Why doesn't everyone do IBR and PSLF

[Dr Gerrard]

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That is, income based repayment and public service loan forgiveness.

This clearly seems like the best deal. What is the catch?

What does the future look like for these programs?

Thanks everyone!

 

[Dr Gerrard]

I am assuming most residency programs are at non profit hospitals and continuing work at a teaching hospital would count for the years after residency.

I am 200k in debt. After I graduate, interest may make it up to 250k

I do IBR for 3 years of IM residency and 2 years of fellowship (my plan as a naive premed).

Then do the maximum payment of 2100 a month during 5 years as an attending. This would be 125 + maybe 25 from my payments during residency.

This would save me $100,000!!!

Why would everyone not do this?

 

[dpmd]

You need to have loans through the direct loan servicer, you need to be willing to apply for the program, and you need to be able to make the payments on time. People have various reasons they can't do one of the above.

 

[Dr Gerrard]

Hmm direct loan servicer? Do stafford subsidized and unsubsidized not count for these? And don't these loans cover most of the cost of medical school?

 

[dpmd]

Previously there were multiple servicers for stafford loans. Only Direct Loans are eligible for the PSLF (this is the government servicer). Some people have incentives with other servicers that they don't want to lose by changing servicers.

 

[Dr Gerrard]

Oh. Thanks for your help dpmd 🙂

Will I find out about these difference incentives and Direct loans in medical school, or is this something I need to research myself. I ask this because I have absolutely no idea what other loans may be considered Direct, how much money I can get from Direct loans, and what other incentives there are.

 

[anthroguy]

I'm not doing it, because I save a lot in interest payments doing the 10 year repayment. I went to state school and lived at home so I can make these payments. IBR would of course be cheaper but the government only makes interest payments on subsidized loans, so it wouldnt make much of a dent and the 10 year writeoff would preclude me from working in a location or practice setting I might desire. So i'll be scrounging up $1200/month in residency to make loan payments on about 100k of debt. Will it suck not being able to go out all the time and driving a 11 year old car, yea, but if I make these payments during residency and go all out my first year as an attending with loan payments, Ill be 30 yo and loan free.

 

[DrBender79]

Am I correct in assuming that if I wanted to work in another country after residency, for like 6 or 12 months locum tenens, that payments made during that time would not count toward PSLF? Would I still be eligible when I got back?

 

[Gute]

I am assuming most residency programs are at non profit hospitals and continuing work at a teaching hospital would count for the years after residency.

I am 200k in debt. After I graduate, interest may make it up to 250k

I do IBR for 3 years of IM residency and 2 years of fellowship (my plan as a naive premed).

Then do the maximum payment of 2100 a month during 5 years as an attending. This would be 125 + maybe 25 from my payments during residency.

This would save me $100,000!!!

Why would everyone not do this?

you might be able to make this $100k working in a private practice or other non-qualifying job...a big issue is that lower paying fields like FM, IM, and peds are shorter residencies (3 years) so you have to work 7 years in the qualifying job to get this compensation. The longer residencies where you are rewarded better tend to be things like surgery where there can be a huge pull to do a non-qualifying job due to higher salaries.

even if you are interested in academics, I wouldn't count on this, this is a huge govt giveaway which IMO is not sustainable. I see no reason why they can either eliminate this program or change the rules in a way that people with high levels of income (and lets face it, even the worst paid physicians make much more money than some other professionals in public service like social workers, public defenders, etc.)

In other words, its not going to look good that specialist X at University Hospital who is making $150k/year just got a $100k govt handout. We are in an age of budget austerity, cuts are gonna come, and physicians are targets not just from the reimbursement side.

Even if you are able to take advantage of this, there is no free lunch and I wouldn't base my career off of working in a public service qualifying job for 10 years. It is not worth $100k in savings to settle for a job that is not as ideal as other options. If it is your ideal option, then definitely make sure you do what you can to qualify.

 

[dpmd]

Oh. Thanks for your help dpmd 🙂

Will I find out about these difference incentives and Direct loans in medical school, or is this something I need to research myself. I ask this because I have absolutely no idea what other loans may be considered Direct, how much money I can get from Direct loans, and what other incentives there are.

Don't worry. They changed things and now all loans are going to be Direct loans. No more incentives though (excepts for 0.25% interest rate reduction for automatic payments)

 

[organdonor]

Don't worry. They changed things and now all loans are going to be Direct loans. No more incentives though (excepts for 0.25% interest rate reduction for automatic payments)

All loans already are direct loans, except private loans of course.

IBR seems very attractive and is something to consider. You don't have to worry about the program until you are getting ready to graduate though. I.E. you don't sign up for it during med school or anything. Just prepare for it like you would any other loans by taking out only what you need and keeping your debt as low as possible.

