Money matters

Are you overly reliant on federal loan forgiveness?

A finance pro offers insights into the intricacies of federal student loan forgiveness.

As a busy physician or trainee, forming a solid financial plan for managing and paying back student loans can be a difficult goal to achieve.

In a recent blog post, Jason DiLorenzo, executive director of Doctors Without Quarters (DWOQ), a student loan advocacy and consulting organization, mused on several topics related to student loans, including the possibility of being over-reliant on Public Service Loan Forgiveness (PSLF), forgiveness protection planning, and a new IRS ruling on employer benefits related to student loans.

Here’s a snapshot of the advice from DWOQ, which has partnered with the AOA to offer discounted financial services to members.


The PSLF program forgives the remaining balance on Direct Loans, which are federal student loans offered by the U.S. Department of Education, after you have made 120 monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.

For recent grads and physicians in training who are interested in pursuing PSLF, it’s a good idea to assess your reliance on federal loan forgiveness as there are many scenarios where this is not the best option, says DiLorenzo.

“We’ve encountered many cases where pursuing loan forgiveness even when transitioning to a non-profit after training did not make sense due to high individual and household income, or other factors,” says DiLorenzo. “While we approach every client interaction looking to maximize PSLF when available, it’s not always the most appropriate path.”

One example DiLorenzo offers in his blog is of an attending physician with $100,000 in debt and an annual income of more than $300,000. Though this physician has worked in a non-profit environment for the past several years, she is not eligible for PSLF because she had deferred her loans during training.

Beyond that, her current income is high enough that 10 percent of her discretionary income would be higher than her 10-year standard PSLF payment, so there would be no balance remaining after 10 years of payments. For this physician, refinancing her student loans to lower rates in the private marketplace is a better scenario, says DiLorenzo.

The post outlines other scenarios that are not as cut-and-dry. Here’s one:

  • If you’re a graduate health professional in training with a modest income, when you complete your repayment plan enrollment/renewal in an Income-Driven Repayment plan (IDR), you must know that the calculations done in the platform do not contemplate your higher anticipated income in the future. As a result, your forgiveness projections are overestimated.

You can do your own calculation that takes into account your anticipated income or work with a financial professional to calculate more realistic numbers. DWOQ also has analytical tools such as a “salary boost” calculator to help borrowers determine the actual value of PSLF.

Forgiveness protection planning

If over the course of your 10-year pursuit of it, PSLF forgiveness becomes no longer available to you, you’ll be responsible for all of your principal loan plus the accrued interest. To mitigate this risk, DWOQ is rolling out a Forgiveness Protection Plan to ensure that your savings strategy is in line with your debt. Consultations are available by appointment.

New IRS ruling

When your student loans are sizable, it’s easy for retirement planning to fall by the wayside. A recent IRS private letter ruling permitted an unnamed firm to offer a student loan benefit to their employees. The IRS allowed the firm to contribute up to 5% of employees’ salaries to their qualified retirement plan as a contribution match for employees who document that they’ve paid at least 2% of their income to student loans in that tax year.

“Basically, this ruling represents the government recognizing that graduates with student debt burdens that prevent them from making retirement plan contributions shouldn’t be excluded from participating in an employer match program,” writes DiLorenzo.

For more information on these topics, visit the DWOQ blog. AOA members can also explore refinancing options with a free refinance analysis and 20% discount on consulting fees through Doctors Without Quarters.

Further reading

6 smart ways to manage your student loans during residency

Budgeting after your first doctor paycheck

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