PFFAP Ep 6 PSLF
[00:00:00] Ben: Welcome to the family financial advisors podcast, where we turn today's worries about taxes, investing and extra money into a comfortable feeling of financial security to last a lifetime. I'm Ben
Nate: and I'm Nate today's question is, is PSLF worth it as an attending physician. Nate.
Ben: I understand that there's a lot of hubbub about PSLF in public service, loan forgiveness, a lot of confusion out there.
Um, people trying to do it. But the thing that I hear a lot is like, does this really does this really help me? So like, why should people even bother to know about PSLF?
Nate: Yeah, it's, it's something that I think every physician should at least consider and, and really the benefit of. Many times six figures, uh, in, in, in benefit, not, not only forgiveness, but in benefit and, you know, six figures, a hundred thousand dollars for a physician, uh, [00:01:00] which is, uh, post-tax is real, you know, for highly taxed physician is more like $150,000.
Right. Right. And, uh, Because you pay like
Ben: a third of your, of your income in taxes, you make one 50 and you throw away a third to the government and you're left with a hundred thousand to pay your loans. Right.
Nate: Right. And that's kind of best, I guess, case scenario, I'm paying 30%, you know, if you have a double doctor, family is probably more and it, you know, a hundred thousand is kind of the, the, the baseline.
I mean, there there's physicians that would save less and they may not even choose to do public service loan, forgiveness, but we have a. We serve a OB GYN that when we analyzed her loans, um, she was going to save 257,000. Thank PSLF. Yeah. That's real mind. Yeah. Yeah. And in this case, I mean, I thought that that would be enough [00:02:00] to kind of convince her to, to change the course because she wasn't on track to do PSLF.
She didn't really want to go through the pain of, of doing. Public service, loan forgiveness. Cause that's all people write about is how kind of terrible the program is. But when we broke it down in terms of how much work she was going to save herself, uh, she makes about $300,000 a year. And for her, we, we ended up finding out that she delivers about a hundred babies a year.
Wow. And, um, I kind of, you know, cause money for physicians, they. I don't know if all of them are doing it for the money, so they don't really analyze it in that way. But for her, uh, she was really big on balance and enjoying her life. And when I told her that it would be like working almost a whole year for free, you can either take a year of work out [00:03:00] of your life, completely by doing PSLF or.
You can work an extra year, if you want to just pay them off the old fashioned way. Um, she jumped at the chance and, and I've seen similar numbers, you know, across the country, different, different specialties. We had a psychiatrist in Chicago that it was the same deal. And for her, it was equivalent to over a thousand, uh, patients she would have had to see for free by not doing PSLF.
Ben: Well, wait a minute. How do you, how do you get from. Uh, public service, loan, forgiveness, you know, totally financial topic to something that happens in the clinic.
Nate: Well, you know, it's, it seems like, um, th any article that's written about something finance related, it's talking about money, right. But really money is just, uh, a resource resource to do things.
And for many physicians, they want to use that resource to have it, to improve their life. And for them. Uh, psychiatrist in Chicago, she just had a baby or they just had a baby and they're [00:04:00] buying a house and, um, you know, money wasn't really their problem. They, they make plenty of money, but when you relate it to, when I related it to what was in their life, meaning they were about to buy a house.
It was about half the cost of the house they were going to save. So they're going to save half a half a house in Chicago, right by doing PSLF. It just was more meaning. And that is kind of how I believe physicians should approach their, their view of money rather than piling up money. It's kind of what does that money or that resource get you and make decisions that way.
Ben: So let me see if I got this right. So let's say that, uh, as going back to the OB GYN, I would say that she is able to get $257,000 in loan forgiveness. All right. So on a pretax basis, that's like a 350, maybe almost $400,000. Okay. And if she takes home a, a thousand, or I want to say a hundred thousand a year, OB GYNs would probably make [00:05:00] about 300,000.
So that's about, uh, that's what about $3,000 a baby? Right. So, uh, if a baby's $3,000 and she, she has four, she saves $400,000 on a, on a pretax basis. That's like 130 babies that. She, she didn't have to deliver. I mean, maybe she wants to, but that's like a lot of time probably away from her babies. Exactly.
