Nate Reineke (00:13)
Hello, physician moms and dads. I'm Nate Renneke, certified financial planner and primary advisor here at Physician Family Financial Advisors. As promised, today is another solo episode and I am going to be diving into the ever evolving topic of public service loan forgiveness, or as you all know it, PSLF. So β what that means is if you're in private practice,
or you just don't have student loans, you get to skip this episode. There are some β reaching ideas that I have about how this might impact physicians, how the student loan landscape and how it's changing might impact physicians that don't have student loans. But I think I'm going to get to that on a different episode. So stay tuned for that. It is mainly macroeconomic ideas.
on how student loan limits may impact your college savings. And β they're just ideas. So I thought we would keep it very focused today on student loans. β And if you do have student loans, β this episode is for you and β for my clients and some of Chelsea's clients out there. β Today is a day to pay attention and there's going to be some actions you may need to take in your personal plan with us.
that β yeah, we will send this out to you and hopefully it will spark a conversation that we can make some progress on your student loans. And that's about 25 % of the families I speak with every day. So I hope this episode's educational and also practical for those, I'm calling them PSLF warriors, because you certainly have been battered and bruised over the last several years. β
I know I've had some sleepless nights trying to figure this thing out with you. And at least at this moment, we have a path forward. β But before I get exactly into what you should do, I thought it would be β helpful, maybe β entertaining in a sick way.
to give a quick history of PSLF. So I'm going to do that. Public service loan forgiveness was created by Congress back in 2007. It was a part of the College Cost Reduction and Access Act and signed into law by President George W. Bush. And the goal is pretty simple. was to encourage professionals like doctors. That's you.
also teachers, public servants, to stay in non-profit organizations or governmental roles β by offering tax-free loan forgiveness after you make 120 qualifying payments. So that's 10 years of service. And I remember when we started this podcast, was before all the madness that we're gonna get into. And...
I had an episode where I simply explained what qualifying means. Qualifying β is pretty straightforward to me and it seems to be β kind of part of the normal language that physicians use nowadays, but β it wasn't always. So qualifying has a lot of meanings. There's a lot of ways that certain loans you have or certain payment plans or ons don't qualify.
I see less and less of that lately, but they're still out there. And at its core, PSLF is pretty straightforward. Once you kind of get your loans in shape, you make sure your loans are qualified. You make sure you're on the right payment plan. You make sure that your employer qualifies and you file your paperwork correctly. Okay. So.
Qualified payments, 120 of them, get your loans forgiven. And the thing to understand about systems like this or programs like this, and the same goes for your taxes, by the way, the tax system, this PSLF system, it is an incentive system. Okay, this is the carrot, not the stick. So if our government wants you to act a certain way, they'll incentivize
that behavior. Okay, you ever wonder why the government tries to give you tax breaks for having kids? They want you to have kids. β You ever wonder why the government set up 529 plans? They want you to save for college because they want the β kids in this nation to go to college. Okay, so this is just another incentive system. And the reason I say that is that for years I have heard physicians have guilt or shame about using this program.
And I just believe that that is unfounded. I don't think you should have it. I know you do, a lot of you, and you know, I can't tell you how to feel. But in the way I see this is that you are doing us all a public service. And the fact that our government has figured out a way to incentivize public service, I think is a good thing. Okay. So get off my soapbox and get back into the history of public service loan forgiveness. So.
Back in 2007, PSLF was introduced. β It wasn't nearly as flexible as it has been in recent years. The only real income-driven repayment option was what we now call old IBR. So IBR, not to be confused with IDR, IDR is an umbrella term for income-driven plans.
And this was β not a good move to be naming the plan IBR and naming the umbrella term IDR β because it created a lots of confusion, which I'm gonna get to that confusion in just a minute. But nonetheless, it used to be old IBR, which required a specific payment for you to make as a physician. the way old IBR worked was you had to
they would calculate your payment as 15 % of your discretionary income. And discretionary income, it's a kind of difficult calculation to understand. It's not a difficult calculation to do, but you essentially take something like the poverty level of income and anything above that is your discretionary income.
and 15 % of that was required to put towards your student loans. So what that meant was if you're in residency, your student loans are something slightly north of zero. this in residency is a big time where β physicians take advantage of PSLF. Get these really, really low payments for a few years, and then you come out of residency and oftentimes your income goes
up dramatically. mean, almost every time your income goes up dramatically and your payments are higher, they're quite a bit higher. But that's okay because you had several years of really low payments, which means you only have maybe, you know, several years left of these higher payments and any other option you would be making those higher payments anyways. So it's in those first few years where this really, really matters.
