I feel like PSLF (Public Service Loan Forgiveness) has been the forgotten loan repayment program on my blog thus far. However, now that we’re getting some news that a small number of borrowers have actually gotten their loans forgiven via PSLF, I thought I would go ahead and highlight this program.
What is PSLF?
PSLF is a government forgiveness program that was a part of the College Cost Reduction and Access Act of 2007. Due to ever increasing tuition across all of higher education, it was becoming clear that there were many borrowers that were really struggling to make their loan payments (news flash: this is still the case, and the numbers are getting worse every year). At the same time, the government wanted to incentivize people to pursue jobs in the public sector, where the pay is typically lower. Offering the PSLF program would solve both of these issues.
Just to be clear, PSLF is not a repayment plan. A repayment plan spells out the terms of how you will be repaying your loans. Examples include income driven repayment (IDR) plans like IBR, ICR, PAYE, and REPAYE.
PSLF, on the other hand, is a program that you apply for AFTER making 120 qualifying payments in a qualifying repayment plan. This means that you can have your loans forgiven in as little as 10 years.
So why go the extra step and apply for PSLF when you’re already on a forgiveness plan?
Other than the shorter repayment timeframe, we’re looking at a huge difference in whether or not the forgiven amount is taxed.
If you stay on an IDR plan, then expect it to take 20-25 years to pay your loans back. The amount you have at the end of your term is the amount that is forgiven. However, the catch is that this forgiven amount is taxable.
Let’s say that you are a new 2018 graduate that borrowed $200,000 to attend veterinary school. Your starting salary is $75,000. Assuming a 6% interest rate, your balance at the end of the term will be $303,000 under the PAYE repayment plan (these numbers are based off of the VIN Foundation Student Loan Repayment Simulator– numbers will be rounded for clarity).
Yes, your balance will go up after paying off your loans for a couple of decades. You will owe more than what you started with, thanks to interest accrual and low payments.
This forgiven amount will be taxable. Assuming a 30% tax rate, you will need to pay about $91,000 in taxes that year, which brings the grand total cost of the loan to $258,000. I really hope you’re saving for this “tax bomb,” because if you haven’t prepared to shell out nearly $100,000 that year, then life is going to get a lot more complicated.
Now let’s take this same graduate, enroll her in the same PAYE repayment plan, but also have her eligible to apply for PSLF because she plans to work at a PSLF-eligible government job for 10 years. Using the same calculator, we can predict that the total cost of her loan is less than $70,000 if her loans are forgiven via PSLF. The forgiven amount will be $283,000, which will be completely tax-free.
You can see the data in table form below.
|Without PSLF||With PSLF|
|Loan Repayment Term||20 years||10 years|
|Taxes on Forgiveness||$91,000||0|
|Total Cost of Loan||$258,000||$68,000|
PSLF will save this veterinarian almost $200,000 in the total cost of the loan. That’s significant, to say the least.
What’s the catch?
So why aren’t veterinarians turning to PSLF in droves? Who wouldn’t want their loans forgiven tax-free and save hundreds of thousands of dollars? Well, in order to reap the benefits of such a generous program, it turns out that you have to follow some key eligibility requirements.
PSLF eligibility, according to the official government website:
- You must work for a government agency or a nonprofit 501(c)(3).
- You must work full time.
- You must have PSLF eligible loans, which are Direct loans only.
- You must be in an income driven repayment plan.
- You must make 120 qualifying payments.
During the repayment period, you will need to fill out the Employment Certification Form annually or when you change employers. This is in addition to re-certifying your loans to stay on an IDR repayment plan.
After the 120th qualifying payment, you need to submit the PSLF Application Form. If you were properly following the instructions, you should be approved!
Why Aren’t More Veterinarians Going For PSLF?
Just based on the eligibility requirements for this plan, you can see why you don’t hear of a large number of veterinarians going for PSLF. According to these 2017 statistics by the AVMA, there are 117,735 employed US veterinarians. Approximately 10% work in the public sector. Based on this profession being heavily weighted towards working in a private clinical practice setting, we just don’t hear of many vets that are pursuing PSLF.
Remember that this program has only been available since 2007. We are just coming out with statistics that show borrowers who have actually had their loans forgiven (see below). As time passes, we should be hearing more and more stories about veterinarians who have had their loans forgiven via PSLF. We just need to let enough time pass for this to occur.
The other issue is one’s longevity in the public sector. You may be working in this capacity for a portion of your career. But to dedicate at least 10 years to a public sector job may not be feasible or desirable for some veterinarians.
Examples of veterinary public sector jobs include the following: working for the government (FDA, FSIS, USDA, state government), universities/academic centers, animal shelters, and zoos.
