In November, the Department of Education announced new rules that will allow thousands of attending physicians to qualify for student loan forgiveness. The revised regulations will make it possible for those practicing in California and Texas to qualify for Public Service Loan Forgiveness, which wipes out federal student loans for those working in the government and nonprofit sectors. This rule change is a game changer for hospitals and health care systems that have had to rely on traditional, costly incentives to attract doctors.
What is PSLF?
Public Service Loan Forgiveness was enacted by Congress in 2007 to provide student debt relief to the millions of workers in the public service industry. The premise was simple: Those working full-time for government or tribal agencies, nonprofits, or other select public service organizations would see their federal loans erased after ten years of service. Implementation, on the other hand, was a trickier matter as defining which types of jobs would qualify, what counts as "full time," and tracking the thousands of excited applicants’ work histories became a major headache for the Department of Education and loan servicers.
Further, the program requires applicants make 120 "qualifying payments" toward their student loan balances over those ten years. Many might believe - if you’re still having to make payments on these loans anyway - the struggle for PSLF isn’t worth the effort. What those naysayers might not realize, is the savings can be huge and qualifying and applying for PSLF is getting easier all the time.
Saving Big on Student Loans Payments
School is expensive; medical school is outrageous. Other than maybe a house, medical school is often the largest investment a physician will make in their life, and the sticker shock can be a deterrent to many med school hopefuls. However, the majority of hospitals and health networks across our country are nonprofit organizations, allowing their employees to take advantage of the PSLF program.
By applying for one of the income-driven repayment plans offered by the Department of Education, borrowers can reduce their monthly loan payments to as little as $0. For higher earners, such as physicians, this number is greater but still less than the standard repayment options, saving on the potentially tens or hundreds of thousands of dollars left on their balances.
New Regulations Mean PSLF for More Physicians
Many physicians have historically been ineligible for PSLF because they work as independent contractors rather than employees, but that’s about to change for the residents of two states.
Physicians in California and Texas are forbidden, by state law, from serving as employees at hospitals; they must, instead, be hired as contractors. While this previously disqualified them for PSLF, new regulations (starting July 1, 2023) from the Department of Education would allow nonprofit hospitals "to certify employment for a contractor if that individual is providing services that by state law cannot be filled or provided by an employee of that organization." This means physicians in California and Texas will be able to apply for PSLF, and - if they’ve been making payments for ten years while working in a nonprofit hospital or health care system - they could potentially receive forgiveness. We are anxious to see how these new regulations will be implemented.
How to Make the Most of the New PSLF Regulation?
Because medical school is one of a physician’s biggest life expenses, the money saved through loan forgiveness can be a substantial incentive. However, most applicants struggle because of the program’s complexity and private loan servicers’ tendency to make mistakes. By incorporating student loan and PSLF assistance into their offerings, nonprofit health systems can offer a significant financial incentive without shelling out huge sums in more traditional bonuses or student loan payouts, giving them a cost-effective leg up as they attract physician candidates.
Looking for a compass to guide you as you explore this incredible new opportunity for your health system? We suggest teaming up with our partners at Navigate Student Loans. They have an established track record of guiding physicians through PSLF, including hundreds of millions of dollars in student loans forgiven. They can tell you how much money your physician candidates can expect to save on their student loans and how much money they’ve already saved other health systems.