β Over time, new plans introduced to the world. They had the great idea of calling the newest, the new plan after old IBR, β IBR again, but it was just new IBR. Once again, β people giving these programs their names or the payment plans their names, they're part of the problem here because a lot of student loan woes come from confusion. It's just confusing.
And I think it was a good program that was just fraught with confusion and that made people do things incorrectly, act incorrectly, fill out their paperwork incorrectly, get in the wrong payment plan. β But after new IBR introduced pay, pay as you earn, and β good thing they changed the name on that. It wasn't new, new IBR or anything like that, but there's
old IBR, new IBR pay, and then repay. Both new IBR pay and repay calculated your payments based on 10 % of your discretionary income. β They had different features to them, but at a high level was 10%. This 10 % of your discretionary income really opened the doors for a bunch of physicians to pursue PSLF because
Something people often miss is that most physicians can qualify for public service loan forgiveness, but they a lot of times did not benefit from the program. It's a huge difference there. Qualifying versus benefiting.
Now, I started working with doctors on their student loans β in January 1st of 2018. That is almost exactly 10 years from when the program started. So when I came on the scene, helping physicians with their student loans was a relatively new thing. There's some bloggers talking about it.
But now if you go out there today, there are literal businesses that help doctors, lawyers, β high earning professionals that can get into this program. Literally all they do is write student loan plans. And so β that is because, I mean, a lot of times problems that the government creates or confusion the government creates
β spurs businesses. And that's what you see today. And that is a little bit of what's happened here at Physician Family. I mean, I was brought on here originally to help physicians with their student loans. It's a new problem. β And back then, there was so much confusion that it turned into distrust. It was essentially I would get calls from really two different camps, one.
would be from people who really did their research and they said, hey, I believe I can do this, but I need help, you know, executing the paperwork, making sure I'm on the right plan, actually writing out a plan for my student loans. And then there was just people that were flat out worried that this wasn't real. And that came from β there was a guy's name was Seth Frotman. He was a former student loan abutment.
at the Consumer Financial Protection Bureau. And he came out and said that out of the 41,000 student loan forgiveness applicants, only 206 actually got their loans discharged. That's a half a percent. And the issue is, oh, well, a little side note. When I saw this article,
β I started asking people, my family is a family of teachers, so they do qualify for this program, amongst other programs. And I asked them, hey, β what's going on with your student loans? And they'd say, β I'm going to get them forgiven. And I'd say, β okay, so what payment plan are you on? And they'd say things like, β I'm on graduated repay, or β I'm on... β
You know, some, there was, I remember back then you could call in to your loan servicer and just say, hey, I'm having trouble making my payments. And they would just say, well, you could pay 50 bucks a month. They would just put you into any plan to get you off the phone. And β when Seth wrote this article, when this article was written about what he found,
He identified that this was really a small portion of a deeper systemic problem. And he was right. But the problem wasn't necessarily that this program wasn't real. The problem was that people didn't know how to use it. So when I came in and started working with physicians on this, I did a deep dive into the program and realized
that mainly the issues where borrowers were being walked into the wrong payment plans and honestly by incompetent employees working for the student loan service or phone centers. And the reason I was able to say that they're incompetent is I was once an incompetent employee working for a credit union back in college. So I was at this phone center and they would take, you would get bonus on how many calls you would take. So if you got to take a hundred calls a day, you would get, you know, a hundred bucks.
And this is similar. mean, these people just want you off the phone. They would solve your problem or what they thought was solving your problem to get you off the phone as fast as they could. They did not know how the public service loan forgiveness plan worked. And it's sad to say, but β the reality is that these people just, they weren't trained well enough. Nobody really understood the program well enough to really help. So there was no PSLF hotline like there is today. Nobody knew what they were doing.
On top of that, people would just file their paperwork wrong.
So they were in the wrong payment plan. They didn't file the paperwork correctly. And a big one was they didn't consolidate their loans properly. On top of that, everybody just sort of assumed that their employer would qualify. They didn't check. They just thought they would. And at that time, employers didn't really know this was a thing.
