the repayment for me? If someone had 300k debt, and made 50k in residency (x4 years), and then 200k as an attending (single the entire time), what would their loan forgiveness look like?

 

[tymont12]

I made a calculator for this awhile ago and plugged your numbers in. See the attached thumbnail. This is all assuming you do PAYE. Essentially, you pay 10% of your income, no matter what it is. As a resident, that'd be $277 per month. As a physician, that'd be $1,527 per month. After 6 years as an attending, you could qualify for PSLF. At the time of forgiveness, you will have paid a total of $123,245 between residency and attendinghood. In total, you will have $456,077 forgiven.

It's because of this sweet, sweet deal that I think a clause will be inserted stating that physicians are not eligible.

 

[Atom612]

I made a calculator for this awhile ago and plugged your numbers in. See the attached thumbnail. This is all assuming you do PAYE. Essentially, you pay 10% of your income, no matter what it is. As a resident, that'd be $277 per month. As a physician, that'd be $1,527 per month. After 6 years as an attending, you could qualify for PSLF. At the time of forgiveness, you will have paid a total of $123,245 between residency and attendinghood. In total, you will have $456,077 forgiven.

It's because of this sweet, sweet deal that I think a clause will be inserted stating that physicians are not eligible.
View attachment 213610

If you did PAYE but didn't do PSLF, with the same numbers, what would the tax bomb look like after 20 years?

 

[tymont12]

If you did PAYE but didn't do PSLF, with the same numbers, what would the tax bomb look like after 20 years?

Assuming all of the above parameters, you will have paid a total of $306,490 over 20 years, as well as have $575,615 forgiven, which would be taxed at ~35-40%, so the tax bill would be $201,000, at a minimum.

 

[Atom612]

Assuming all of the above parameters, you will have paid a total of $306,490 over 20 years, as well as have $575,615 forgiven, which would be taxed at ~35-40%, so the tax bill would be $201,000, at a minimum.

So assuming one sets aside $1000/mo every month for 20 years, they should have enough to cover the taxes of the forgiven amount of the loan (if they had OPs original figures)?

 

[sazerac]

Remember that the $200,000 tax bill will be due in 2037, when that might be the cost of a small automobile and not a median sized house.

There was a thread a while ago that analyzed the effects of inflation, and ironically by following PAYE and paying the tax bomb the cost to the student is basically the graduation loan in graduation dollars.

Put another way, when measured in constant dollars, we are all paying 0% interest on our loans. I always wondered if that was coincidence, or intentional.

 

[Yadster101]

I made a calculator for this awhile ago and plugged your numbers in. See the attached thumbnail. This is all assuming you do PAYE. Essentially, you pay 10% of your income, no matter what it is. As a resident, that'd be $277 per month. As a physician, that'd be $1,527 per month. After 6 years as an attending, you could qualify for PSLF. At the time of forgiveness, you will have paid a total of $123,245 between residency and attendinghood. In total, you will have $456,077 forgiven.

It's because of this sweet, sweet deal that I think a clause will be inserted stating that physicians are not eligible.
View attachment 213610

Where did you get the $1527/month from? Is that 10% of post tax salary?

 

[Yadster101]

Assuming all of the above parameters, you will have paid a total of $306,490 over 20 years, as well as have $575,615 forgiven, which would be taxed at ~35-40%, so the tax bill would be $201,000, at a minimum.

Two more qustions:
1. Is loan forgiveness after 20 years guaranteed/more likely than PSLF?
2. With typical med school loans, is there anything contractual that says we will be given PSLF or forgiveness after 20 years?

 

[tymont12]

Where did you get the $1527/month from? Is that 10% of post tax salary?

It's 10% of your AGI (adjusted gross income), which takes independents into account.

 

[tymont12]

Two more qustions:
1. Is loan forgiveness after 20 years guaranteed/more likely than PSLF?
2. With typical med school loans, is there anything contractual that says we will be given PSLF or forgiveness after 20 years?

1. The IBR or PAYE plans are available to anyone with federal student loans. You enter one of these plans in residency and after you make 120 qualifying payments under one of these plans, you can apply for PSLF, which is a separate entity altogether.

