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“The U.S. Department of Education recently announced some major changes to the rules and qualifications around the Public Service Loan Forgiveness (PSLF) Program. Now, for a limited period of time, borrowers may receive credit for past payments made on loans that would otherwise not qualify for PSLF.
The good news is that public service loan forgiveness is now available to more people. The bad news is that there will be more people waiting in line to have their federal student loans waived.
This issue impacts anyone from medical residents to physicians who are making payments on loans for at least ten years.”
Will Koster is a financial planner.
He shares his story and discusses his KevinMD article, “The Public Service Loan Forgiveness waiver and its impact on physicians.”
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Hosted by Kevin Pho, MD, The Podcast by KevinMD shares the stories of the many who intersect with our health care system but are rarely heard from.
Transcript
Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today on the show, we have Will Koster. He is a certified financial planner and a certified student loan professional, and he wrote the KevinMD article “The Public Service Loan Forgiveness waiver and its impact on physicians.” Will, welcome to the show.
Will Koster: Kevin, thank you so much for having me.
Kevin Pho: So we’ll get into your article in a little bit, but first off, can you share your story and journey to where you are today?
Will Koster: Sure, absolutely. So I am a certified financial planner and certified student loan professional, but the journey begins probably in high school for me, maybe even before. My father taught me a lot about personal finance. He was always matching my savings account deposits and getting me interested in stocks and investing. He was a business owner himself, and he passed away when I was in high school, leaving my family kind of scrambling to figure out how to piece the puzzle together as far as accounts, life insurance, beneficiaries, and all of that.
So that kind of spurred my interest in helping other families prevent any sort of headaches, and in preventing children from being left without a financial plan. That’s where my interest comes from. I joined the Spaugh Dameron Tenny team. We specialize in working with medical professionals, doctors, dentists, and medical practices, and I have been here and am really enjoying what I do.
Kevin Pho: So, like you mentioned, you do work with a lot of physicians when it comes to their financial futures. What would you say are some of the biggest mistakes that you see them making?
Will Koster: Well, I think one common misconception is, “I’m not ready to work with a financial planner.” I hear that a lot because we do lectures to residency programs, fellows, and starting attendings who say, “I don’t make enough money,” or “I don’t have enough assets yet,” or “I’m still paying off my student loans,” right? And that’s a common misconception: “I’m not ready.” But in fact, we can oftentimes have the biggest impact when physicians start planning early, as opposed to coming to us and asking questions as they’re approaching retirement.
Kevin Pho: So give us an example of that. If you have a physician who’s just coming out of residency and they come to a financial planner like you, what are some of the impacts that you can make at that point in their lives?
Will Koster: Yeah, I think one of the biggest opportunities that physicians face is that it’s a very unique career, in that during residency, you’re earning an income, but it’s nowhere near the income you’re going to be making, and the promise of making, as an attending. That opportunity, that change from a $50,000, $60,000, or $70,000 salary to a $200,000-plus salary, is very unique in the world in general. It gives us a specific opportunity to help capture, and the opportunity, the dry powder, to make a difference in physicians’ and families’ lives.
Kevin Pho: So if you were to give one actual tip to my physician audience regarding their personal finance, what would that one tip be?
Will Koster: The one biggest tip I have is to automate your savings. Whether or not you feel like you can save every single month, start to get some sort of automation, and don’t leave yourself up to human nature, right? We know human nature gets in the way of a lot of things in life, and saving is one of them. So I would say automation.
Kevin Pho: So by automation, do you mean just taking a portion of your paycheck into a 401(k) and retirement, or do you mean automating into a regular savings account? What are some ways that physicians can do that?
Will Koster: Absolutely, Kevin, that’s a great point. A lot of us think, “Well, I’m automating my savings in the way of 401(k) deferrals,” and we don’t even recognize it, right? Because it’s automatically happening each and every paycheck. But taking that a step further is automating your savings into different accounts, whether that be an after-tax brokerage, whether that be just building an emergency fund, whether that be overpaying on a liability and outstanding debt, or taking that a step further and just diversifying your savings in a way that you can automate.
