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Why I am saying goodbye to public service loan forgiveness FOREVER.

Hello my friends,

Have you ever taken out a car loan, drove your new car off the lot, made a few monthly payments on the loan, then had such a clean and responsible driving record that the bank came back and told you that you don’t have the pay back the rest of the loan balance? Or how about if you have ever used your credit card to buy, lets just say, some food, clothes, and toiletries for the local homeless shelter as a good deed for the holidays and then the credit card company turns around tells you that you don’t have to pay back the balance and they will write the slate clean for your good service? The answer to these completely hypothetical situations is a definite “no” for pretty much 100% of everyone reading this right now.

My point is that public service loan forgiveness (PSLF) is similar to those situations mentioned above.  You are working in service to the public for ten years in order for the government to completely write your balance clean.  In today’s modern day banking system, where interest rates and profit margins are similar to the modern day gold rush, in my opinion there is no such thing as a free lunch.

As I have mentioned before, the bulk of my student loans have been with Fed Loan Servicing at an enormous rate of 7.375%. I have deferred making any moves toward refinancing privately because of the great appeal of doing loan forgiveness. For those new to the game, let me remind you that there is no turning back once you refinance out of a government loan.  Thus, you need to be absolutely certain that you do not want to pursue loan forgiveness once you turn down this one way street.

As you can probably guess, I remain cynical about the PSLF program.  There are a multitude of sources that are unclear as to the future of the program. Some sources say that they are going to cap the forgiveness amount to $57,000, others say that they will do away with it completely.  Potentially by retiring the program the federal government can save 24 Billion dollars.  Secondarily, there’s no reason why the federal government can’t tax you on every penny that is forgiven.  This taxable income can amount to a huge IRS bill.

Currently we are 4 months into 2018, and 2017 was the first year that any student loan would have been eligible for forgiveness.  I have yet to hear of any person who has had any amount of their debt forgiven.  I have done an internet search to see who were lucky enough.  Instead, I have only come across articles on people’s disappointment when they find major problems with qualifying for the program for one reason or another.  Common reasons being that they were not enrolled in the correct repayment plan or their original loan was not a Direct Loan.  Imagine ten years of tailoring your career choice to this program and ten years of planning for this debt to be forgiven only to find out that you have to start all over again at year one.

Lets review this chart again on my person loan situation from loan forgiveness calculator:

(These numbers are based on $490,000 of debt, $210k a year salary, 7.375% interest rate, family of 2, married)
Screen Shot 2018-03-22 at 8.06.00 PM.png
Total amount of potential forgiveness under PSLF under the various repayment plans.

The interesting thing to note is that three out of four of these forgiveness amounts are actually higher than my current student loan balance!  Meaning, that for ten years I could be making payments on my student loans and the loan balance could actually go up, not down!  That also means that at ten years if there is a problem with PSLF and I happen to not qualify for forgiveness I would have just wasted ten years of hard earned payments and may actually be in a worse situation than when I started. If anyone remembers the sub-prime mortgage market in 2005, banks were lending mortgages that were too good to be true.  Unfortunately we know what happened with the housing bubble that burst and suddenly many people actually owed more than what their house was worth.  We are not connected to a tangible asset here, but we are connected to our earning potential.  This ratio is important when considering the size of your student loan debt and the potential to repay. With a loan balance that is increasing in size, this may tip a person underwater completely.

The last personal reason I would like to share as to why I am opting out of PSLF is that I will not be working in public service.  I have attempted to find a job in public service and have looked into employers that carry the coveted 501-3b non-profit status.  As a hospitalist, there are very few opportunities that exist for me which may seem as a shock being a physician.  If I were a outpatient physician, this would be a more realistic opportunity for me.  However, I just can’t see sacrificing more years into a job area that I don’t have 100% interest into. I would rather not sacrifice my years of training to putting in my time card just for loan forgiveness that may or may not even qualify in the end.  I made a commitment when I signed that master promissory note, and now I have to take responsibility for that obligation.  The financial commitment I made, while sometimes sleep disturbing, still has given me a career without any regrets for the lives I touch, and the incredible job I get to do.

I beg you all reading this to please note that these are my own personal views and tactics in battling my own student debts.  Please do your own research, make your own informed personal decisions based on your own unique situation, and most of all, keep the student loan hustle going!

Dr. J

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