2. Look at your promissory note. Mine from 2015 says that IBR and PAYE are part of the terms of my loan, as well as PSLF. Therefore, I am hoping that any changes to the program would mean that I would be grandfathered in, given they would basically be defaulting on my loans otherwise.

 

[68PGunner]

BTW, the 10% of your income is based on your AGI, after your deductions. Therefore, you should be maxing out contributions at all levels in order to lower that payment.

Lastly, that 200-250K tax bomb will be in 2037 USD. Assuming the rate of inflation for wage at 2.5%, 250K salary now will be the equivalent of $400K in 2037 USD.

 

[sazerac]

It's 10% of your AGI (adjusted gross income), which takes independents into account.

Not exactly.

PAYE and REPAYE are a fraction of your Discretionary Income, which is the AGI minus 150% of the federal poverty level.

The AGI is not changed by having more dependents. (that's done below the line). However, the federal poverty level does depend on family size.

You can read the gory details here http://studentloansherpa.com/discretionary-income-calculation/

This page also has a link on how to reduce your AGI with above the line deductions like IRAs, HSAs, and moving expenses.

 

[Yadster101]

2. Look at your promissory note. Mine from 2015 says that IBR and PAYE are part of the terms of my loan, as well as PSLF. Therefore, I am hoping that any changes to the program would mean that I would be grandfathered in, given they would basically be defaulting on my loans otherwise.

So I know there's no way to know for sure, but since the promissory note states those terms, are you pretty confident in PSLF?

 

[sazerac]

So I believe that 2017 was the year when we would find out about the results of PSLF. Does anyone know when in 2017 we should expect this to happen? I'm assuming around August, since that's when most med schools start..?

PSLF occurs after you can demonstrate 120 qualifying monthly payments. The definition of a qualifying payment has many conditions, and one of them is that the payment occurred after October 1st, 2007.

Thus the first attempt at PSLF forgiveness could occur in September 2017.

 

[tymont12]

PSLF occurs after you can demonstrate 120 qualifying monthly payments. The definition of a qualifying payment has many conditions, and one of them is that the payment occurred after October 1st, 2007.

Thus the first attempt at PSLF forgiveness could occur in September 2017.

Yeah, the definition is a big thing missing from my promissory note. It simply says 120 qualifying payments and not what a qualifying payment is. I think this is a technicality where the government could say anything they would like to bottleneck out physicians or those not working at true 501(c)(3)'s.

 

[tymont12]

So I know there's no way to know for sure, but since the promissory note states those terms, are you pretty confident in PSLF?

Honestly, I hope to use it since my loans will be nearly $500K after a 6-year residency/fellowship. Traditionally, changes to federal loan terms grandfathers in those who came before the legislation. PSLF is in my promissory note so they would be defaulting on the terms of the loan if they denied it to me. I don't think the government would want to deal with that fallout though. However, no politician will feel pity for denying me half a million dollars in loan forgiveness if I'm making 3x or more what the average American does.

Once people start getting payouts, I'm sure there is going to be some type of reform for high-income, high-debt utilizers of the program, such as physicians.

 

[collegestud2013]

Honestly, I hope to use it since my loans will be nearly $500K after a 6-year residency/fellowship. Traditionally, changes to federal loan terms grandfathers in those who came before the legislation. PSLF is in my promissory note so they would be defaulting on the terms of the loan if they denied it to me. I don't think the government would want to deal with that fallout though. However, no politician will feel pity for denying me half a million dollars in loan forgiveness if I'm making 3x or more what the average American does.

Once people start getting payouts, I'm sure there is going to be some type of reform for high-income, high-debt utilizers of the program, such as physicians.

This most likely. There has been a lot of talk about capping the amount that can be forgiven with PSLF. For example, earlier proposals in the federal budget wanted to cap it at around $57,000. While this has not gone through, whether it will in the future depends on the political climate, and many people have a feeling that it will go through once the first wave of people start getting their forgiveness and you see someone like an academic neurosurgeon getting $500K forgiven. And I don't people can be easily grandfathered into it since you cannot sign up for PSLF ahead of time. You need to make the 120 payments before you can apply for it.