As far as I know no physicians have taken advantage of this yet. As someone else mentioned, with all the lawmakers checking their budget books again, surely thousands of $100k+ disbursements to people making six figure salaries is going to raise eyebrows once this would go into full swing.

The truth is that loan programs are changing for the worse and you can't depend on the situation now being the situation in 10 years. Just within the last couple years the government took over all med school loans AND the interest rates were raised spectacularly from 2-3% to 6.8%

The IBR program wasn't intended to help physicians as much as it was other lower paying (and lower debt-accumulating) fields in public service. This oversight would be easy to fix with a cap on the amount of the repayment.

The majority of hospitals are non-profit entities so being employed at a hospital (or a clinic run by a hospital) would likely be covered under the program. Alternatively, being employed by a private practice may pay you enough that the difference is in favor of the higher pay instead of the loan forgiveness or close enough. As it stands IBR would be most beneficial for long training programs. Training (residency or fellowship) means low pay and therefore low monthly payments. By the time you are making an attendings salary you've only got a couple years of substantial payments. Several factors including length of training/low pay, expected income in your field, and private pay vs non profit pay go into deciding whether or not the program would work for you. You would figure this out on with paper/pen sometime before you graduate med school.

So don't worry about this now, just take out the minimal amount of loans and keep your debt low. If the program is there and unchanged when you need it, great! Don't max your loans expecting them to be forgiven because you will likely be up a creek without a paddle.

 

[Chloroform4Life]

I am $320,000 in debt from med school loans. If I do IBR followed by standard repayment, that will be over $600,000 in total repayment. does this mean if I do the PSLF, I can save >$400,000? This just sounds too good to be true. I am doing anesthesia BTW, so hopefully my income will be about 250k as an attending after 5 years of residency/fellowship. Hell, if can just do IBR and have that much money forgiven, I might just do 5 fellowships and specialize in everything possible under anesthesia .

 

[squareknot]

I am $320,000 in debt from med school loans. If I do IBR followed by standard repayment, that will be over $600,000 in total repayment. does this mean if I do the PSLF, I can save >$400,000? This just sounds too good to be true. I am doing anesthesia BTW, so hopefully my income will be about 250k as an attending after 5 years of residency/fellowship. Hell, if can just do IBR and have that much money forgiven, I might just do 5 fellowships and specialize in everything possible under anesthesia .

In a similar situation here. What would be the best thing? Bank on PSLF? scrape by in residency pouring in whatvers left into loan payment (minus the usual expenses and savings)?

 

[Chloroform4Life]

Well, one thing I know not to do is to trust the federal government and hope for the best. Like other people have said, this loan forgiveness program is new and no one has really figured out its consequences yet. When they do figure out that the program can cost them billions of dollars, they might try to cut it back and you may be screwed with tons of interest if you just pay the minimum IBR.

 

[Dr Gerrard]

yeah, it will be 2025 before i can hope for this hahaha

i wish you could sign something in the beginning saying you would get it for sure rather than just hope it works like that 10 years down the road

 

[IMnerd]

I am $320,000 in debt from med school loans. If I do IBR followed by standard repayment, that will be over $600,000 in total repayment. does this mean if I do the PSLF, I can save >$400,000? This just sounds too good to be true. I am doing anesthesia BTW, so hopefully my income will be about 250k as an attending after 5 years of residency/fellowship. Hell, if can just do IBR and have that much money forgiven, I might just do 5 fellowships and specialize in everything possible under anesthesia .

So did a quick excel spread sheet to see how your numbers play out.
Assuming you make 48,000 as a resident for 5 years. Then 250,000 as an attending, with yearly raise to to match historical inflation (3.5%) and a total loan of 320,000 with an average interest rate of 7% (I am assuming you have maxed out grad plus and the rest are Stafford).

Over 10 years you would pay a total of $206,000. Your outstanding balance would be $381,487. Because your 120th IBR payment is greater $2000, PSLF will only forgive your principal ($320,000). [Note this is a sneaky little clause. PSLF was designed to encourage low paying jobs like primary care to work for the government, so higher paying fields get screwed and have to pay their remaining interest]

Assuming you pay off the remaining $61,487 over the next two years (and accrue a little more interest) your total payments would come to about $290,629 and the government would forgive $320,000. The standard 10yr plan would cost $445,856 or $678,508 over 25yrs. Looks like you would save $155,000 to $390,000 with the PSLF.

Would reconfirm all these numbers with your financial aid department and/or a financial adviser.

 

[organdonor]

Because your 120th IBR payment is greater $2000, PSLF will only forgive your principal ($320,000). [Note this is a sneaky little clause. PSLF was designed to encourage low paying jobs like primary care to work for the government, so higher paying fields get screwed and have to pay their remaining interest]

I've never heard this to be the case before? Do you have any sources? The governments website says that any remaining BALANCE would be forgiven which I would assume would include both principal and interest.