So you bring your paperwork to your employer and say, sign this so I can send it in. And you couldn't even find someone that was supposed to sign it. I had people getting signatures from people they shouldn't be getting signatures from. It was the wild, wild west. Okay, but what I saw, rather than looking at the situation and seeing that you just had to do the paperwork correctly, but nobody was, physicians, a lot of them took this as
This just isn't real. And I'm here to say that that is not true. And it is still not true today. It's just too complicated. So it wasn't true in 2017. Everyone was sort of asleep at the wheel about PSLF, took it for granted a little bit. β But if you did everything right, you get your loans forgiven. And it's not true now. I still see physicians every year getting their loans forgiven.
Okay. So I will say, just like I mentioned before, β that it is getting harder and harder for physicians to actually benefit from public service loan forgiveness. Not qualify, but benefit.
Okay, so new payment plans are being introduced. β And if you've been pursuing public service loan forgiveness for a while, you know that pay and repay were usually the best options for physicians. So once those came on the scene, you know, 10 % of discretionary income compared to 15%, repay has an interest subsidy. So big win for residents. The interest wouldn't keep piling up. β
and kept the loan balances kind of from spiraling out of patrol. And then pay and IBR have a payment cap. So the payment cap was calculated as whatever the 10 year standard repayment would be. Okay, we didn't talk about that, but that's a payment plan. You can get on a payment plan with the government's 10 years. You say these loans need to be paid off in the next 10 years and they calculate your payment. Okay, so that would be the cap.
And therefore, if you got into pay or IBR when you're in residence, when you were a resident, β the payment would never go over that 10-year repayment. That's 10-year standard repayment amount. Repay did not have that cap. Now, β sometimes repay still made sense because the amount of money you made compared to the loans that you have or your spouse's income or whatever it may be,
You were never going to see that cap anyways. But every plan had a slight differences, but pay, repay, IBR, that's where all the physicians were. Okay. Now there was a loophole. There's the filing separate loophole and a huge reason why pay worked out for most physicians. Under old IBR, new IBR and pay, if you did, if you filed your taxes and married filing separately,
you could essentially exclude your spouse's income from your payment calculation. So this is huge. This is a big reason why physicians wants to get on pay, but it's difficult just to get on pay because there is β some, essentially have to have a partial financial hardship. So people would try to get in while they had a partial financial hardship, which was residency. And then, β
they would stay in and they would never get out. More on that in just a moment. then the only other difference I want to point out would be old IBR versus new IBR. This is big for right now. If you borrowed your federal loans before July 1st, 2014, you're stuck with old IBR. That's 15 % of your discretionary income needs to be put towards your loans.
If you borrowed after on or after July 1st, 2014, you use new IBR. Okay. Now this poses some problems because we all know the studentstudentaid.gov website is really just terrible and their calculator is constantly broken. So sometimes they're telling you what new IBR is when you don't qualify for new IBR. So you to be careful of that.
All this to say is all these loans, β new loan programs are trying to sort of fix the system, introducing these new programs and it's a mess. It's just messy and you have to have some software to figure out like what payment program you should get on.
Okay, so we start to figure this out. Businesses are being created to help you figure it out. Physicians are starting to gain some confidence back in sort of the system and β all that so that their confidence could be violently shaken again because β pure chaos ensued during COVID. Politicians taking hard stances.
on student loan forgiveness, floating ideas out, like wiping student loans out completely, β quickly implementing new payment plans. The new payment plan that we all know and hate called SAVE, β pausing student loan payments, payment pauses counting towards PSLF forgiveness, then them not counting, then we were not sure if they're gonna count again, then they didn't. β It was chaos. And on top of all that, right? β
We went through that for four years and then the Trump administration challenged it all in court and we have been left in limbo ever since.
So β that brings us to today and the reason for doing this episode, right? Because the key during all of this during the limbo period was that we really couldn't do anything. You were either forced into save, you forced into forbearance, and you were just taking it as it came. And if you were my client for these years, most of the time, the advice was sit tight because we don't know what's happening.
And that is incredibly frustrating for me. I know it was hard on all the physicians that were trying to get forgiveness and trying to just understand what's going to happen. What do I do? β And so today β we can talk about what you're going to do. So now β there brings us to sort of the new repayment landscape. right. IBR and pay are still alive.
but they're being phased out. Okay, so eventually there will be the new RAP plan and that is set to become the default plan in 2028. So under the one big beautiful bill acts, current borrowers enrolled in plans like pay or even save must transition to a different plan. That's IVR or RAP or
you know, standard plans by July 1st, 2028. If you don't make a choice, you'll be automatically moved into the RAP plan. RAP plan, β it just doesn't have the same protections that pay an IVR offer. β But at the end of the day, the payment calculation, it's roughly the same. It's just a
there's no caps on the payments. So you don't have that 10 year standard repayment cap. And β what that means is that for right now, if you qualify for pay, you need to get in pay. If you qualify for IBR and not pay, you need to get into IBR.
