Written By Travis Hornsby, CFA®, CFP®
Updated on January 26, 2021
In the early days of Public Service Loan Forgiveness (PSLF), resources didn’t exist to help manage your student loan repayments.
Ben White, M.D., graduated from medical school and struggled to figure out exactly what he needed to do to qualify for forgiveness. He has since leveraged his knowledge to become one of the leading experts on student loans.
White has a particular interest in PSLF because of his medical background and his experience with his own student loans. He now teaches medical students, residents, other physicians and everyone else how to manage their student loan debt.
The scattered origins of PSLF
The PSLF program came onto the scene in 2007. Originally, the program was limited in scope. Only about 20% of loans qualified for loan forgiveness.
There weren’t many resources available to help early applicants navigate the system. One of the basic PSLF forms, the Employment Certification Form (ECF), didn’t even exist in 2009 and 2010.
Lack of information and details
As people tried to qualify for PSLF, they had no idea what to do. “They thought if they did the right thing, it would all work out,” said White.
“But when it comes to government work, that probably is not a good outlook to have.”
White has seen borrowers make a lot of mistakes. A lack of resources and guidance in the early days of PSLF played a big part in those mistakes. “It is the government’s fault to a certain extent,” said White, referring to the government passing a broad law without details of specific requirements.
As with most things in life, the devil is in the details.
“We've seen time and again where people have taken a common sense approach to the issue, and it has not worked out in their favor because it's not about common sense. It's about the details.”
Why borrowers can’t rely on their own expertise
White has seen many of the same mistakes as Student Loan Planner® consultants while working with borrowers on their student loan debt.
People are grossly misinformed about the requirements for PSLF. Why else would someone apply for PSLF if they knew they weren’t eligible?
White agrees. “It’s kind of like a Dunning-Kruger effect where there are known unknowns and there are unknown unknowns.” Many of the early applicants simply didn’t know they didn’t qualify “because they weren’t paying attention, which is not a good sign.”
Getting on the right plan and avoiding roadblocks
The trouble is most borrowers who think they qualify for PSLF are on the wrong plan.
If you don’t know how student loan repayment plans work, you’re probably not on the right plan for your situation.
First, you must be on an income-driven repayment (IDR) plan. You must also make sure your employer signs the ECF form to confirm your eligibility each year. That means if you’re not submitting income information every year, you’re not on the right plan.
Administration issues with servicers are a big problem, too.
You need 120 qualifying payments as part of the eligibility process for PSLF. Once you hit that number, you think you’re all set.
Meanwhile, FedLoan might not have a record of 120 qualifying payments. In some scenarios, you might not realize your job doesn’t meet the “qualified employment” status that’s required. Loan servicers can deny PSLF for mistakes that are out of your control.
Controversial student loan repayment strategies
Student loan debt is a huge crisis in the U.S. The burden extends far beyond financial implications. Borrowers are putting their entire lives on hold because their debt balance is so high.
At Student Loan Planner®, we see the negative effects of student loan debt every day, such as:
- Depression and anxiety
- Not being able to afford to buy a home
- Having to wait to start a family
- Putting dreams and life ambitions on hold
Student loan forgiveness can offer hope if you feel like you’re drowning in debt. But pursuing PSLF requires a strict attention to detail.
Applying PSLF to your situation won’t look the same as it does for someone else. While there are a few straightforward strategies, White has a few unconventional — and perhaps controversial — suggestions that borrows can consider.
Switching repayment plans
Being on an IDR plan can make you eligible for forgiveness after 20 or 25 years of payments. One of the IDR plans, the Revised Pay As You Earn (REPAYE) plan, comes with an interest subsidy.
Borrowers can save a ton of cash over the life of their loan by having the government cover the cost of their student loan interest. After 25 years of qualifying payments, the remaining balance could be forgiven on REPAYE.
But the PAYE plan qualifies you for loan forgiveness after 20 years — five years sooner than REPAYE.
In theory, you can cash in on the interest savings of REPAYE. In year 19, switch from REPAYE to PAYE to get loan forgiveness faster.
Lowering your tax bomb
The strategy of switching repayment plans has another advantage. Not only would you be eligible for loan forgiveness five years earlier, but the amount of debt you have forgiven is also less. Having a lower amount of debt forgiven is important because the IRS requires you to pay taxes on the forgiven amount.
