Podcast Episode 48 | What’s Changing with Public Service Loan Forgiveness

with Will Koster, CFP®

About the Prosperous Doc® Podcast

The Prosperous Doc® podcast by Spaugh Dameron Tenny highlights real-life stories from doctors and dentist to encourage and inspire listeners through discussions of professional successes and failures in addition to personal stories and financial wellness advice.

Shane Tenny, CFP® is our podcast host and Partner at SDT. He has lectured numerous times for hospitals and physician groups and, most importantly, helped hundreds of clients develop strategies to navigate through turbulent times toward their financial goals.

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Full Transcript

Will Koster (00:00):

What types of loans actually qualify for Public Service Loan Forgiveness?

Intro (00:07):

From Spaugh Dameron Tenny, it's The Prosperous Doc podcast. Real stories, real inspiration, real growth. A show for doctors who are ready to improve their overall wellness in every aspect of life. Now here's your host, Shane Tenny.

Shane Tenny (00:25):

Welcome to this special edition of The Prosperous Doc podcast, where we are addressing today student loans, and in particular, Public Service Loan Forgiveness, which is a topic we know of high importance to physicians and dentists and many other folks who borrowed money from the Department of Education. Many of you may know that just a couple weeks ago, on October 6th, the Department of Education made a pretty big announcement about easing some of the requirements or restrictions on Public Service Loan Forgiveness, and so we wanted to take a minute to talk with a specialist in this area to understand some of the intricacies, the ins and outs of what has changed, what hasn't changed, and most importantly, help you get a feel for whether or not your student loans may now be eligible and newly eligible for Public Service Loan Forgiveness. Joining with me today in the studio is Will Koster, a financial planner with Spaugh Dameron Tenny. I should shout out that Spaugh Dameron Tenny is the underwriter for the podcast. A real specialist in the area and I think is going to be able to answer some questions that you have and questions that I have about the changes. So we're glad to be able to bring this to you in a timely fashion, right after the news has come out. Will, thanks for joining me today.

Will Koster (01:49):

Absolutely. Happy to be back on the podcast.

Shane Tenny (01:52):

Why don't we start with maybe just a little bit of level setting, what is the Public Service Loan Forgiveness program? I guess I'll roll into that, what hasn't changed?

Will Koster (02:05):

Right. Public Service Loan Forgiveness is a federal program pertaining only to federal student loans that allows borrowers who work in a public sector job, whether that be teachers or military service members, or in the case of many of the listeners, physicians or maybe dentists who work for a not-for-profit or 501(c)(3) organization, it allows them to obtain forgiveness of their federal student loan balance after making 120 qualifying payments under a specific repayment program, known as income-driven repayment. That's been the history or historical requirements for Public Service Loan Forgiveness As you mentioned, Shane, some of those requirements have changed recently with the announcement back on October the 6th.

Will Koster (03:02):

I think it's a very important question and can help out a lot of listeners to understand what has not changed, so that we don't get ahead of ourselves and too excited to really unpack this new announcement. What has not changed is the definition of a qualifying employer. A qualifying employer is still set the same way that the federal government has defined it previously. It's not expanding the number of employers that are qualifying. It's still a not-for-profit, 501(c)(3) or governmental organization and you still have to have been making your payments while working full-time for a qualifying employer still under this temporary waiver of Public Service Loan Forgiveness.

Shane Tenny (03:46):

Okay, so to be clear, if you work for a private hospital system like HCA or a private practice or something like that, then you're still kind of out of luck. If you graduated and started payments four or five years ago, you just haven't been in the game long enough so you're still not eligible for forgiveness, but what's changed? Who previous to October 5th was not eligible, but might be now?

Will Koster (04:12):

Well, that's right. The second thing that hadn't changed, by the way, is the 120 payment requirement, right? So still 120 payments adding up to basically 10 years of repayment. So, we're not accelerating the timeline for residents, fellows, first-year attendings that haven't made 120 qualifying payments. And you're right, if you own your own practice, if you work for a private, for-profit hospital system, that's owned by maybe private equity, those employers still are not going to qualify. That has not changed.

Will Koster (04:42):

Back to your question on, well, what has changed and why is this such a big deal? Is a couple of reasons. The first, I think maybe biggest thing that has been a hurdle for borrowers in the past that the federal government is taking head-on and trying to address is the confusion that began back in 2007 when the Public Service Loan Forgiveness program was enacted, is what types of loans actually qualify for Public Service Loan Forgiveness. Borrowers may be familiar, especially older borrowers might be familiar with the Federal Family Education Loan program that existed back in the early 2000s where the actual grantor of the money that was borrowed was not the federal government. In fact, it was private organizations such as banks that actually funneled through the federal government, but was actually not borrowed from the Department of Education and federal government themselves. These loans are known as Federal Family Education Loans and have been previously excluded from Public Service Loan Forgiveness in the past.