Bottom line, I wouldn't count on it, and if you have high amounts of loans I would more count on just going into a high-paying specialty in private practice to pay your loans.

 

[boshtrich]

Not exactly.

PAYE and REPAYE are a fraction of your Discretionary Income, which is the AGI minus 150% of the federal poverty level.

The AGI is not changed by having more dependents. (that's done below the line). However, the federal poverty level does depend on family size.

You can read the gory details here http://studentloansherpa.com/discretionary-income-calculation/

This page also has a link on how to reduce your AGI with above the line deductions like IRAs, HSAs, and moving expenses.

Also keep in mind that PAYE and REPAYE are 10% of the Discretionary Income of your household, not just of the borrower. If you have a spouse, any taxable income they make will be included in determining your monthly loan repayment fee. You can get around this with the PAYE option if you file taxes separately from your spouse, but this would likely result in additional tax penalties. Depending on spousal income, I suppose it may be advantageous to file separately, but I'm not an accountant so I don't know. Additionally, with PAYE you must prove "financial hardship" which I have been told is easy to do as a resident, but may be more difficult as an attending if you are in a high paying specialty. This mean you may need to switch from PAYE to REPAYE following residency which would result in re-capitalization of interest accrued during residency. So while dependents will not change AGI, having a working spouse likely will.

 

[sazerac]

Also keep in mind that PAYE and REPAYE are 10% of the Discretionary Income of your household, not just of the borrower. If you have a spouse, any taxable income they make will be included in determining your monthly loan repayment fee. You can get around this with the PAYE option if you file taxes separately from your spouse, but this would likely result in additional tax penalties. Depending on spousal income, I suppose it may be advantageous to file separately, but I'm not an accountant so I don't know. Additionally, with PAYE you must prove "financial hardship" which I have been told is easy to do as a resident, but may be more difficult as an attending if you are in a high paying specialty. This mean you may need to switch from PAYE to REPAYE following residency which would result in re-capitalization of interest accrued during residency. So while dependents will not change AGI, having a working spouse likely will.

The "financial hardship" you allude to is as follows: You demonstrate financial hardship by showing that your PAYE payment is less than the default standard 10 year payment. In another words, you will always pay the lesser of PAYE and the 10 year payments you would have been paying if PAYE had never existed.

For the purposes of PSLF, a PAYE payment and a 10 year payment are both Qualifying Payments.

If a switch from PAYE to the 10 year plan causes recapitalization of interest, that would be a bummer!

 

[tymont12]

This most likely. There has been a lot of talk about capping the amount that can be forgiven with PSLF. For example, earlier proposals in the federal budget wanted to cap it at around $57,000. While this has not gone through, whether it will in the future depends on the political climate, and many people have a feeling that it will go through once the first wave of people start getting their forgiveness and you see someone like an academic neurosurgeon getting $500K forgiven. And I don't think people can be easily grandfathered into it since you cannot sign up for PSLF ahead of time. You need to make the 120 payments before you can apply for it.

Bottom line, I wouldn't count on it, and if you have high amounts of loans I would more count on just going into a high-paying specialty in private practice to pay your loans.

This is what I think gets confusing. Although I won't be able to apply for PSLF for another 12 years, my Master Promissory Note directly states the availability of the PSLF program and that "the remaining balance will be forgiven after 120 qualifying payments." Because it's in there, I'm assuming they will follow tradition and grandfather in people's eligibility for it. However, I imagine what defines a "qualifying payment" may change. Or that future MPNs will state an upper limit for forgiveness. I guess we'll see how it plays out over the next year...

 

[Ismet]

So I believe that 2017 was the year when we would find out about the results of PSLF. Does anyone know when in 2017 we should expect this to happen? I'm assuming around August, since that's when most med schools start..? Is there anyone, on SDN, using PSLF that started the program back in 2007?

October 2017 is when the first people will be eligible. Also people who just started repayment that year (i.e. graduating class of 2007) may not be eligible until November or December because payments made during the grace period (the 6 months after graduating med school before you have to start repaying) do not count towards PSLF.

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service