So, uh, wow. That is, that is huge. And I think the way that you put it, it just, it makes a lot of sense to me in particular, especially that you know, that the savings could be as much as like half a house. I mean, to imagine somebody just stepped in and paid off half of your mortgage, but you know, when. I hear about this.
I just think, God, that just seems too good to be true. I mean, is, is PSLF, is it for real, like, does this really
Nate: happen? Uh, it, it does. Um, I would say that there is plenty of roadblocks in the way, [00:06:00] uh, especially, you know, for physicians who don't really have the time or interest, I don't know who really has interest in filling out this paperwork, but, um, Uh, w in my experience with the clients, I'm working on PSLF with they dread paperwork.
And to essentially the reason that this isn't working for many physicians is they're just not doing it right. Or they haven't done it correctly for 10 years, which is what it takes to get public service loan forgiveness. So, um, this program is legit. But, um, it's kind of a mess as far as the steps you need to take to actually qualify.
Yeah. Um, there's this big, you know, study that came out. I really, it was like a whistle blower, uh, that worked at it kind of. For the government [00:07:00] in that department of public service, loan forgiveness, and he, and he came out and he said, you know, no, one's getting approved for this. And I got a flood of calls that month.
I think it was 2018 when that happened. And, uh, I didn't know exactly what to do with those calls and study until you kind of critically think about the situation. So this, this is the analysis I did in 2018. Public service loan forgiveness was introduced in 2007. That's the first time an income based repayment plan, you know, doing that for 10 years, resulted in getting loans forgiven if you worked for a not-for-profit or a nonprofit.
Right? Right. So in 2007, if you were, you were on the ball, like I just entered residency as a physician. And you heard about this and you got on, on board right away.
Ben: You were somehow reading the tax code or following CSPAN when Congress, uh, discussed this, right? Like you didn't have anything
Nate: better to do [00:08:00] exactly.
And not to mention, you know, um, it gets things like this get rolled out where the benefit comes 10 years from now. So no one really cares yet. Maybe the people getting, trying to qualify care a little bit, but Congress doesn't exactly care about the details. If they don't owe the bill for 10 years. So, um, there wasn't a lot of details about it.
You know, bloggers, weren't writing about it. Uh, financial advisors knew very little about it. And so if you were a physician in residency who happened to be right on track the earliest, if you did everything perfect would have been 2017 for when you could get this forgiveness. Uh, and what I wine, that's why that's why the numbers are so terrible for how many, the percentage of people that.
Get approved. And I've noticed that the only people that really got approved to the, during that time. That was that early in 2017, it was almost by accident, like five years in. They happened to be on the right plan and they happen to work for a nonprofit and it, [00:09:00] and they figured it out.
Ben: Oh, okay. Okay. So I, I hear all that.
So I get that it's, you know, this a new thing. And so there's a chance. Um, you know, nobody's really had a chance to avail themselves of it. And there's been a few like lucky few who just kind of stumbled into PSLF, but I mean, let's say that I'm an attending and I'm, I've been at, you know, I've been attending for maybe three years and, uh, you know, I've got three, three qualifying years of PSL EF payments in my training.
So I'm about six years into this journey. I got maybe four more years if it works. So, but isn't it kind of risky. I mean, when I look at physician balance sheets and I see these, uh, you know, federal loans, I'm looking at rates that are north of 6%, six, seven, sometimes 8%, those are fixed. And they got to keep paying that until they actually get the public service loan, forgiveness.
I mean, isn't it. And they kind of risky,
Nate: I mean, There is always going to be a level of [00:10:00] risk when you're choosing to take advantage of a program like this, but there's, there's risk and there's, I mean, there's risk in getting social security, you know,
Ben: is there a chance that I'll, you know, I'll be doctor do, right.
I'll do all my stuff, right. And Congress will change their mind or their pull back or, you know, it's like, it just, it seems
Nate: risky. Yeah. I mean, I would, I couldn't say that there's no real. Uh, but, uh, Congress doesn't seem to be taking a step back on this. In fact, they seem as a very recently to be taking a step forward and trying to make it, uh, more accessible and kind of a better program because people are complaining, you know, FedLoan servicing who services.