10-YEAR PUBLIC SERVICE LOAN FORGIVENESS — If you work in public service, on-time, full monthly payments you make under IBR (or certain other repayment plans) while employed full-time in a public service job will count toward the 120 monthly payments that are required to receive loan forgiveness through the Public Service Loan Forgiveness Program. Through this program, you may be eligible to have the remaining balance of your Direct Loans forgiven after you have made the 120 qualifying as described above.

http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

 

[IMnerd]

I've never heard this to be the case before? Do you have any sources?
http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

This high yield lecture from the AAMC had something for everyone. It broke down the basics of loan repayment, but also enough info to calculate everything in my last post (including how higher paid docs get a little screwed with PSLF).

https://www.aamc.org/video/first/mdeconomics.htm

I am sure its in the actual bill somewhere:

http://www2.ed.gov/legislation/FedRegister/finrule/2008-4/102308a.html

 

[DrBender79]

Thanks for the video and link to the bill. Regarding the question of interest being forgiven, I found this in the actual bill: (color added for emphasis)

Sec. 685.212 Discharge of a loan obligation.

* * * * *
(i) Public Service Loan Forgiveness Program. If a borrower meets
the requirements in Sec. 685.219, the Secretary cancels the remaining
principal and accrued interest of the borrower's eligible Direct
Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan, and Direct "
Consolidation Loan.

 

[IMnerd]

Sec. 685.212 Discharge of a loan obligation.
(i) Public Service Loan Forgiveness Program. If a borrower meets
the requirements in Sec. 685.219

Nice working combing through that enormous bill! I am kind of inclined to trust any one that works that hard over what silly power point from the AAMC says.

 

[TheDude2015]

So did a quick excel spread sheet to see how your numbers play out.
Assuming you make 48,000 as a resident for 5 years. Then 250,000 as an attending, with yearly raise to to match historical inflation (3.5%) and a total loan of 320,000 with an average interest rate of 7% (I am assuming you have maxed out grad plus and the rest are Stafford).

Over 10 years you would pay a total of $206,000. Your outstanding balance would be $381,487. Because your 120th IBR payment is greater $2000, PSLF will only forgive your principal ($320,000). [Note this is a sneaky little clause. PSLF was designed to encourage low paying jobs like primary care to work for the government, so higher paying fields get screwed and have to pay their remaining interest]

Assuming you pay off the remaining $61,487 over the next two years (and accrue a little more interest) your total payments would come to about $290,629 and the government would forgive $320,000. The standard 10yr plan would cost $445,856 or $678,508 over 25yrs. Looks like you would save $155,000 to $390,000 with the PSLF.

Would reconfirm all these numbers with your financial aid department and/or a financial adviser.

Such a helpful thread and great post here, even if there is an error regarding forgiveness of interest earned. Thanks for crunching those numbers IMnerd.

I will be starting medical school this fall at a very very expensive school and am trying to do some financial planning. My real debate is whether I should try to minimize my federal loans by using funds from an inheritance to pay part of my tuition, or to maximize my loans knowing that they could be forgiven under ibr/pslf.

It just seems like there are way too many uncertainties with this program... I'm terribly worried about graduating in 2015 with $400,000 debt only to see the terms on pslf have changed or it vanish. Also, how hard will it be to find a qualifying job? If I do anesthesia will I find that many of the anesthesia groups (even within a non-profit hospital) are non-qualifying?

On the other hand, I think the government will continue to provide incentives for professional graduates to enter a public service field (e.g. Public defenders). And I'd hate to use my life savings to pay for school knowing that there is a program out there that could help cover some costs of med school. Ahh what to do!!??

BTW interesting law review article by some prof at Georgetown:
http://www.law.georgetown.edu/news/releases/documents/Forgiveness_000.pdf

 

[IMnerd]

Because your 120th IBR payment is greater $2000, PSLF will only forgive your principal ($320,000). [Note this is a sneaky little clause. PSLF was designed to encourage low paying jobs like primary care to work for the government, so higher paying fields get screwed and have to pay their remaining interest]

Assuming you pay off the remaining $61,487 over the next two years (and accrue a little more interest)

After going back tha AAMC website, I realized that I definitely misinterpreted Slide #21.

If you no longer qualify for financial hardship (IBR > $2,000) you only lose the Interest Payment Benefit below:

INTEREST PAYMENT BENEFIT: If your monthly IBR payment amount does not cover the interest that accrues on your loans each month, the government will pay your unpaid accrued interest on your Subsidized Stafford Loans (either Direct Loan or FFEL) for up to three consecutive years from the date you began repaying your loans under IBR.

