Hey everyone, it’s Finance Fridays again. I have a few things that I was planning to talk about today, but something new happened that I think is worth talking about. For many of us, Student Loans are a heavy burden to bare. For some, you may have opted to go the route of Public Service Loan Forgiveness (PSLF) to have some of your loans forgiven. However, Trump’s new proposal may throw a monkey wrench in your plans. So I’m going to talk about Public Service Loan Forgiveness (PSLF) and Trump today.

Stock Photo from: Pixabay

What is the Public Service Loan Forgiveness (PSLF) Program?

PLSF is a program that:

“forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.”

from studentaid.ed.gov

120 monthly payments = 10 years

So basically, if you work for a qualifying employer for 10 years on a full-time basis under a qualifying repayment plan, then the remainder of your loans are forgiven.

Sounds pretty good right?

So let’s go into the details a bit. These loans are only for the William D. Ford Federal Direct Loan (Direct Loan) Program. The other loan programs are the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan (Perkins Loan) Programs. In order to make the “other” ones qualify, you will need to consolidate them under the Direct Consolidation Loan.

In other words, before you start repaying anything, you will want to do the direct consolidation loan in order to make them eligible for forgiveness later.

The first qualifying payment must be made after October 1, 2007. So that means that up till now, no one has yet become eligible for a PLSF forgiveness. The first people will become eligible October 1, 2017.

Wait, what’s a qualifying employer and qualifying payment plan?

The qualifying employers are basically government jobs, non-for profit organizations classified as 501(c), and “other non-for profit organizations that provide certain types of public service”

The first two are pretty easy to understand. That 3rd one is kind of vague, and if you work for a not-for-profit org that isn’t 501(c) you’ll need to check to see if it qualifies.

The qualifying payment plans are the Income-Driven Repayment Plan and 10 Year Standard Repayment Plans. To be honest, I’m not even sure why a 10 Year Standard Repayment Plan is an option, as you will have paid off the loans in full once eligible for PLSF. So basically, you need to be under an Income Driven Repayment Plan.

What is an Income Drive Repayment Plan?

These plans are:

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

In my original post about Student Loans, I advise those who want to try for PLSF to use an Income-Based Repayment Plan (IBR) starting in residency for their Federals Loans (under Direct Consolidation Loan). IBR  has a cap of “no more than the 10 year standard repayment plan”. However, there is no cap for RePAYE, so 10% of your income as an attending will likely be more than the 10 year standard repayment plan.

In general, over a 10 year period you would pay less toward those loans using IBR than RePAYE. This results in a higher balance left over at 10 years and thus “more forgiveness”.

Ok, so what about the Public Service Loan Forgiveness Plan (PSLF) and Trump?

Well, Trump made his Education Secretary Betsy Devos.

It’s no secret that they both want to decrease the federal role in education and give parents more opportunity to choose their children’s schools. However, according to the preliminary Education Department budget documents obtained by The Washington Post, this comes along with significant cuts in other areas… one of which is:

Elimination of the Public Service Loan Forgiveness (PSLF) Program

It is unclear how that will effect those currently in the program. However, as I’ve stated before, it wasn’t a great idea to count on PSLF in the first place.

Ok, so what do I do now?

Honestly? Nothing.

Whether this goes through or not, you’re either:

• Already in the program, and at their mercy as to how they will handle you. (Just hope for the best.)
• Not in the program yet, and not effected. (But don’t count on it being around.)

Anything else I should know?

After reading a bit more, another part stuck out about the current proposal:

Replacement of the current five income-driven student loan repayment plans with a single plan. 

It remains to be seen what this new “single plan” is. I will need to revise my Student Loans page when this comes out, although I still think refinancing will be very important.

Change in undergraduate loan forgiveness.

Undergraduate borrowers currently can have the balance of their loans forgiven after paying 10 percent of their income for 20 years.

Trump’s new proposal would increase the maximum payment to 12.5 percent of income, but decrease the payment period to 15 years.

So, 10% for 20 years to 12.5% for 15 years to get loan forgiveness. (for undergraduate loans)

For example, let’s say you made $60,000 straight out of college.

• 10% of $60,000 is $6000 x 20 years = $120,000
• 12.5% of $60,000 is $7500 x 15 years = $112,500

So in general, this is better for undergraduate loans, as long as you can pay the minimum 12.5%, because your loans are forgiven earlier.

However, for graduate level loans (medical school included):

Currently you could pay monthly bills capped at 10 percent of income for 25 years. Under Trump’s new plan, you’d pay more 12.5% for 30 years.(ie, more for longer)

This is all very interesting, but shouldn’t really effect a practicing physician:

• 10% of your attending income for 25 years is around $20,000/yr for 25 years = $500,000 (current)
• 12.5% of your attending income for 30 years is around $25,000/yr for 30 years = $750,000 (proposed)

In other words, your loans would have been paid off anyways, and there would be nothing to forgive.

TL;DR

Public Service Loan Forgiveness (PLSF) may be on its way out.

Whether this goes through or not, you’re either:

• Already in the program, and at their mercy as to how they will handle you. (Just hope for the best.)
• Not in the program yet, and no effected. (But don’t count on it being around.)

The current proposal is to change the current 5 repayment plans into a single plan. We’ll have to see what that means.

The proposed change to undergraduate loan forgiveness will help fresh college grads.

The proposed change to graduate loan forgiveness won’t really effect physicians at all. (they didn’t effect us before anyways)

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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