These loans almost got fired this year because they did such a poor job. And so. You know, Biden has come forward and tried to beef up the program. So there's, there's some risk, um, that, that is kind of the [00:11:00] overarching will I qualify risk, but, but the other way to look at this is what are you giving up by staying in the program for four more years and trying to qualify, and really what you're giving up is the difference in interest rate.
So 6.8% federal loans versus maybe a 3.8%. Private loan, which they're a little bit better than that right now. I get it. It's it's,
Ben: it's not like it's 7% or nothing. It's 7% or three something. So really? Yeah. The spread is just a little bit of difference is maybe 3%. Even if that's like, let's say that something high, you know, the higher NBC is 400,000.
That's a thousand dollars a month that you're risking for the chance of wiping out, you know, $400,000 worth of after tax debt, which is really worth 600,000. I think. Trade 12 grand a year for three years, for the, for the chance of knocking out 600,000.
Nate: Yeah, yeah. For the high, you know, I would consider a really good chance.
And, and the other [00:12:00] thing is at that point in their career, the income driven repayment plans, I mean, they're actually paying quite a bit toward their loans cause they're, their income is higher. And so it's not like their loans are piling up, like they were in residency. So at this point, if you're at that point in the journey, Uh, it would be, I feel like it would be a really bad choice to change, you know, change paths.
Yeah.
Ben: You're just, you're almost there. So you might as well just kind of stay the course. Right. And I think maybe that's some misunderstanding is some newly found newly formed attendings, you know, right out of training think, okay. The tenure clock starts now, but, but that's not true. The tenure clock starts when they have qualifying payments.
Nate: Right.
Ben: Okay. So, um, it sounds like it's, for real, it sounds like it, it can work. So the question I have is like, you know, we're, we're, we're talking about whether or not this is worth it for an attending, so, um, who is PSLF [00:13:00] for, and who is it not for?
Nate: I came up with this. This is, this is a really rough figure, but when I'm just taking a quick look at somebody as loans, trying to decide if, if it's worth analyzing, which it's almost always worth at least taking a quick look.
But, um, I've noticed that if you have loans like your total federal loan amount is higher than your annual income, usually the juice is worth the money. Now if, if you, there's still instances where you come in, your loans are pretty low, um, and your income's high, but if you have a lot of payments that are qualified already, it's probably worth it too.
But, um, the asset test for this is just, what are your loans compared to your income? And if there's a big disparity there, then you should definitely check it out. Um, but you, you kind of bring something up that, that. I go [00:14:00] over almost every time I review student loans with a physician family, and that is while most physicians can qualify for PSLF not all of them benefit from the program.
Is there, is there like
Ben: an acid test for benefit or,
Nate: I mean, oh, is that that's the acid test? It's it's do you make more than you owe? And if you make less than you. You're probably going to qualify now, th this is very, um, you know, case by case because everyone has a different amount of qualified payments and all that.
But, um, obviously the earlier the better, if you can get on PSLF where you have qualified payments from when you were in residency, it's going to be the biggest benefit because you made those really low payments during residency. Right. But, um, you know, I go through the. The painful process of helping? Um, [00:15:00] well, it's not painful for me, painful for doctors to decide on if they want to save it just a little bit from PSLF like, let's say you're going to save 25,000 bucks from PSLF.
Um, is it really worth it wrestling with FedLoan servicing for the next seven, eight years? Sometimes, uh, physicians decide that it's not, you know, they kind of want to refinance and move on with it. Right. And for those people, usually those are the people that they, they don't like that, uh, you know, I don't like that so I can encourage them to pay them off quickly.
So, um, at first it, it sh it shortens the gap between the benefit. If you pay your loans off really fast, you're not paying interest. Several more years on the end of the loan. So if
Ben: that's the case, maybe they should just go ahead and refinance any way to get the rate as low as they can during that, that time where they're just hammering that loan.
Right. Okay.