This only accounts for about $21,000 assuming you maxed out your subsidized loans for 4 years. This loss was factored into my original calculations, so here is the real deal:

Assuming you make 48,000 as a resident for 5 years. Then 250,000 as an attending, with yearly raise to to match historical inflation (3.5%) and a total loan of 320,000 with an average interest rate of 7% (I am assuming you have maxed out grad plus and the rest are Stafford).

Over 10 years you would pay a total of $206,000. Your outstanding balance would be $381,487. The standard 10yr plan would cost $445,856 or $678,508 over 25yrs. Looks like you would save $239,856 to $472,508 with the PSLF.

Would reconfirm all these numbers with your financial aid department and/or a financial adviser.

 

[carrotbanana]

Previously there were multiple servicers for stafford loans. Only Direct Loans are eligible for the PSLF (this is the government servicer). Some people have incentives with other servicers that they don't want to lose by changing servicers.

"Direct" refers to loans owned by the government. Although the government owns most all Stafford loans now, loans disbursed 2 or more years ago did not originally originate from the government. The title "Direct" must be on all your loans to qualify for the PSLF. To do this for older loans without the Direct nomenclature, you must consolidate all your Stafford loans into one Direct Stafford Loan (this is done through the Dept of Education).

 

[SFO-IST]

Such a helpful thread and great post here, even if there is an error regarding forgiveness of interest earned. Thanks for crunching those numbers IMnerd.

I will be starting medical school this fall at a very very expensive school and am trying to do some financial planning. My real debate is whether I should try to minimize my federal loans by using funds from an inheritance to pay part of my tuition, or to maximize my loans knowing that they could be forgiven under ibr/pslf.

It just seems like there are way too many uncertainties with this program... I'm terribly worried about graduating in 2015 with $400,000 debt only to see the terms on pslf have changed or it vanish. Also, how hard will it be to find a qualifying job? If I do anesthesia will I find that many of the anesthesia groups (even within a non-profit hospital) are non-qualifying?

On the other hand, I think the government will continue to provide incentives for professional graduates to enter a public service field (e.g. Public defenders). And I'd hate to use my life savings to pay for school knowing that there is a program out there that could help cover some costs of med school. Ahh what to do!!??

BTW interesting law review article by some prof at Georgetown:
http://www.law.georgetown.edu/news/releases/documents/Forgiveness_000.pdf

I'm debating the same thing. Presumably one course of action could be taking out the maximum loan and then putting the money you don't use into some higher yield savings account, CD's, or even real estate. Should the federal program still be on the books in the future, you could reap a huge benefit, and if they change the rules, you would not have just kept the money sitting around.

 

[Bostonredsox]

let me see if I have this right. I have about 2 weeks to decide how to start my loan repayment and I am a little behind on the information. Acoording to what I have read about IBR it would go something like this. I have 360k total debt, 33 of which is private loan from undergrad which i believe I have to continue paying at current rate as it is not able to be consolidated. The remaining 330k can be consolidated into IBR. IF I do 3 years of residency and 3 years of fellowship at around 48k a year, I will make payments during that stretch around 1500 a year. I got this number because I was told dependents affect what you pay as a resident and I have 4 of them and only my income in the household. After these 6 years end, I'm looking at 325-350k in starting salary so I will pay 2100 a month because I guess that is the maximum monthly payment?? Multiply that out for 4 years and add the 1500 a year from training years and I wil have paid a total of 115k out of 330k. With interest it probably would have been more like 500k. So the government is eating 75% of my debt. This seems far too good to be true to me. Also, what is the other option if I don't do the IBR? I defer everything for 6 years and then pay some astronomical number like 4000 a month for 20 years?

 

[dpmd]

let me see if I have this right... After these 6 years end, I'm looking at 325-350k in starting salary so I will pay 2100 a month because I guess that is the maximum monthly payment?? Multiply that out for 4 years and add the 1500 a year from training years and I wil have paid a total of 115k out of 330k. With interest it probably would have been more like 500k. So the government is eating 75% of my debt. This seems far too good to be true to me. Also, what is the other option if I don't do the IBR? I defer everything for 6 years and then pay some astronomical number like 4000 a month for 20 years?

I'm not sure about the maximum monthly payment, but it would be capped at whatever the payment would have been in the standard plan so that amount is at least close. Other than that your interpretation is correct if you are working for a non-profit employer after fellowship(including the part that thinks it is too good to be true, I imagine the government will have to drastically change the program since I don't see how they can fund it). The other option is to do IBR and keep paying longer (either 25 yrs under the other loan forgiveness plan, but see caveat above-although wouldn't likely have much if any owed by then, or until it gets paid off) or forbear (main difference from deferment is interest still accrues on subsidized loans) then start paying when your income rises.

