Public Service Loan Forgiveness program or nah?


#1

Hey everyone!

I’ve been an avid consumer of all things personal finance for a few years now, but there’s one specific topic I haven’t seen covered in PF blogs: the Public Service Loan Forgiveness program.

For those of you not familiar with the program, it was established just over 10 years ago as a way to entice recent graduates with student debt to work in the not-for-profit sector. You work for a 501©(3) organization, make (relatively low) monthly payments toward your student debt based on an income-based repayment formula, and after 120 payments (10 years) you are forgiven your remaining debt. At least that’s how it is planned to work.

The reason for my personal interest in this topic- my wife is about half way through this program. She finished graduate school with more $150,000 in student debt. She was able to get a great job within a large University/Hospital system that qualifies as a 501©(3). We opted to try the PSLF program, instead of tackling the debt.

I know most debt-oriented blogs normally focus on attacking the debt, making extra payments, the snowball effect etc… So for us, if feels strange to have this large quantity of money hanging over us, and not proactively paying it down. We are diligent savers and investors, with a savings rate in the 60-70% range.

If the program works as expected, my wife will be forgiven well in excess of $50,000, including accrued interest. By contrast, even if she paid off the debt aggressively over a 10 year period, it would cost us much more overall.

Looking forward to others’ thoughts on this topic. Thanks!


#2

I believe I’ve heard @WhiteCoatInvestor talk about this on a podcast…


#3

I wrote a rant about the recent changes to the PSLF program, I am still mad…


#4

I talk and write about this all the time. It should work out great for physicians who stay in academics after their residencies and fellowships.

OthalaFehu’s criticism is correct that if you aren’t making payments lower than the 10 year repayment plan there won’t be anything left to forgive. Most docs make those lower payments for 3-7 of the 10 years, so there should be a fair amount left to forgive. I suspect you’re fairly low income if you’ll have something left to forgive on a $150K debt after 10 years of payments.

The keys to PSLF are 120 monthly payments while working full-time (directly employed) for a 501©3.


#5

Wow, just read your rant. Frankly, that sucks. I think there is a ton of confusion about qualifying for the program, and the acceptable repayment plans. My wife has worked with a couple different companies, and has changed her repayment plan at least once. She didn’t start until 2013, however, so I think there was slightly more clarity at that point. Anyway, sorry that happened to you. At least you can be happy that the debt is gone, either way!


#6

Thanks for the input! Yes, it makes sense for physicians, as long as they can keep their payments low for as long as possible.

In my wife’s case, she had 1 year of very low payments due to not being employed while she was in school. The next few years were relatively low payments, because we were not married yet. Now that we’re married and my income also factors into the repayment plan, it’s not as advantageous as it was. But since she’s enrolled in one of the longer-term repayment plans, there will still be a decent amount to forgive in 5 years, so it should work out.

I’m a little concerned that, as far as I know, no one has been granted loan forgiveness through this program yet, although some people should be eligible by now. I will be relieved to hear that PSLF has actually worked out for someone.


#7

One option you have to minimize payments is to file MFS (using the PAYE program instead of REPAYE). That will likely increase your taxes though, so you’d have to see which is more advantageous.

People have been granted forgiveness, but few are willing to talk about it. There’s one on Reddit. Big Law Investor interviewed that person I think as a blog post. I understand there were only 200 people who were even eligible to apply in late 2017 so it should become more and more common for people to get forgiveness.


#8

Yeah I’m having to reevaluate this plan mainly because I’m 2 years in and don’t know if I want to do 8 more in the public sector. I think that’s the hardest part of it, if you are aggressive then you have the freedom to change careers. If not, then you run the risk of accruing a lot of interest if you end up not doing 10 years. Sigh…


#9

Yeah, this is definitely one of those things where you don’t want to change your mind after 5 years of accruing interest. Luckily in my wife’s case, she’s not taking a pay cut by working for a ‘nonprofit’. The wages at the hospital system she works in are more than competitive with private practices in the area.


#10

This is a big deal among U.S. military servicemembers, because active duty also counts toward the 120 months of service.

Of course PSLF is a very bad reason by itself to join the military in the first place, but it’s a big boost toward getting rid of that debt.

I think Justin at RootOfGood has mentioned IBR with 25-year forgiveness. I know there’ve been some spirited forum discussions on the ethics of the borrowers versus the policies of the lenders.


#11

My wife is a public school teacher in a Title 1 school so after 5 years we were able to have $5,000 forgiven from her student loans (I think it was 5k at least). Definitely a nice bonus but it only comes out to $1k per year of teaching so not really a huge benefit.


#12

Better than nothing, I guess!


#13

I work in the public sector and chose to just pay mine off, although I didn’t have the same debt load as your wife.

My fear was getting 7 years in and then having them change the rules like they threatened to do this year and just take away the forgiveness program. I have also heard horror stories from people who worked in qualified jobs and thought they were making payments toward their 120 months and then got told their service “didn’t count” due to admin and paperwork errors.

I think it’s especially helpful for people with very large debt loads, but for me it just seemed like it limited options and forced me to keep a large burden for a long time.


#14

I agree that carrying a large debt for a long time is a bit unnerving. My wife has been vigilant about calling the place that’s handling her paperwork to make sure everything is getting done properly and she’s still on track. I have to say that I’m still nervous, since there are so many unknowns for this program. I have to believe that any changes in policy would only affect new applicants to the program, but who knows these days. Uncertainty is the worst!


#15

Here!

Really, my post on the subject is a bit dated and I haven’t followed up to add stats on how many people have actually achieved PSLF. But there’s a valuable insight deep within that post…a link to @studentloanplanner who truly knows his shit.


#16

Thanks :slight_smile:

I’d go for PSLF and invest the difference. If the odds are 50/50, do you take the $50,000 chance or the loss of maybe $10,000 in interest from not refinancing?

The odds of PSLF are much better than that, so going for PSLF if you’re sure of the 50k projected benefit is a no brainier.


#17

100% agree, with the caveat that PSLF is only worth it if you’re in a job you actually enjoy and for a salary you deserve while you pursue it.

And most other forms of forgiveness are kind of horrible in many cases.


#18

Awesome, thanks to both of you! Essentially this is what we’re doing (PSLF and investing the additional amount we’re not paying to reduce the debt). Thankfully, my wife is well compensated in her current position, and she loves what she does, so no issues there.

I think to be safe I should re-run all of the numbers, since the repayment program changed when we got married, and make sure we’re still on track to save a bunch in interest.