Nate: Cool. Right. Well,
Ben: okay. [00:16:00] So let's say that I'm a, I'm a brand new person to PSLF. I, you know, I'm just starting to get my feet wet in this and I'm beginning to wonder like, okay, am I missing the boat here? Um, what do I need to do to be, uh, to be even eligible for? PSLF like, what, what I need to look for?
Is there some kind of paperwork is, do I have to have a certain kind of loan? I mean, what are the, what are some of the nitty gritty details? It tells me whether or not I'm even in the ballpark.
Nate: Yeah. So, um, Th there there's three things. Well, first of all, you need to make 120 that's 10 years of qualified payments.
And every, um, most doctors that are, that are paying attention to their student loans know that there's some times where, you know, you get out of school or residency and you go into some forbearance. Those don't count. But the times where you actually are making payments 120 qualified patients, That's what you need to get PSLF right now, there's three things that get you a qualified [00:17:00] payment.
Okay. And they all have to happen at the same time. Okay. So you one, you have to have qualified loans and qualified loans are direct federal loans. And if you don't have that in your early on, you can, uh, you know, you can do something to your loans that makes them qualify. But yeah. You have to start over the count, but, um, essentially you can consolidate your loans and that makes them a direct federal loan, uh, or you might already have direct federal loans in that case, you don't need to consolidate.
Okay. Okay. So that's the first thing your loans have to qualify. Um, the second thing is you need to be on an income based repayment. And that doesn't just mean the plan. That is the IBR plan that oftentimes gets confused. You don't have to be an IBR. There's four different types of plans that most physicians should use.
And if you're on one of those with qualified payments and you work for a non-profit or [00:18:00] not-for-profit, um, as a full-time employee and all those things, three things happen at the same time, you get one qualified payment and you have to do that 122.
Ben: So let's say that I, uh, I have some qualifying payments while I'm in training and then, uh, I've become an attending and I make some qualified payments there.
And then my not-for-profit hospital gets bought out by, you know, Optum or somebody like that. That's truly for-profit. And then my payments, uh, become not qualifying them in my life. Am I done or like, what options
Nate: do I have then you're not done, but you bring up a really good point that, that I want to, it kind of, uh, brings a circle back to the riskiness of this.
I actually think the risk involved with PSLF it's much more risky and your, and each physician's life than it is the government not keeping their promise. I think that this happens. [00:19:00] Uh, very often I hear this all the time. And for someone who is eight years in to almost getting a free $250,000 and they don't want to leave their job, they are in a tough position when they get bought out.
Um, sometimes it's not as big of a deal because when you get bought out, that's kind of scary. So they're willing to leave. But, um, that being said, Y you're never out of the game, unless you refinance. Okay, so your hospital gets bought out. You go six months without making qualified payments, because one of the three boxes wasn't checked you no longer work for a not-for-profit.
You can change jobs to a non-for-profit and keep, keep going.
Ben: Okay. So if often comes and buys my place and I'm really, uh, I really want PSLF then. I can change jobs and go someplace where I can start making qualifying payments again, is that what I'm hearing? But it sounds like if I refinance and by that, I think you mean like if I'm to a private refinance, if I go [00:20:00] to so fire common bond and I refinanced my loan, then it's done, right?
Because those loans don't have anything to do with PSLF and now I'm dealing with the bank and
Nate: not the government. Yup. The government sees your loans as a zero balance and now you essentially have a personal. So, um, you're, you're never out until you make that big decision of refinancing, which is a really scary decision as well.
I mean, sometimes, uh, PSLF maybe isn't perfect for you, but you're in flow. You don't know what attending position you're going to get. You don't know if you have to make a hundred thousand dollars less by working, um, for a not-for-profit, right. You don't know the answers to all these questions and, and, and in that instance, oftentimes the best decision is just to wait.
Right. But when you wait, you need to stay qualified. So don't refinance. If you're not sure.
Ben: And refinancing is like [00:21:00] the that's the, the nuclear option. If you, if you go that route, you're never coming back to PSLF.
Nate: Yes. And before you refinance, you can just, you know, look at it like this you're purchasing flexibility.