 

[Bostonredsox]

if i consolidate in the next 6 weeks and get locked into an IBR plan, can the plan be nullified if the gov't decides it cannot sustain it or would that kind of change only apply to future loan payers. IE can I be screwed by this in 6-7 years as I get close to the 10 year mark or once you sign the paperwork are you protected.

 

[dpmd]

The IBR is just the payment plan. There is no "locking into" the loan forgiveness programs. You apply for the forgiveness after making all the payments and hoping the documentation you have been keeping is sufficient. So yes, you can absolutely get "screwed" although it isn't like there is a better alternative (unless you actually change your career plan because of this, or like some people are considering-took out more loans you didn't have to because you thought you wouldn't actually have to pay them. In that case you screwed yourself though)

 

[Fitzgerald]

.

 

[SFO-IST]

Future colleagues,

I wanted to share an additional piece of information I just learned from a financial aid person at a med school. While the PSLF program is not written into the promisary note of the loan, the repayment terms are, and the repayment terms state that within 25 years, if you make the IBR repayments on schedule, your remaining loan debt will be forgiven. However, the PSLF is a tax free writeoff, whereas the forgiveness after 25 years is taxable income. So it's good to know that one way or another, after 25 years of only paying 15% of income, med school debt is forgiven.

 

[HamOnWholeWheat]

The loan forgiveness portion is not funded. Don't bank on it happening.

 

[blackbeard505]

Well, another hindrance to getting loan forgiveness could be that you have to be an employee of a non-profit organization. Based on the conversations I've had with some people, a lot of doctors simply join a group which then subcontracts with a hospital. So you would remain an employee of the physicians group even if you are a hospitalist, rather than being able to draw a check from a hospital.

I dont know how common it is for hospitals to just hire people directly and put them on the payroll, rather than going through a physicians' group and letting you practice at the hospital.

This may also be specialty dependent, of course. I am curious to know if anyone has insights on how things look for psychiatry in this regard.

 

[TheDude2015]

Well, another hindrance to getting loan forgiveness could be that you have to be an employee of a non-profit organization. Based on the conversations I've had with some people, a lot of doctors simply join a group which then subcontracts with a hospital. So you would remain an employee of the physicians group even if you are a hospitalist, rather than being able to draw a check from a hospital.

I dont know how common it is for hospitals to just hire people directly and put them on the payroll, rather than going through a physicians' group and letting you practice at the hospital.

This may also be specialty dependent, of course. I am curious to know if anyone has insights on how things look for psychiatry in this regard.

Great point. I am also wondering if anyone can shed some more light on this issue.

 

[Lokhtar]

Well, another hindrance to getting loan forgiveness could be that you have to be an employee of a non-profit organization. Based on the conversations I've had with some people, a lot of doctors simply join a group which then subcontracts with a hospital. So you would remain an employee of the physicians group even if you are a hospitalist, rather than being able to draw a check from a hospital.

I dont know how common it is for hospitals to just hire people directly and put them on the payroll, rather than going through a physicians' group and letting you practice at the hospital.

This may also be specialty dependent, of course. I am curious to know if anyone has insights on how things look for psychiatry in this regard.

It depends on your specialty regarding how common this is but most hospitals have both. Generally the salaried people are the 'academics', and many of them also do research or have other responsibilities in the associated medical school and such. Some hospitals also hire hospitalists and other physicians directly, whereas others just contract with a group. So it's possible to find if you want to, but generally you take a pay cut as a salaried employee compared to private practice (whether the difference in income is less or more than the loan payments depends on your specialty, geographic area, and your practice type).

 

[digitlnoize]

Well, another hindrance to getting loan forgiveness could be that you have to be an employee of a non-profit organization.

Can you be an employee of your OWN non-profit group? Also, what defines "employee." 40 hours/week? Can I have another job on the side? I couldn't find any of this information in the bill.

Obviously, the non-profit has to be a legitimate non-profit, but I can't see any reason why you couldn't start your own non-profit, work for it a few hours (how many? is there a cut off?) per week during the repayment time, and have it count.

 

[SFO-IST]

Can you be an employee of your OWN non-profit group? Also, what defines "employee." 40 hours/week? Can I have another job on the side? I couldn't find any of this information in the bill.

Obviously, the non-profit has to be a legitimate non-profit, but I can't see any reason why you couldn't start your own non-profit, work for it a few hours (how many? is there a cut off?) per week during the repayment time, and have it count.

This is a perfect example of why this law is a horrible way to spend the government's money and why I've decided on banking on it not being there in 14 years.

 

[digitlnoize]

This is a perfect example of why this law is a horrible way to spend the government's money and why I've decided on banking on it not being there in 14 years.

