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Will the government forgive your veterinary student loan debt?
A primer on Public Service Loan Forgiveness from the AVMA Econ team.
Here at the AVMA, we're often asked by association members about the federal government's Public Service Loan Forgiveness (PSLF) program as a strategy to pay student debt. This program, administered by the U.S. government, forgives the remaining debt on eligible loans for borrowers who have worked at least 10 years in public service or the nonprofit sector.
PSLF has proven to be a critical resource for veterinarians who otherwise would be financially unable to work in public health or other public service fields. It's a viable option for many veterinary professionals, but there are strict rules about who qualifies. If you're wondering whether PSLF is right for you, here's what you need to know.
How to qualify
Eligibility for PSLF is based on three criteria:
1. Employment. Qualifying for PSLF isn't about the specific job you do, but rather who you do it for. Essentially, it's intended for government employees and people who work for a 501(c)3 nonprofit organization. There also are nonprofits that aren't 501(c)3 organizations that can qualify for PSLF-if their “primary purpose is to provide certain types of qualifying public services.”
Aside from your employer, other employment-related details also may affect your eligibility-for example, whether you are working full or part time and if you are employed as a contractor. This is especially important for veterinarians working in academia or other sectors where their position may be funded in such a way that they are not technically classified as full-time employees.
2. Loan type. Only direct loans from the government qualify for PSLF. Private loans do not qualify. This means that decisions around consolidation and refinancing should be made carefully. For example, direct loans that have been consolidated into private loans no longer count toward PSLF. On the other hand, consolidating a nonqualifying loan, such as a Perkins loan, into a direct government loan will allow it to qualify from the time of consolidation. For a list of your current federal student loans, visit nslds.ed.gov.
3. Payment. The final requirement for PSLF eligibility is that you have made 120 on-time payments in a qualifying repayment plan. In general, this means an income-driven repayment plan (IDR). IDRs are repayment plans based on your income and family size, not loan balance. They're especially useful for high-debt, low-income borrowers who are looking to make lower monthly payments than they would with a standard 10-year plan. If your debt isn't repaid at the end of the plan term-either 20 or 25 years-the IDR will forgive the remaining balance, which will be taxed as income in the year it's forgiven.
An important note is that the required 120 payments do not need to be made consecutively. They do, however need to be scheduled. That means you can't accelerate payments, and overpaying won't help you reach forgiveness faster. In fact, extra payments will only decrease the future amount to be forgiven.
Working to preserve PSLF
Recently, PSLF has come under scrutiny, and concerns about its potential cost continue to be discussed by Congress. Adding to the uncertainty is the low approval rate-just over 1%-on the applications processed from 2017 to now. For people who are counting on PSLF, we know that questions about its status and approval rating can be especially stressful. Among the questions we hear are whether PSLF will be “guaranteed” for existing borrowers and whether forgiveness amounts will be capped. We don't yet have the answers, but when we do, we'll make them available at avma.org/PSLF.
Meanwhile, we're working with lawmakers and federal officials to better understand the issues and improve the program for our members who rely on it. We oppose any proposal to cap forgiveness amounts, and we continue to advocate for the preservation and funding of PSLF.
If you were denied from PSLF because you weren't in the correct repayment plan, you may be eligible to receive funds under a Temporary Expanded Public Service Loan Forgiveness program. Learn more at studentaid.ed.gov.
Making PSLF work for you
You can only apply for PSLF after you've made 120 qualifying payments. But if you're considering the program, there are things you can be doing now:
- File anEmployment Certification Form annually. This will help you (and the federal government) confirm that you meet PSLF employment criteria. We strongly urge anyone interested in PSLF to file this form every year. It's the only PSLF-specific paper trail you'll have on file with the government during the time you're working toward forgiveness. Find it in the Public Service Loan Forgiveness section on studentaid.ed.gov.
- Recertify your IDR annually. Document every conversation you have with your loan servicer, including reference numbers or employee IDs for each call. Also, double-check any information or recommendation provided to you, and keep a spreadsheet of all your payment amounts with dates and confirmation numbers.
- Be informed and be prepared. It's wise to have a backup plan in case PSLF doesn't work for you. An income-driven repayment plan-which you may already be enrolled in if you're working toward PSLF-can be a good option. Be sure to understand what this will look like if you need to use IDR-that it will affect your finances for a longer period and require saving for the added taxes that come with IDR's forgiveness.
Another thing you can do is help educate Congress and the public about how important this program is. Share your personal PSLF story by submitting a quick form on the AVMA Congressional Advocacy Network website: avmacan.avma.org.
IDRs and PSLF both offer debt forgiveness, but they are very different programs (see chart below). PSLF is not a loan repayment plan itself. You are required to make monthly payments through your IDR while you're working toward PSLF. Here are a few more key distinctions:
When debt is forgiven
- PSLF: After 120 qualifying payments, or 10 years if the payments are made consecutively.
- IDR: After 20 or 25 years, depending on the specific plan.
- Tax status
- PSLF: Forgiveness through PSLF is tax-free.
IDR: Forgiveness through IDR is taxed. This is important for borrowers who would have to plan for a potentially high tax bill in the year their debt balance is forgiven.
- Important paperwork
- PSLF: A Employer Certification Form is recommended annually.
- IDR: Recertification is required annually.
Matthew Salois, PhD, is chief economist and director of the Veterinary Economics Division at the AVMA. Caroline Cantner, VMD, is assistant director for student initiatives with the AVMA.