Will Koster (05:48):

Under this current waiver, this special waiver, Federal Family Education Loans can be consolidated into Direct federal loans, the Direct loan program, and now become eligible for Public Service Loan Forgiveness. The biggest caveat you may say, "Well, that has existed in the past, consolidation." Previously, though, when you consolidate Federal Family Education Loans, or any federal student loans for that matter, it would set your previous progress towards Public Service Loan Forgiveness and reset your progress toward the 120 payments required for PSLF in the end. Under this new change, you can now consolidate your loans and all of the payments you have made previously will still count, making FFEL or Federal Family Education Loans and Perkins loans eligible now for Public Service Loan Forgiveness.

Shane Tenny (06:44):

This is really the huge news, and I'll just call it out, this is in fact one of the primary reasons we're recording this special episode of the podcast, because I think to the point you made, Spaugh Dameron Tenny has worked, and I'm sure many other financial firms around the country that work with physicians have many, many folks with FFEL loans who have just kind of felt out of luck and unable to qualify for Public Service Loan Forgiveness while their colleagues can. They now are eligible.

Will Koster (07:15):

That's right. Many of these loans still exist and many borrowers and public servants still have these loans on their balance sheets because they carried low interest rates at the time and still currently low interest rates given our current environment. Many borrowers are just making minimum payments on the loans and have been for years and years and years, and this special waiver now has basically lifted their status into possible eligibility for forgiveness, which is a very, very big deal.

Shane Tenny (07:49):

Any other significant changes as part of the announcement from the other week?

Will Koster (07:53):

Yeah, absolutely. The second biggest announcement, the other big announcement is what repayment plans constitute as qualifying repayment plans under Public Service Loan Forgiveness. In the past, the only, I'll say umbrella or category of repayment plans, that have counted as qualifying payments towards the 120 necessary are or were income-driven repayment plan plans. You'll be familiar with the acronyms of IBR (income-based repayment), REPAYE (revised pay as you earn), pay as you earn, those repayment plans were all income-driven repayment plans, and the only ones that technically qualified for Public Service Loan Forgiveness.

Will Koster (08:35):

Now, the change has now allowed any payment under any repayment plan, whether that be the graduated repayment plan, the extended repayment plan, even the standard repayment plan, which is the 10-year standard repayment plan, all of those payments under any repayment plan now count. Other criteria, other changes are actually, I've been reading and hearing, and we're waiting for more clarification on some of these points, by the way, so just put that as little asterisks in our notebook that we're still waiting on clarification from the Department of Education, but I've been reading that even partial payments under some of these different repayment plans may count, meaning I've seen something even as if your required payment was for example a hundred dollars, but you only could make or afford or actually made a payment of $2 or $50, those partial payments might actually count as a full one month's qualifying payment towards the 120 necessary. So again, that opens up the possibility for eligibility for Public Service Loan Forgiveness for all of these borrowers who maybe early on didn't know what they were doing, didn't know which repayment plan to select, thought, "Let's use the graduated or the extended because my budget couldn't afford an income-driven repayment plan," all of those criteria now any repayment plan may count.

Shane Tenny (10:00):

Including, I think we should make sure and highlight, including no payment, as in, for example, the last year and a half with the CARES Act, when payments were really, all direct loans were put under forbearance, right?

Will Koster (10:11):

That's right. One of the main criteria that, if you don't already know, is the federal student loans have been under administrative forbearance since March of 2020 and has basically suspended all required payments on federal student loans, all of the quote unquote payments, or in this case non-payments, those months do still count towards the 120 necessary for Public Service Loan Forgiveness.

Shane Tenny (10:36):

Yeah. This is really huge news. Now, let me ask you kind of a followup that occurs to me given kind of what you're describing as the details here. If somebody has the FFEL loan, which previously wasn't even eligible for forgiveness, and let's say they finished training back in '08 or '09, so they've been making payments for 12 years now, 12 or 13 years, thinking that they had to just pay them off because they weren't eligible for forgiveness and now, they're being told, "Hey, there's a path towards having your loan balance forgiven," whatever's left on it. 50 grand, 80 grand, 120 grand, whatever, there's a path towards forgiveness. So they go through these hoops, having paid two or three years more than the required 120 payments. Is that still just good news for them or is there any remedy for the extra two or three years' worth of payments that they made?