I know. Disclaimer: I'd never (well, probably never) actually do this...it's actually quite a bit of work to set up and maintain the type of non-profit needed...but I think it's perfectly legal...at least as far as I can read the law...obviously, I haven't consulted a lawyer yet about it...

That being said, I'd like to see more loan forgiveness for docs entering the lower paying "shortage" fields, and wouldn't fault anyone for doing what should be done anyways.

 

[Kimka83]

Has anyone thought about the fact that once you no longer have partial financial hardship under IBR you are automatically switched to the standard 10 year repayment plan? I called Direct Loans and they confirmed that once you are switched over to the 10 year plan you are stuck there. You cannot subsequently change to the 30 year plan, for example. So while you may have low payments and an interest benefit during training with IBR, you are basically agreeing to the standard repayment plan while an attending (and apparently you cannot change your mind and pay off your loan more slowly if the situation arose where you might want to). This seems like a big drawback!

Thoughts?

 

[Monsterdaddy]

Has anyone thought about the fact that once you no longer have partial financial hardship under IBR you are automatically switched to the standard 10 year repayment plan? I called Direct Loans and they confirmed that once you are switched over to the 10 year plan you are stuck there. You cannot subsequently change to the 30 year plan, for example. So while you may have low payments and an interest benefit during training with IBR, you are basically agreeing to the standard repayment plan while an attending (and apparently you cannot change your mind and pay off your loan more slowly if the situation arose where you might want to). This seems like a big drawback!

Thoughts?

You may switch to the extended plan at any time (it may involve consolidation). Note: we all start on the 10 year plan.


BUT:

• Payments under the extended plan DO NOT qualify for PSLF
• If you are switched from IBR to standard you CAN AFFORD to make standard in most cases.

This law may change in the future but it is likely all current participants will be grandfathered.

 

[Monsterdaddy]

Can you be an employee of your OWN non-profit group? Also, what defines "employee." 40 hours/week? Can I have another job on the side? I couldn't find any of this information in the bill.

Obviously, the non-profit has to be a legitimate non-profit, but I can't see any reason why you couldn't start your own non-profit, work for it a few hours (how many? is there a cut off?) per week during the repayment time, and have it count.

PSLF requires:

• A qualifying non-profit employer -- you would need to register and qualify under IRS guidelines
• Full-time employment which is defined as 30+ hours at one or more qualifying employers
• ALL your income counts (AGI) in determining your loan repayments

That said, there isn't any real good reason to start a non-profit (as long as you are not stealing from your organization 😉). If you make a lot of money from your "non-profit", then your loan repayments will be at or close to standard and you have almost nothing to forgive after 10 years.

 

[digitlnoize]

PSLF requires:

• A qualifying non-profit employer -- you would need to register and qualify under IRS guidelines
• Full-time employment which is defined as 30+ hours at one or more qualifying employers
• ALL your income counts (AGI) in determining your loan repayments

That said, there isn't any real good reason to start a non-profit (as long as you are not stealing from your organization 😉). If you make a lot of money from your "non-profit", then your loan repayments will be at or close to standard and you have almost nothing to forgive after 10 years.

Ah, 30 hours. There it is. I couldn't find the hourly requirement anywhere...

So, here's a hypothetical scenario (again, I'm not actually doing this, just playing devil's advocate here):

New doc starts a non-profit. As president of the non-profit, he's payed a salary of, say...$25k/year for "30 hours/week" of "work."

He works a side job as a practicing physician for 30 hours/week and makes an additional $100k/year doing this.

At that rate, for a $250k loan, the gov't would be forgiving ~200k after 10 years. Obviously, this would be impacted by making more money than this, although I think you could probably pull in an average primary care salary of $180k and tax-magic your way down to an AGI of at least $125k.

I dunno...it is awful tempting. Anyone want to help me collect shoes for poor kids?

 

[Monsterdaddy]

Ah, 30 hours. There it is. I couldn't find the hourly requirement anywhere...

So, here's a hypothetical scenario (again, I'm not actually doing this, just playing devil's advocate here):

New doc starts a non-profit. As president of the non-profit, he's payed a salary of, say...$25k/year for "30 hours/week" of "work."

He works a side job as a practicing physician for 30 hours/week and makes an additional $100k/year doing this.

At that rate, for a $250k loan, the gov't would be forgiving ~200k after 10 years. Obviously, this would be impacted by making more money than this, although I think you could probably pull in an average primary care salary of $180k and tax-magic your way down to an AGI of at least $125k.

I dunno...it is awful tempting. Anyone want to help me collect shoes for poor kids?

