4 Debt Forgiveness Programs Every Physician Needs to Know

FEBRUARY 04, 2015
Dave Denniston
Coming out of medical school, have you felt like you’ve suddenly jumped out of the frying pan and right into the fire?
It can be so overwhelming with all of your commitments—rounds, patient care, paperwork. You’re just trying to keep your head above the water!
Then to top it all off, maybe you have $150,000, $200,000, or even $300,000 in school debt. You wonder, how the heck am I going to dig out of this chasm of debt?
The good news is that physicians have many different options to lower or even totally eliminate all this debt and they can start pounding away at it while they are in residency, even though their income is relatively low.
If you have a lot of student debt, you may be eligible for several types of debt-reduction/debt forgiveness programs. The difficulty lies in choosing among them all. Here are a few factors that you may want to consider when looking over the possibilities:

  • Does it cover my field of practice?
  • Do you need to specify a specific loan or can you get forgiveness on multiple loans?
  • Is this an employer or a state-funded program?
  • Are the benefits taxable or not?
  • What is the length of the commitment?
  • Does the employer or the state pay down the loan each year or do they wait until the end of the commitment?

Public Loan Forgiveness Program
If you work for a nonprofit or a government agency, consider the 10-Year Public Loan Forgiveness (PSLF) program, which offers many advantages. Sponsored by the federal government, it can cover virtually any field of practice.
Who?  The major advantage of this plan is that ANY specialty could utilize the PSLF. It isn’t constrained to primary care physicians or specialties of particular need.
Requirements. Here’s how it works: While you are employed full-time for a public-service organization, you must make 120 on-time, full monthly payments. This includes residency and fellowship. Qualifying employment is any employment with a federal, state, or local government agency, or a nonprofit that has 501(c)3 status, as wells a certain nonprofits that are not 501(c)3s.
Think about this for a minute. This is just 7 years out of residency or maybe only 3, 4, or 5 years out of fellowship—and you can be debt-free!  So, make sure you enroll AS EARLY AS POSSIBLE when you are in residency.
The Nitty-Gritty Payment Details. You don’t have to specify a particular loan because it can cover all of your federally backed loans, including Stafford, Perkins, and other programs. The benefits are currently not taxable, but this could change in the future. The federal government forgives your balance at the end of the 10-year program.
Find out whether the organization you’re working for is a nonprofit or a for-profit. Some nonprofit hospitals can have a for-profit subsidiary for tax reasons.   
Tax Consequences. Currently, the ENTIRE debts that are forgiven are exempt from state and federal income taxes. When you consider that $200,000 is the taxable equivalent of $285,700 (assuming a 30% tax bracket), this is a huge potential benefit!

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