That means your tax bill won’t be as high because of the interest subsidy you took advantage of all those years.
But is it a legal and ethical solution to eliminate student loan debt?
As White says, “On paper, that definitely works.”
He’s quick to add that “there's no guarantee [the loan servicer] is not going to make things very difficult for you in that process.”
Plus, the many student loan reform proposals make predicting the future of student loans nearly impossible. We can speculate that changes won’t apply retroactively to current borrowers, but there’s no guarantee.
Amending tax returns from separate to joint
If you’re married, filing jointly is usually the preferred route. A joint tax return can qualify you for certain deductions and credits that are only available to married couples.
Filing jointly isn’t always the best option when one or both spouses have student loans with IDR plans, however.
IDR plans rely on your income to calculate your monthly payment. When you file separately, you decrease the amount of income you report to your student loan servicer, which results in a lower minimum payment.
You might miss out on some of the tax advantages that are only available to married taxpayers, but the benefit from saving on your student loan payment can put you ahead of the debt game.
Getting the best of both tax benefits
Here’s how someone could conceivably get both tax benefits: You would file taxes separately and report that information to your servicer to determine your monthly payment amount. Then you file an amended tax return to change your filing status to a joint return to take advantage of the tax benefits for married couples.
Technically speaking, amending your tax returns would probably be okay.
Even though White suggests people could exploit the technicalities of student loan repayment rules to maximize their benefits, he says this approach “seems very disingenuous.”
What about the future of student loan policy?
As Student Loan Planner®’s recent survey indicates, student loan reform isn’t high on the list of priorities for borrowers. Surprisingly, our recent survey found that 24% of borrowers rate student loan reform as the fourth or less most important issue for the upcoming election.
Student loans are a $1.4 trillion industry. It’s clear something has to be done. “I think that everyone in Congress realizes we can’t keep saying we’ll pay whatever the schools ask us to pay no matter how much that is,” said White.
A tax program sounds promising. But that only deals with half of the issue. The other half is what happens on the front end with the rising cost of tuition.
White agrees and says, “I think even progressives will come around to the idea of having some sort of cap.”
The trouble is that program changes will take a couple of years to implement. Any student loan reform that is put in place now likely won’t have any effect until 2022.
In the meantime, you need a plan to pay off your student loans.
Managing PSLF when you have medical school loans
Tapping into the expertise of Student Loan Planner® is a smart option to manage your medical student loans. Our consultants can review your finances and make sure you’re on the right payment plan.
White’s website also focuses on medical student loans. After having dealt with his enormous medical school debt and navigating PSLF on his own, he has become an expert on the topic.
He says hiring an expert is like pressing the easy button. You get someone who knows what they’re talking about to run all the numbers for you.
But not everyone has the resources to hire a consultant. You’ll have to do it yourself if you can’t afford to hire someone else to do it for you.
Free or low-cost help with student loans
I asked White what he recommends in a situation where someone didn’t have the cash to pay for a professional student loan consultation.
He said to “find a place where you can learn about the topic to get a comprehensive view of the field.”
A good place to start is by reading blogs about student loans. But books are another great resource, such as the two books about how to deal with student loans written by White.
His book “Medical Student Loans” is specifically written for doctors. His other book, “Dealing with Student Loans,” is “for everybody else — lawyers, teachers, dentists, etc. — because they don't have the residency and some of the more confounding aspects of medical training to deal with.”
If you take the time, White’s books can help. In terms of getting a good understanding of your student loan options, they’re one of the best resources out there.
What will PSLF look like in the future?
It’s hard to say what the future of PSLF will look like. If you have medical student loans and don’t have a plan to pay them off, take the time now to run the numbers. As it stands, PSLF requires 120 qualifying payments — that’s 10 years of eligible repayments you need to make. And 10 years is a long time.
In White’s experience, he’s found that most people are on the wrong plan.
You can learn how to compare federal repayment plans with refinancing options yourself or hire an expert to do it for you. Once you figure out which path is right for you, don’t wait to take action. The longer you’re in the wrong plan, the more money you’re throwing away.
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