First off, the IRS will scrutinize you more if you control the organization that employs you for obvious reasons. So you had better be able to prove you indeed work 30+ hours each and every week. So if have a full-time practice, I think you would have a hard time making a case that you worked your non-profit job for 30+ hours each week when you are the person in charge of the time-clock.

Seriously, if you can devote 30 hours to a non-profit, then work for a free clinic or public health facility.

That said, it doesn't matter what else you do or how many hours you work outside of a qualifying employer as long as you report all the income.

You cannot tax-magic your way down $55K. The only qualified deductions are HCSA, DCSA, 401(k) for $16,500 and a non-working spouses $5,000 IRA (you obviously will make too much for a deductible IRA), maybe more with SEP/Keoghs but I am not familiar with them. You could reduce loan payments by marrying and adopting a dozen kids though. 😀

 

[dynx]

[/LIST]This law may change in the future but it is likely all current participants will be grandfathered.

well I'm not sure how you can be "grandfathered" into something you don't officially belong too. For the PSLF it's all retro-active. You do what it requires and you hope to god the requirements are the same when you finish your ten years. I'd be more worried about being grandfathered out...so to speak.

 

[SFO-IST]

......This law may change in the future but it is likely all current participants will be grandfathered.

Other than it being inconvenient for the current crop of participants, what makes you say that current participants will likely be grandfathered?

 

[Monsterdaddy]

Grandfathering is generally included when laws are changed so that participants that relied on the law or could have, so they will not be adversely affected.

If there are changes, I anticipate they will either tighten up the law regarding eligible employers, impose limits on forgiveness, or change IBR, or increase the forgiveness time frame to > 10 years. They will most likely need to tighten documentation too.

i.e. IBR is set to go down to 10% on loans 2014+ thanks to the healthcare law. I can see this getting repealed before 2014 since no one has relied on this yet. But I do not think the program will go away wholesale.

 

[yankswin2011]

Look, the IBR is not going away anytime soon because it was introduced by Bush, a Republican, and furthered by Obama, a Democrat. Another words, there's support from both parties and Medicaid, Social Security, Medicare, Defense spending will get cut first before they touch student loans.

Second, there's no free lunch here -- you need to read the fine print. At $200K, about 6-8% interest rate, after 25 years, including inflation, it's almost $400-500K if you paid the minimum. At the end of the 25 years, the $400K-500K will be "forgiven" but it will be treated as income for Income Tax Purposes, meaning you will have the pay back the Federal Government another $100K due immediately. So the Government WILL get its money, and a lot more. But in return, you get the stability of 10% (or 15%) discretionary income -- you will end up paying about $100-200K more but that's the trade-off.

I mean, this is brilliant for the federal government because they loan you out at 6-8%, and with inflation, they're actually making money off of us in the long-run. Another words, they loan you about $200K in 2011, they will get back about $300K or so in 2035, and discounting inflation, the federal government made $100K. Not bad.

And then, as doctors, you will probably be at the top of the income bracket and the federal government can hit you up by higher income taxes -- so they help you with your education so that you get your high paying salary, only to give it back to the federal government via higher federal income taxes -- it's brilliant!

So in essence, about 33-39% of your income goes to the federal government via federal income taxes, then another 10-15% on IBR, so essentially, 50% of your income goes to the federal government for 20-25 years, then the Feds hit you up again in 25 years for about $100K in income tax because forgiving the $300-400K is considered "income" for tax purposes. So no, the federal government is not getting short-changed by the doctors.

However, the federal government is going to get short-changed by those who take out over $200K in loans and not have the type of income doctors have to pay back -- those are the ones the Feds will lose money on.

 

[Sanchik]

yankswin,
do u have a link supporting that the "forgiven" part is taxed as income?

 

[organdonor]

there's support from both parties and Medicaid, Social Security, Medicare, Defense spending will get cut first before they touch student loans.
.

Hahahahahahahaha just like those subsidized Stafford loans right hahahahahahahaha http://www.dailykos.com/story/2011/...-for-grad-students-ended-in-debt-ceiling-deal

Q3 Are loan amounts forgiven under PSLF considered taxable income?
A3 No. According to the IRS, student loan amounts forgiven under PSLF are not considered
income for tax purposes. (February 3, 2010)

http://studentaid.ed.gov/students/attachments/siteresources/PSLF_QAs_final_02 12 10.pdf

I don't think it is a good idea to bank on this program either, but the facts are what they are.

If anyone out there is still banking on this program being around when they need it most, please don't. The recent end to the subsidized Stafford loans for grad students should be an indicator that these programs are noone's sacred cows. Hell, ending the subsidy didn't even save the .gov money, they just shifted it towards undergrads. I just don't understand the government's reasoning on this, but then again most of the time I don't think they do either.