So have to get in while you can. β And that is coming on the heels of most people being in the SAVE program. Okay, and if you're in the SAVE payment program, β it has done some good in that like while you were switching over to SAVE, the payment's qualified, but now you have to get out. It's very frustrating because we were all sold this dream.
that if you get into the SAVE program, you're going to save money. And most people did for a very short period of time. And now payments don't qualify under SAVE. And so β what that means is that if you got switched from pay to save and now you can't get back into pay, you are literally out of luck. You can't get back into pay. But
There has also been another change, which is this partial financial hardship that I just spoke about briefly. β Traditionally, to get into IBR or pay, you had to show this partial financial hardship, meaning your income-driven payment had to be less than the standard 10-year payment. And residents always qualified, but most attendings don't. So the traditional advice was get into the payment plan you need to and stay in it.
then everyone got taken out to save. But the big update is that in the One Big Beautiful Bill Act, β it eliminated the partial financial hardship test for IBR. That means even for high income physicians, you can now get into IBR. Pay still requires it. So what they're moving toward is IBR or the RAT plan.
And the RAP plan, it's not evil, which is not as good as IBR. β This is important for some of my clients. Not too long ago, this was probably just a, feels like just a few months ago, I was very hesitant to ask people to get in to pay, even if they qualified. I was hesitant for multiple reasons. One.
was that the calculators and the advice you're getting on the student loan website was often wrong. So let's say you qualify for pay when you really didn't. Two, the calculators were wrong and that it was projecting β the wrong payment plans for IBR. And three, I just didn't want, the idea would have been to get into pay and then switch out to IBR before you're automatically rolled into RAP, the RAP plan.
And that RAP plan, β you will automatically be rolled into it into 2028, unless you're in PAY or IBR. So my thinking was, let's take a more conservative route, even if PAY saves you a little bit of money, don't get into PAY, because then you would be β rolled into RAP and you wouldn't be able to get into IBR. But something I discovered in the last several months here,
was this β change in the one big beautiful bill that that partial financial hardship test for IBR has been lifted. So β for some of you that I recommended IBR, it's still the best plan. For some of you I recommended IBR, you can't get into pay anyways. But for some of you that did qualify and there was a reasonable amount of savings to get into pay for the next few years, the goal would be to get into pay
And then before 2028, when the RAP plan, when you'd be rolled out of pay into the RAP plan, you switch over to IBR. And this is different than, like I said, than what I've said over the last, you know, some time, because β I wanted to be really sure that you wouldn't be locked out of your PSLF β journey, I guess.
β So I intend on sending this episode to those people but also if for some reason we've spoken about this in the past and this changes your plan at all, please β get in touch with your primary advisor either Chelsea or me and Chelsea will direct you to me and for my client specifically we will get it back on the horn and β Decide to make any changes that are necessary So apologies for the extra paperwork
but I'm taking the conservative route from here on out with PSLF because β my confidence is a little shaken too. Not that this program will die, but that β we have to be careful to protect you from getting into the wrong plan and getting locked out completely.
Okay, so β that brings us all the way through kind of the history into today where we are now. β But the bottom line for physicians pursuing PSLF β right now is that you need a plan. Okay, it is finally time where you can actually produce a reasonable plan. So most of you have been in forbearance for years. And a few of those years when you are not making payments,
they do count towards your 120 payments. β Some of it counts, some of it doesn't during the COVID payment pause. And for you, β there are some months where the payments didn't count, like the zero dollar payments didn't count, but you can go back during the months of forbearance and potentially buy back some of these payments.
Okay, so this is the buyback program. It is, once again, not a lot of people have confidence in it because they haven't seen it happen. And I actually will say, I have not seen it happen. But it feels very similar to back in 2017, 2018, when people said, I haven't seen it happen, therefore it's not real. When the reality is that the buygripback program
has its own rules and in order for us to see whether or not it's real, which I believe that it is, we have to follow those rules. And we have to, and by that I mean, it has to be available. I'm having a hard time saying this, but maybe I could explain exactly what it is. Okay, so if you had, let's say, 80 payments,
80 qualified PSLF payments. And then β you had 20 payments that for whatever reason, maybe you're on the wrong payment plan or you're in forbearance or whatever it may be, but there was 20 payments that don't qualify. You can now go back and say, I wanna pay you for those 20 payments so that they can be counted toward my PSLF 120 payments.