Will Koster (11:31):

That's a great question, Shane, and actually, one of the most amazing facts about this announcement is that the federal government's actually saying they will give money back to borrowers who have made more than 120 qualifying payments, right? So, during this process, and we will explain throughout this podcast kind of what the process is from here, but borrowers will have their qualifying payment count updated through submitting forms and verifying employment and payment history. And if a borrower has, let's say, made 140 payments now toward the Public Service Loan Forgiveness that count, those 20 extra payments that have occurred maybe in the last two or so years, any money that they've paid during that time period can actually be refunded, which is actually amazing.

Will Koster (12:20):

One other thing I'll mention is any borrowers who have been making payments during this administrative forbearance timeframe, maybe because the strategy worked best for them just to continue making payments because they were going to have to pay off their loan own balance or they were under that impression, those borrowers making payments during the administrative forbearance can actually have that money refunded as well, if they apply for it to be forgiven.

Shane Tenny (12:44):

Yeah, this is definitely big news. Now, how about another caveat that occurs to me, unless I'm mistaken, since you're the expert here, one of the other requirements for Public Service Loan Forgiveness has not only been that you are making payments while you work for a public service entity, but that you have to still be working for the public service entity when you apply for forgiveness. And so, that kind of negated folks that had moved from say, a hospital system where they went to residency, worked as an attending for a couple years and then switched into private practice. They're kind of out of luck in terms of forgiveness. That provisions changed, too. Am I correct, there?

Will Koster (13:19):

That's right. Actually, under the old rules, we'll call it, of Public Service Loan Forgiveness, borrowers who were working for an academic hospital, a teaching hospital, they had to be working at a qualifying employer at the time that they applied for Public Service Loan Forgiveness. Now, you'll remember, let's say you completed training at one of these qualifying employers, went to work at a private practice, came back to a qualifying employer, you could still pick up where you left off on the Public Service Loan Forgiveness program and on that track, but again, had to be working for a qualified employer at that 120 payments mark. That's no longer the case, and it may apply to a bunch of docs or dentists who have moved on in their career into a private practice, into a for-profit hospital position and thought Public Service Loan Forgiveness wouldn't be an option for me because I had left. That is no longer the case as long as you have made 120 qualifying payments while working for a qualifying employer. Even if you've moved on, though, you can still receive Public Service Loan Forgiveness under these new rules.

Shane Tenny (14:26):

Okay. Super important changes here for people to know. Are there any other nuances that you need to highlight here? Or I guess where my mind is going, if somebody's listen this thinking, "Wait, I think I now qualify," what do they do next?

Will Koster (14:40):

Yeah, absolutely. A couple of key dates that I want to make sure borrowers are aware of is the only payments that are going to count still, given the change in the rules, are payments that have been made after October the 1st, 2007. The reason for that date, it's not arbitrary, that's when the Public Service Loan Forgiveness program was first passed into law. So, they're still requiring payments, your 120 payments, to have been made after October 1st, 2007. And also, another key date that everyone will need to keep in mind is that this temporary waiver of previous Public Service Loan Forgiveness requirements expires on October the 31st, 2022. All the paperwork, all the consolidation, everything needs to be completed and turned in by October the 31st, 2022. Just part of the way the Department of Education was able to pass this having not gone through Congress was an emergency action under a national emergency, such as the COVID-19 pandemic and they had to set the date to end in October 2022. Just those two dates to keep in mind.

Will Koster (15:57):

Now, as far as your question on, "Well, where to go from here?" Unfortunately, it's different depending on your personal situation. I'll just throw that out there first and foremost, is that depending on if you have FFEL loans, depending on if you've certified your employer before, depending on who your servicer is, all of those factors will maybe change your path just a little bit, but the same rules, the same criteria and the same application process pretty much apply to everyone. Whether you've completed them or not is probably a personal or unique to your situation.

Will Koster (16:34):

The first and maybe the most important and oftentimes can be the most difficult will be going back to certify the dates that you were employed at a qualifying employer. So, for that attending who's in the later stages of their career, have been out of training for 10+ years, they're going to need to go back to their residency program, to their fellowship program, find a contact at HR, find somebody who can vouch for them being employed on certain dates, have input their start date, input their end date, sign off on the employment certification form on page two, to help verify and certify that they were in fact employed at a qualifying employer while making payments, again, post October the 1st, 2007. That's the first thing that all borrowers are going to need to do, certify your employment up to this point.

Will Koster (17:33):

The second thing, then, is to make sure you have qualifying loans. If you have Direct student loans and have already consolidated and are already in the right loan program, then you don't necessarily have to worry about this step, but many of the individuals or borrowers that this news is going to really apply to is going to be those with FFEL loans or who have had FFEL loans in the past. And the consolidation process, again, needs to be completed by October the 31st, 2022, and the consolidation process again, just so everybody knows, can be done online through federalstudentaid.gov. It doesn't cost any money. Don't hire a firm that's advertising to help you consolidate your loans, but that will be one of the next steps for you to take in order to get your loans ready for this temporary Public Service Loan Forgiveness.