 

[imapa]

Sorry to revive a 6 week old thread, but I'd read something recently and wanted to share. I saw a blog posting from a woman who works in economics or financial planning I believe. Her take on whether or not PSLF will be around in 10 years or more is this: In order to revoke PSLF, congress would have to take action and agree to sign a new bill reversing the previous one. It's much more likely, especially with the way congress has be running recently, that they will do nothing and let the program continue, rather than have someone bring this issue up and have the majority agree on a new bill. Even if for some reason, PSLF was taken away, the people who have already made qualifying payments would likely be grandfathered into the program. The government has been very pro-education and pro-borrower recently and that movement just continues to grow. I actually do believe this program is here to stay, at least for those who have made qualifying payments.

Also, PSLF does NOT require funding. It simply requires that the balance be forgiven. I actually read some where that the government will make a small percentage of money off of this program, in comparison to prior years, even with loans being forgiven. It didn't go into enough details to explain why, but I believe it's due to the fact that people are consolidating into the government's direct loan program, rather than a private company like Sallie Mae.

Even though this program seems to good to be true, it's actually beneficial to the government and they have no incentive to take it away. I think the biggest objection comes from those who graduated and paid off their loans before this program existed. I totally empathize with those people, but they're not going to get the program scrapped just because it's unfair. Life's unfair. FWIW, the people who will benefit from PSLF will probably never receive social security benefits unless there's some drastic effort to change things.

 

[dynx]

Sorry to revive a 6 week old thread, but I'd read something recently and wanted to share. I saw a blog posting from a woman who works in economics or financial planning I believe.

so far good credentials, economic or financial planning or something you believe...I'm with you so far.

Her take on whether or not PSLF will be around in 10 years or more is this: In order to revoke PSLF, congress would have to take action and agree to sign a new bill reversing the previous one. It's much more likely, especially with the way congress has be running recently, that they will do nothing and let the program continue, rather than have someone bring this issue up and have the majority agree on a new bill.

1. the way congress has been running recently may not be the way congress will be running a decade from now.
2. As we saw with stafford loans, clearly the current trend if you want to look at the "way congress has been running recently" is to bring these issues up, sneak them into a bill and pass them.

Even if for some reason, PSLF was taken away, the people who have already made qualifying payments would likely be grandfathered into the program.

Based on what? People will not have paid ANYTHING into PSLF. They paid into IBR or some other approved plan. I've heard this a lot with NO basis in reality. When I took out my loans, forbearance existed and stafford loans were subsidized, how'd that grandfathering process work out there? Listen you can say "grandfathered in, grandfathered in, grandfathered in" all you want but I've got two examples where that's complete BS and you've got? oh that's right, an optimistic attitude and not much else in the way of fact or historical precedence.

The government has been very pro-education and pro-borrower recently and that movement just continues to grow. I actually do believe this program is here to stay, at least for those who have made qualifying payments.

Pro-education? pro-borrower? I see the problem here, you must be living in another country.

Also, PSLF does NOT require funding. It simply requires that the balance be forgiven.

You loose all credibility here. That money owed in on a balance sheet somewhere and already spent somewhere else. You eliminate the income from those loans you increase the deficit or you cut funding to another program, period. That's how a budget works.
I mean damn, by your logic cutting taxes to 0 requires NO FUNDING, it simply requires you don't take in the money! WOW, we just eliminate taxes! it doesn't cost a thing! brilliant!

I actually read some where that the government will make a small percentage of money off of this program, in comparison to prior years, even with loans being forgiven. It didn't go into enough details to explain why, but I believe it's due to the fact that people are consolidating into the government's direct loan program, rather than a private company like Sallie Mae.

Although mathematically this may make sense, I have elucidated numerous ways this is not going to work out in prior posts. The simplest way to look at this is: if this was going to make them money, private companies would be willing to get in on the system.

Even though this program seems to good to be true, it's actually beneficial to the government and they have no incentive to take it away. I think the biggest objection comes from those who graduated and paid off their loans before this program existed. I totally empathize with those people, but they're not going to get the program scrapped just because it's unfair. Life's unfair.

1. Its not. There is no magical system where a loan occurs, the terms are changed and BOTH the borrower AND the lender come out ahead as a result of that change unless the lender is simply cutting to less of a loss by avoiding default. (not a net positive just less of a negative)
2. Life is unfair. And that is exactly what the gov. is going to say when they scrap this program for doctors.

FWIW, the people who will benefit from PSLF will probably never receive social security benefits unless there's some drastic effort to change things.

Again, amazing grasp of reality here. Old people vote, old people have actually paid into SS. They will piss on the head of every single grad student in the country before they piss off this huge voting block. I have no doubt social security is in trouble but if you think SS benefits are going to get hit before a doctors loan forgiveness...well, good luck with that.