The issue is that while you could buy back those payments at some point, you couldn't buy them back right now. And that is because there's a rule with the buyback program that the result of buying back your payments must be forgiveness. Okay, so if you have 80 payments and you're buying back 20,
The result of buying those back would not be forgiveness because you would only have 100 payments toward your 120 required payments. So what you would have to do is wait 20 more months until you had 100 qualifying payments, then go back and buy back your 20 payments so that you can, the result of paying, buying those 20 payments back would be forgiveness.
And so the reason this reminds me of back in 2018, 2017, is people didn't believe in it because there was, in 2018, you would have had to done it perfectly from day one to get forgiveness and nobody was doing it perfectly. Half a percent of people were doing it perfectly.
So β just because nobody's prepared to take advantage of the buyback doesn't mean it's not real. So the goal here in your plan is you need to consider the buyback first, see if there's months where you need to buy back. And if that is right for you, you need to be building up some cash, okay? Because your payments are gonna go up over time β unless they're capped. But even if they are capped, the likelihood that
buying those payments back, that they'll be cheaper than what your payments are now is pretty high. So you build up some cash prepared to buy back your payments. And then now you kind of have a baseline, like if the buyback goes through, I will have X amount of payments left to make. Let's imagine that same example where if the buyback goes through, I'm going to have 100 payments that will qualify.
So I need to make 20 more payments before I buy back. Now you have 20 months to save up to buy back your unqualified payments. So you have that baseline and then you go and you see what is the best payment plan for me to get on for the next 20 months before I buy back and finish up PSLF. And that's gonna be IBR or pay. All right, we now know IBR doesn't have β
any restrictions for you to get into the program. And if you're in pay, you need to do make sure that β if your timeline runs into 2028, that you will quickly switch over to IBR before you're rolled into RAP. Right. So that's the plan. It's what payment plan am I going to be on between now and forget between today and forgiveness date and consider the buyback program?
β I think the bottom line is not a whole lot has changed as far as the structure of PSLF, just the payment plans have changed and that's really not new. The payment plans change all the time and now they are processing paperwork. If you don't have a complicated situation, I've seen this β paperwork be processed in a few days. If you're doing things properly,
you're going to submit your paperwork in the best way possible in that you're going to show your income from 2024 so that your payments are lower because most of the time, you know, the money you made last year is less than the money you're going to make this year as a doctor. Okay, so that is crucial in that you get the lowest
payment calculation you can. And if you or your spouse or for some reason your income is being lowered in 2025, it's not going to be approved immediately because you're going to click a button on your application that says my income has gone down dramatically this year and you're going to have to manually submit your income information and they'll calculate a lower payment. That may take some time, but it should be worth it.
So the reason to do this right now is that save no longer qualifies and you're going to start making payments. Before it was let's twiddle our thumbs for a little bit and figure out what the future looks like because I'm not making any payments. Okay, but now you're about to start making payments and those payments won't qualify for PSLF. And then it's just carefully filling out your paperwork coming up with a plan for the buyback program.
So if you do these things, get on the right plan, verify your income wisely, and still, as always, stay disciplined with the PSLF paperwork. You'll keep yourself on track for PSLF and avoid sort of expensive surprises.
β So if you are a client of ours, whether or not you work with mainly with Chelsea or myself, β please take this opportunity to reach out to us. Take a close look at your student loans because now is the time. If you're not one of our clients, but you really liked this episode, please share it with somebody that it's relevant to.
And if you're not, β but you like this episode, be sure to subscribe so you don't miss when we release a new episode. Please leave us a rating wherever you're listening, Spotify or β Apple. And if you'd like to work with us, you can visit at physicianfamily.com, visit our website, schedule an interview. But if you're not ready for that, normally what we do is we β answer questions. So this is a little bit of a different episode today, but we answer questions.
four or five questions that we get from physicians that we serve or from our listeners. And if you send us a question at podcast at physicianfamily.com, we promise to answer your question by email directly, even if it doesn't make it to the episode. β So that is it for today. And until next time, remember, you're not just making a living, you're making a life.