Kevin Pho: All right, let’s talk about the KevinMD article that you wrote. It’s titled “The Public Service Loan Forgiveness waiver and its impact on physicians.” Now, for those who didn’t get a chance to read your article, can you just walk my audience through it and share the story of why you decided to write it?
Will Koster: I’ve written many articles in the past couple of years around student loans. Kevin, as many of your audience may know, federal student loans have been on an administrative forbearance, meaning no payments have been required and no interest has been accumulating. That started at the beginning of the pandemic, in March of 2020, and has continued through 2021, and it will expire in January of 2022.
There have been a lot of changes in the student loan world. The current administration campaigned on the promise of reforming the federal student loan system, and this article specifically speaks to one of those changes and reforms, specifically to the Public Service Loan Forgiveness program, expanding the opportunity to qualify for said Public Service Loan Forgiveness.
Kevin Pho: So go into more detail. What are some of the specific changes and practical implications they have for physicians considering this path?
Will Koster: Yeah, absolutely. That was very high level, right? Digging into this article and digging into the details, I wrote the article outlining first what has not changed. We have to know the criteria for the Public Service Loan Forgiveness program to understand the article and how it was written.
What has not changed is that to qualify for PSLF, Public Service Loan Forgiveness, you have to work for a qualifying employer, right? Usually that’s an academic hospital. Usually they’re government organizations or 501(c)(3) not-for-profit organizations. That is the definition of a qualifying employer as it stands today, and that has not changed. One hundred twenty payments, 10 years of qualifying payments, is required as well for Public Service Loan Forgiveness. So even if that’s during residency, fellowship, or practice, you have to have made 120 payments. That, again, is not changing.
The two biggest changes with this waiver and expansion are the types of repayment plans that qualify and the types of loans that qualify for the forgiveness. So, taking that a step further and digging into the types of repayment plans: Previously, under Public Service Loan Forgiveness, borrowers had to be repaying their loans on an income-driven repayment plan. A lot of your listeners will know the acronyms ICR, IBR, REPAYE, and Pay As You Earn, PAYE. Those are the income-driven repayment plans. They’re based on your income, right? It’s pretty straightforward. It’s a formula, it’s a calculation. They differ; they’re a little different between the repayment plans, but that was your category, or umbrella, of repayment plan that you had to be on for Public Service Loan Forgiveness. What has changed is that any kind of repayment plan, whether that’s the standard, the graduated, or the extended repayment plan, now qualifies if you were making payments, 120 of those payments, on those plans.
And I’ll go even a step further. The reason for this change is that there have been headlines all over the place that 98 percent of applicants are being denied for Public Service Loan Forgiveness, and one of the main reasons is that borrowers didn’t know what repayment plan they needed to be on back in 2007, when this program originated, right? And so they thought they were making payments and doing what they needed to, and 10 years later, they were denied for Public Service Loan Forgiveness, even though, “I’m working for my hospital system that I kind of sacrificed for, maybe on salary or opportunity in a private practice, for the promise of Public Service Loan Forgiveness.” So they’re expanding the types of repayment plans that a borrower could be on.
In addition, the other change is the types of loans that qualify for Public Service Loan Forgiveness. Back in 2007, a lot of borrowers had what were called Federal Family Education Loans. They were through the federal government in a way, but the lender was actually a private institution, such as a bank. So it was routed through the federal government, and it felt like they were federal because they have “Federal Family Education”; they have “federal” in the name. However, they did not qualify for Public Service Loan Forgiveness. So doctors and physicians get 10 years down the road, apply for loan forgiveness, and realize, “I have been doing this all wrong the entire time, and now I’m kind of out of luck.” So the expansion, the waiver, has expanded so that they now include Federal Family Education Loans.
And Kevin, I know this is very technical, but I want to make sure your listeners understand. In the past you could, and currently you can, consolidate your Federal Family Education Loans into Direct Loans. That is a different loan program within the federal government, and Direct Loans are the types of loans that qualify for Public Service Loan Forgiveness. That is still the case. If you’re a borrower listening and thinking you’re within these criteria, but you had Federal Family Education Loans in the past, if you consolidated into Direct Loans, it would have reset your progress toward the 120 payments necessary. Now, under this expansion and this waiver, you can consolidate your Federal Family Education Loans into Direct Loans and now be eligible for the loan forgiveness.