So yeah, you have a bad interest rate. You've had a bad interest rate for years. Um, a couple more months, while you figure out your life, isn't going to kill you with your interest rate, but, uh, You know, you mentioned thousand bucks a month. It's worth it to me to just make sure that PSLF, isn't an option to just keep the bad interest rate for forever.
As
Ben: hard as, as hard as that may be. Cause, uh, it's, it's tempting to just rush out and refinance, scrap that lower rate and kind of move on and hammer it out. But you know, there's, you're facing the, uh, the 150 extra babies problem.
Nate: Right. Right. I actually wanted to say what I've noticed about that for physicians, is it actually.
Normally, sometimes they say that it has it's about the money, [00:22:00] but most of the time it's about wanting to move on. They have been saddled with these student loans. It brings, it keeps them up at night and they have had no options on how to deal with them. For years, years, and years,
Ben: it just seemed like I never going to be done with it.
You know, it's just keeps it's like, it just keeps hanging
Nate: around. Yeah. And th and so to say, Hey, just let them hang around for another six months. It's like death.
Ben: So it seems to me. Uh, refinancing is not a mistake unless you, unless you think that you're going to go for PSLF. Uh, so, you know, maybe the mistake there is to not really look at it as an option before you reel it out, you know, uh, you know, the mistake would be not, not looking down that very carefully before you make those.
I mean, what could be a mid six figures decision? Whether or not to buy a house, it's a huge decision. So what are some of the, some of the mistakes that you see, uh, physicians or our [00:23:00] clients before they come to us? What mistakes do you see people making with their student loans that, uh, you know, as, as they kind of apply to PSLF?
Nate: Well, we talked about some of them mistakes and there's, there's plenty of them to be made, but the ones that I noticed that physicians make has to do with, um, Essentially not keeping good records and not following up with FedLoan servicing to keep them honest. Um, it just, it's very easy to let this get away from you and to let fed loan servicing, do whatever they want.
And by that, I mean, FedLoan servicing is notorious for losing your paperwork, not filing your paperwork, not giving you credit for your payments and really, um, hurting you for. Not managing them.
Ben: So it's not like dealing with a bank where somebody is going to be overseeing a, a mortgage or something, and you're going to have to get credits and they're going to take care of your escrow and looking at all that stuff.
It's, it's really [00:24:00] like, you're, it's, it sounds more like you're dealing with the federal government more like the IRS where know maybe they could care less. And if the records aren't quite right, then it's, it's on you. What I'm hearing.
Nate: Yes. It's on you. That's the best thing that the best way to think of it.
Um, Whenever I call it FedLoan servicing. It reminds me of young Nate when young Nate used to work at the credit union as a college student, young Nate didn't know very much, he was kind of, uh, lost, uh, his first job while he was at. And that's the people you're talking to. So it's, it's no cut on them. It's just the people that end up working there generally don't know much about your situation.
You know, it's, it's inexperienced people trying to help you with this, you know, 200, $300,000.
Ben: And for other cases I've seen it. It really does seem to be kind of a personal thing. I mean, you've got loans from the school. You've got loans from the fed, you've got loans from the bank. You might have loans from mom and [00:25:00] dad.
Uh, it seems like sometimes it's a slam doc, right? It's like you got private loans refinance, but sometimes it is. It just seems like, you know, rocket surgery, it's there all these different loan things and it's like, should I consolidate, should I refinance? Should I leave this one alone? This one's at a low rate, but it's variable.
What I do about that in a rising interest rate environment, it's like, you know, uh, it can be overwhelming and I guess it's not, it's not made any easier with FedLoan servicing kind of, uh, Sounds like they have kind of a couldn't
Nate: care couldn't care. I don't know. I mean, just, um, they, they're not incentivized to help you in any way in any way.
Um, here's a good example. Um, you call up federal and servicing and you say, Hey, uh, I heard, uh, that I could save a thousand dollars a month on my payment, which by the way, one of the mistakes is not being on the best payment. [00:26:00] Um, all right. You can, there's, there's big differences in how much you pay on a monthly basis on each of these plans choose the one that you pay the least.
Right. And so I heard I could switch to, um, a different payment plan and lower my payment by a thousand dollars a month. And the guy on the other end of the phone, trying to help, right. He's not trying to hurt you. He goes, yeah, it looks like you can, you can save a thousand dollars a month. Little does he know?