I’m A Vet Who Is Going For PSLF, But I’m Afraid It Will Go Away
PSLF has made it into the news lately, with headlines such as “This Government Loan Forgiveness Program Has Rejected 99% of Borrowers So Far.” For the veterinarians that are pursuing this path, should you consider sticking with your plan? Let’s look at the numbers from the report:
- 28,000 borrowers
- 33,000 applications
- 289 applications approved
- 96 loans forgiven, to the amount of 5.52 million
On the surface, the numbers look absolutely terrible. However, here are some other numbers to give a fuller picture to the situation:
- 70% of applicants did not meet at least one of the PSLF eligibility requirements.
- 28% of the applications weren’t completed.
Right off the bat, you can see why so many applications were rejected. Either the applicants did not understand that they weren’t even eligible to begin with, or the application itself was not filled out properly. If you want to dive deeper into the numbers and why the acceptance rate was so low, read this post that provides a detailed analysis.
What does this ultimately signify? It shows that there is a lot of confusion about this program. The applicants are obviously not understanding whether or not they are eligible. There is confusion over what counts as a qualifying payment and what doesn’t. There have been a number of complaints about FedLoan Servicing, the loan servicer that is managing these federal student loans.
There has been so much confusion that the government is now offering another chance for borrowers who were denied. The Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity is for those that had made payments while not under a qualifying repayment plan, giving these denied applicants another shot at having their loans forgiven through PSLF.
If you want to see some stories about veterinarians that are planning on applying for PSLF forgiveness, read this VIN article. You can see from these stories that it has not been smooth sailing, but for so many indebted veterinarians, it will be worth the extra hassle and they are crossing their fingers that the program will pull through. It also includes a helpful step-by-step guide for those that are interested in pursuing PSLF.
For those that don’t trust government programs, this is what I think. I do not personally believe that the government will just take PSLF off the table and leave borrowers stuck with their loans. It’s hard to imagine anyone that would actually support this idea, because other than saving the government money, I don’t see any compelling arguments for taking this program away. The extremely low approval rate can partially be explained by the fact that there is still a lot of confusion that needs to be addressed, but the kinks will continue to get worked out as more and more borrowers become eligible over time.
At the very least, borrowers who have been on the path to PSLF should be grandfathered into the program. However, based on the high percentage of denied applications, borrowers need to be prepared for a process that will require a lot of patience and meticulous record keeping.
Is PSLF Right For Me?
If you have yet to decide whether or not to pursue PSLF, you will need to ask yourself some hard questions.
First, can you realistically see yourself in a public service job for at least 10 years? Was this your initial intent when you applied to veterinary school? If not, then really think this through again. You do not want to find yourself in a situation where you are dedicating an entire 10 years of your life to a job that you don’t like in order to receive tax-free forgiveness for your student loans. Ten years of low job satisfaction is a very steep price to pay.
Second, how do you view debt in general? Do you view student debt like a mortgage, or would you rather just pay off your loans as quickly as possible? Whether or not we choose to pay off our debt aggressively is largely tied to our aversion to debt; the more we dislike debt, the more motivated we are to pay it off as quickly as possible. Are you comfortable with the possibility of watching your debt go up over time?
Lastly, do you have confidence in the PSLF program and that your loans will eventually be forgiven? The recent news has introduced some bad publicity about the program, but hopefully this post allowed you to go past the headlines and get a more complete picture of this program. PSLF appears to be staying safe for now, and it’s hard to imagine that it will be taken away anytime in the near future.
The best candidate for PSLF would be a veterinarian who had intended to work in the public sector since veterinary school AND has a high debt load compared to income. If this is you, then you fit the criteria perfectly. If you are currently a veterinary student, this does NOT give you license to view your student loan money as Monopoly money. No matter what, do everything you can to keep your borrowing as low as possible while in school.
I am a huge champion for getting rid of your student loan debt ASAP. Even for your typical IDR forgiveness plan, I will generally encourage people towards paying off their debt rather than dragging their debt out for decades (provided that it’s mathematically possible to do so). However, PSLF may truly be your best bet if you fit the criteria. You will need to run the numbers and assess how you feel about this program.
If you feel like your head is spinning when it comes to student loans, check out my post about student loan repayment advice for veterinarians (hint: it’s not a random financial advisor). The bigger your loans, the more critical it is for you to put a lot of thought and effort into choosing the most appropriate repayment plan. And if you are in a position where PSLF makes sense, explore that option fully in order to minimize your total loan cost. This may cause some headaches now, but it is well worth your time and effort to avoid potentially costly mistakes later on down the line.