Shane Tenny (18:26):

Will, you make me think of at least one follow-up question here, and that is, over the last couple years, we've seen a significant rise given the low interest rate environment of private companies who've been able to offer favorable terms to people to refinance their loans. SoFi, Common Bond, Laurel Road, many others. Someone who had Direct or federal loans, assumed they wouldn't be able to qualify for forgiveness for one reason or other and has refinanced them with a private company, those loans are not part of this forgiveness option. Is that correct?

Will Koster (19:02):

That is correct. That's one thing, going back to the opening, that has not changed, is any private loans that are not backed by or serviced by the federal government do not qualify, and that's a big distinction here. As we're talking about consolidation, it can often be confused with refinance, and those two terms get kind of thrown around in the same sort of sentence or conversation. So, we again are not talking about taking your federal loans and making them private. We're talking about keeping your federal loans federal and just consolidating or switching the federal loan program that these student loans are categorized under. So yes, the temporary waiver of Public Service Loan Forgiveness does not apply to any refinanced, private student loans.

Shane Tenny (19:52):

Okay. And what's your best guess on, if you have one, on how long should people expect it to take to consolidate their loans, if they have FFEL loans or ones that need to be consolidated, and then how long is it going to take for people to get word back once they send in their PSLF application?

Will Koster (20:12):

That's a great question. It's definitely a little bit of a black hole right now in the student loan world, as we may discuss, about just servicers exiting the federal student loan servicing industry with the administrative forbearance set to end at the end of January and all the administrative work to turn back on interest accumulation, turn back on payments. So, I would expect to just have patience if you're a borrower going through this process.

Will Koster (20:40):

Step three that I was getting to, employment verification, consolidation and then the third is finally, to submit the PSLF, the application for the actual forgiveness. I would say in general; I'm reading that this timescale is in months, not in weeks from federal studentaid.gov, from the Department of Education to be prepared to be on hold or to be waiting for a response for maybe four months or so. I think each step of the process... verifying your employment should be one of the quicker steps. Obviously, it's also on the borrower to be doing that, so I would say being proactive and getting the form to your employer, getting the employment certification form submitted as quickly as possible is one of the things, if you can control your turnaround time, we can't necessarily control the servicers' turnaround time. The employment certification in the past has been about a six-to-eight-week process. Consolidation might take another six to eight weeks, so we're then talking about four months or so toward the eventual forgiveness application being submitted.

Shane Tenny (21:48):

Do borrowers need to continue making payments once they've filed the application for forgiveness?

Will Koster (21:56):

The short answer is no. First off, we're still under the administrative forbearance until the end of January, so no payments should start until at least February 2022. So that buys us a couple of months. And on the actual application for the forgiveness, if you get that far by February, there is a checkbox to allow you to continue or enter into a special forbearance period while fed loan servicing or the federal student aid system is processing your application for forgiveness. Just for borrowers to be aware of, that time in the forbearance, if for some reason your application is denied, does not technically count toward the 120 payments necessary for Public Service Loan Forgiveness, but it at least buys you time to not have to make payments while your application is being processed.

Shane Tenny (22:51):

Excellent. Lots to digest here. I'd like to think we did yeoman's work in less than 30 minutes on a pretty complicated topic, and I guess I feel obligated to just footnote the whole conversation by reminding our listeners that we're recording this in October of 2021, and like any good government program, it is subject to change at any time. We've seen a lot of changes over the last 18 months in student loans and the deadline for administrative forbearance and a variety of other things. So, please bear with us if by the time you're listening, maybe there's nuance or a clarification that's different than what we've talked about here today, but Will, I'm grateful for your time. I know you've helped a lot of people, and I know your explanation today hopefully will help a lot of people be able to pursue saving a lot of money for themselves and their families. So, thanks for being with us today.

Will Koster (23:39):


Shane Tenny (23:40):

Thank you for joining us. Hope this conversation on student loans and Public Service Loan Forgiveness was helpful. If you need help further or want to find a reputable firm with expertise to do so, you can check out the good folks at Will's firm, Spaugh Dameron Tenny. You can track them down at sdtplanning.com. Thanks so much. We'll see you back here next time.

Outro (24:03):

This episode of The Prosperous Doc podcast is over, but you're not alone on your journey. Spaugh Dameron Tenny has been helping physicians and dentists prosper through financial planning for over 60 years. To connect with us, visit sdtplanning.com today and take your financial wellness to new levels. Join us on the next episode of The Prosperous Doc podcast.