Because he's. Researching this stuff. Big picture. Yeah. Yeah. I'm not seeing the big picture that your interest is going to be capitalized on that, which means all the interest that's been accumulating that is not on your, on your balance is going to be added to your balance and then calculate it into your overall payment.
So then you've gone years. You have hundreds of thousands, let's say a hundred thousand dollars in interest. And now it's tacked onto your loan and now that's what they [00:27:00] calculate your payment on because by changing payment plans, certain payment plans, they will capitalize your interest.
Ben: No. Is it true that if you, if you switch payment plans that it restarts the PSLF cock, and then if you, if you consolidate your loans, not refund as a true consolidation that, that restarts the PSLF cock, like, tell me a little bit about the mistakes
Nate: that you see there.
Yeah. So the consolidation is what restarts. Yikes consolidation restarts the clock on the loans that were consolidate. So sometimes, uh, I have, I have actually done this several times with, with physicians where some loans are not going to qualify for PSLF and it's not worth it to consolidate because it would start all over anyways.
Yeah. So they'll refinance just a couple of their loans that don't qualify into the private world, save on interest and then go for PSLF with the rest. This is where you really get into the case by case because there's instances. All those facts are the same, but the numbers show you shouldn't refinance.
So you [00:28:00] have to take a really cool look at this and getting down into the details sometimes will cause you to make mistakes. Um, I I've, uh, have, I think two physicians that actually qualify and they did this by sort of getting on a plan and closing their eyes. That's how they ended up doing, I don't know if they maximized everything, but they didn't touch it.
Went to work, stayed on the same plan. 10 years later, they they're getting forgiveness. I want to make sure that the, the listeners get this, that okay. You asked if you change payment plans, will the payment clock start over and that is not true. Okay. You can change payment plans and you're in the clock still keeps going, like nothing happened on your current 20 payments.
Ben: Okay. Good. Okay. Well, we're almost at our time marks. I want to wrap it up and ask this final question. So if, if I am an attorney. Is is PSLF worth it for me.
Nate: Yeah, I think, uh, again, if you go back to the quick asset test on this, it's, if you owe [00:29:00] roughly what you make or the disparity there is close, it's really worth looking into it.
But if you are an attending that, you know, you don't have qualified loans or you're kind of looking for, um, the secret sauce here, it may be that you need to. Refinance buckle down and pay him off. And I'll take this opportunity to give a point of encouragement for physician families who are in that situation where they don't won't really qualify for PS for a PSLF.
It may feel like they can't do this, but I see it every day where people figure out a way to get these paid off in, in a few years. Know, there's great rates out there right now for a five-year loans. In fact, we, um, have a link. I think we're going to put it in our newsletter. Um, you can get a quarter of a percent off a refinance and that's a lot for [00:30:00] a couple of hundred thousand dollars in loans.
Right. And you definitely can do this. And sometimes you'll be, you'll be out of debt faster than the person that's doing. Public service loan forgiveness. You can just get it out of your life and move on. I see all the time, uh, physicians use student loans, at least mentally it's it's a crutch to not move forward on their other goals.
They don't, they, I have all these student loans, so I can't save for retirement, fill in the blank. And after we sit down and we look at how much they're spending versus their student loan costs, they have plenty to save. They have plenty to save for college retirement, make progress on all their goals.
And then in five years time, they're out of debt. Other than there.
Ben: Nice. Okay. So today's, uh, today's question came from, uh, one of our clients. And it's a question that we see often with, with newer clients. Um, what I want to do is extend an offer. So anyone who's listening to this, or if you, uh, if you have a friend who's listening to this and they have questions, you can, [00:31:00] uh, ask us a question by going to physician, family podcast.com.
Uh, asking your question there. You can send a question, uh, to. [email protected]. You can also reach us by phone for question and answer line. That number is 5 0 3 3 0 8 8 7 3 3. Again, that number is 5 0 3 3 0 8 8 7 3 3. Thanks for listening.
Nate: Thank you for listening to the physician, family financial advisors podcast.
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