Kevin Pho: For physicians who are in the PSLF program, in light of these new changes, what kind of questions should they be asking themselves to determine what the right path is for them?
Will Koster: Yeah, that’s a great question. So the first, as I mentioned, is the things that have not changed. That’s what I would just make sure you’re understanding. “Am I working for a qualified employer? Have I been working for a qualified employer?” It doesn’t have to be the same one, but “Have I been working for a qualifying employer for at least 10 years? And have I been making payments, whether they’re any type of payment, for, again, 10 years?” Those are the first two big criteria. The second is, if I have met those two criteria, “Have I done any of the steps necessary to get my paperwork in order for the Public Service Loan Forgiveness program?”
Kevin, I met a physician recently who had just never really considered this as an option. They met our firm and myself, and we told them, “Hey, you’re actually right in the crosshairs of who might be eligible.” The next step that we took was going back to the residency program, going back to their fellowship program, two different programs, and going to the hospital where they’re currently working as an attending. We got the paperwork necessary signed by representatives at those hospitals who could verify that this physician was working for that program during those dates. We then turn around and submit that paperwork to FedLoan Servicing, which is currently administering the Public Service Loan Forgiveness program.
Kevin Pho: Now, if physicians wanted more resources in terms of the changes to the program, where can they look for those?
Will Koster: The best resource that I know of is studentaid.gov. That is the Department of Education and Federal Student Aid’s dedicated website for all things student loans, whether that’s repayment, whether that’s Public Service Loan Forgiveness, or whether that’s just giving information on recent developments and changes. Studentaid.gov is a great resource. If there are any details that you need around your loans, your servicer is a great place to start to get specifics on your loans. And if your servicer doesn’t know the details or you can’t find them, then you can go a step further and go to the National Student Loan Data System.
Kevin Pho: We’re talking to Will Koster. He’s a certified financial planner and a certified student loan professional. He wrote the KevinMD article “The Public Service Loan Forgiveness waiver and its impact on physicians.” Will, as I’m sure you know, the cost of medical education can approach hundreds of thousands of dollars, and most medical students are going to be on this path of student loans. As they embark on that path, what are some top tips that you could share with them?
Will Koster: The top tip that I would give to anyone embarking on the student loan repayment path, even those who are borrowing money currently in medical school, potentially, is to consider all of your options. I would never suggest to a medical resident or a fellow or anyone who has student loans to exclude any of their options from consideration. Many borrowers maybe don’t trust the federal government or trust that the Public Service Loan Forgiveness program will be around, and just want to refinance and take on their student debt themselves. I’d say right now, it’s important to be able to recognize there’s a process called negotiated rulemaking that could bring widespread change to the federal student loan system. If we take those loans and refinance them and make them private, none of those changes will apply. You’ll lose out on any provisions. So I would say never, never count any option out.
The second, I would say, is take ownership, do some research, fill out paperwork, and don’t be afraid to call your servicer, and to be patient as well, right? We’re asking these large bureaucratic institutions to process paperwork and get things right. We know there are going to be mistakes, and I would say advocate for yourself. Oftentimes I find myself on the phone with a loan servicer advocating on behalf of one of my clients, and we find that with just a little bit of pushback and advocacy, we get the change and the answer that we were hoping for. So those are some tips that I’d give to any of your listeners with student loans.
Kevin Pho: And my final question: What are some of your take-home messages that you want to leave with the KevinMD audience?
Will Koster: To the KevinMD audience, I’d say don’t be discouraged by your student loan debt. I think with proper planning and proper foresight, your student loan payments and your student loan balance will not get in the way of your success long term financially. I’d say to pursue the opportunities that you want regardless of the impact on your student loans, whether that be a private practice that excludes you from certain programs. I’d say your satisfaction as a physician, and avoiding burnout as a practitioner, is much more important than the financial aspect. And hopefully that’s something that we preach to our clients, and that you feel supported in, as a very vital part of our economy and our lives.
Kevin Pho: Well, thank you so much for sharing your time and insight, and thanks again for being on the show.
Will Koster: Thank you, Kevin.
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