In commemoration of Public Service Recognition Week, the Department of Education announced that, as of May 2023, it has been allocated $42 billion for Public Service Loan Forgiveness (PSLF). This has the potential to positively impact more than 615,000 borrowers that have taken out loans since October, 2021.
Healthcare workers, a demographic often overwhelmed with student loans from their many years of schooling, are simultaneously encouraged and frustrated by student loan forgiveness.
Fortunately, loan forgiveness is an option with so many loans types and forgiveness programs available. The red tape involved can be a hindrance that could become an even more costly, and frustrating journey to debt freedom.
Let’s look at how student loan forgiveness works with respect to healthcare workers as well as some of the options they have for loan forgiveness.
How Student Loan Forgiveness Works
Modern student loan forgiveness offered by the Department of Education operates under the premise that if you have a federal student loan, you will qualify for some type of loan forgiveness. If you’re a public service worker, for example a teacher, nurse, social worker, or other public servant, you fall into this category.
Under the previous PSLF program, a majority of workers who applied for relief were denied. Whil e the program appeared to be straightforward, qualifying for the program was not. The program only applied to federal student loans issued under the Direct Lending program. Not all federal loans are issued under that program. Payments also had to be made under an income-based repayment plan such as PAYE (Pay As You Earn), REPAYE (REvised Pay As You Earn), or IBR (Income Based Repayment). Finally, the borrower had to make on-time payments while working for a government agency or a 501(c)(3) non-profit.
The revised PSLF program attempts to rectify these issues. One measure that was taken was to give credit toward forgiveness for late payments. While new PSLF revisions still require borrowers to be in the Direct Lending program, the government now allows borrowers to consolidate their non-Direct federal loans into the Direct Loan program.
While all the provisions of the PSLF program are too numerous to list here, the Department of Education provides an FAQ page that spells out all the revisions and requirements for the updated PSLF program. There is also the PSLF Help Tool that can help you see if you’re eligible and how to apply.
Federal Student Loans vs. Private Student Loans
You may be thinking, “But my loan isn’t through the federal government. Do I qualify for any of this?” With that question in mind, let’s look at the difference between federal loans and private loans.
Federal student loans come in several categories. For example, an FFEL (Federal Family Education Loan) is a loan provided by a private lender that is insured by the federal government. The source of funding for a Direct loan, as the name implies, comes directly from the federal government, not through a private bank. A Perkins loan is a subsidized loan based on financial need. A HEAL (Health Education Assistance Loan) is a federally insured loan made to graduate students in the field of healthcare.
Under the old rules, FFEL, Perkins, and HEAL loans were excluded from receiving relief. Now under the revised rules, they can be consolidated into a Direct loan which will qualify them.
There is one notable drawback to federal student loans. If you default on your loan, or file for bankruptcy, it is very difficult to settle for less than what is owed. While there are conditions under which a federal loan could be discharged, those conditions are very specific.
This may make it tempting to refinance your federal student loan into a private loan. However, doing so without understanding all the ramifications may be a bad idea. It would make you ineligible for relief as your loan would no longer be a federal loan.
Private loans are loans underwritten by a private bank or credit union and not insured by the federal government. These loans function like many other private loans where you qualify for an interest rate based on your credit score and have fixed payment terms.
A private loan can be discharged in a bankruptcy much more easily than a federal loan. Private loans have no flexibility in their terms if your income changes.
How Do I Qualify for PSLF?
To qualify for the PSLF program, your federal student loans have to be under the Direct Program. You have to be a W2 employee at a government agency or 501(c)(3) non-profit organization who works at least 30 hours per week.
However, if you are a borrower who does not qualify for PSLF, but still has federal student loans and works in the healthcare field, you still are eligible for benefits such as income-driven repayment. This means your payments are pegged to how much you make. These are more flexible terms than private loans offer.
Also, the terms of loan forgiveness have improved since their inception, so there is a chance that they will continue to do so. If you work for a for-profit institution now, you could also qualify if you change jobs to a non-profit or government agency in the future.
Federal Loans: Borrower-Friendly Debt
With payment deferral during the pandemic, income-driven payments, relaxed qualification criteria due to recent changes, and loan forgiveness for public service workers, the terms and benefits of federal loans are more friendly to the borrower than those of private loans.
Consulting your financial professional will help you determine which loan is best for funding your higher education, and what programs you can take advantage of to help pay it off.
Zack Geist is the founder of Student Loan Tutor, the longest-running student loan repayment management and solutions firm. Geist is also the founder of Holistic Finance, the parent company of Student Loan Tutor, which helps individuals navigate the tax implications associated with loan forgiveness and creates holistic financial plans for clients including investments and insurance. Through tactical and strategic advisory services, Geist and his team develop and execute custom repayment strategies for borrowers across the nation and offer conscious wealth management services. Since launching Student Loan Tutor in 2015, Geist and his team have helped save more than $500 million in student loans for thousands of borrowers.