The new student loan forgiveness program

Becoming a healthcare worker takes years of hard work and sacrifice, and, for many, costs hundreds of thousands of dollars in educational expenses. Nearly 70% of medical school graduates left school with debt in 2021, according to the American Association of Medical Colleges. Graduates had an average debt of $250,222 for public universities and $330,180 for private schools. If you’re one of the many healthcare workers with student loan debt, you know that paying off that debt can often take decades and feel extremely daunting and stressful.

The Biden-Harris administration announced a plan that includes up to $20,000 in student loan forgiveness — and as a healthcare worker, you may be wondering what it means for you. Here’s our breakdown of the debt relief plan and how it could affect your student loan debts.

The Student Debt Relief Plan Explained

The Biden-Harris Administration’s recent plan to tackle student loan debt has three parts.

• A final extension of the student loan repayment pause until December 31, 2022. Payments are set to start in January 2023, which means borrowers who have not been paying their loans will have to start paying. Any payments made from now until December 31, 2022, will go directly to the principal on the loan instead of both the principal and interest.

• Targeted debt relief for specific households, including up to $20,000 in cancellations for Pell Grant recipients and $10,000 in debt cancellation for non-Pell Grant recipients. Healthcare workers are eligible for this cancellation if their income is less than $125,000 for individuals and $250,000 for households in 2021 or 2020. In order to apply for this relief, log into your StudentAid.gov account and submit an application before December 31, 2023. Relief will typically come in around four to six weeks.

• A more manageable student loan system, including a proposed income-driven repayment plan that will require borrowers to pay no more than 5% of their income on undergraduate loans. It will also give forgiveness after 10 years of payments, instead of 20 years.

The bottom line — for many practicing physicians, the targeted debt relief will do little to alleviate their large student loan burden, due to the income limits. However, for other healthcare workers who made less than $125,000 (or $250,000 for households) in the last 2 years, this could mean a meaningful reprieve. Also, recently-graduated medical students and residents may be able to take advantage of the program, as their earnings are less earlier in their career (the average salary of a first-year resident is around $60,000).

Other student loan forgiveness options for physicians

Public Service Loan Forgiveness

If you have Direct Federal student loans (or have consolidated your loans into a Direct Consolidation Loan), you may be able to apply to the Public Service Loan Forgiveness Program. You’re eligible if you work full-time for the government or a non-profit organization, and have been paying off your debt under an income-driven repayment plan. On top of all of that, you’re required to make 120 qualifying payments.

The good news is that many hospitals are certified non-profits, but this requirement can often cap a doctor’s earning potential and limit where they can live.

There have been temporary changes to the program to make it easier for doctors to claim forgiveness. The changes apply to specific healthcare professionals with federal loans, and are expected to end on October 31, 2022.

If you’re on the wrong payment plan: If you work full time for a qualifying employer you can receive a credit towards the PSLF for all the payments you made on the wrong plan — you can save thousands of dollars this year.

If you have the wrong loan: Previously, the PSLF only covered direct federal loans. Now, if you have FFEL or Perkins loans, you qualify for the program.

Income-driven repayment plans

You can also sign up for an income-driven replacement plan, which sets the amount you owe based on your income and family size, typically between 10% and 20% of your income. Under an IDR plan, payments are typically smaller for the first few years of working, and grow as your income does. These plans typically last 20 to 25 years — after that period ends, any remaining debt will be forgiven. While the Biden-Harris Administration has proposed changes to these plans, they haven’t been implemented yet.

Dealing with your debt can be extremely time-consuming, and spending hours filling out paperwork to apply for a forgiveness program is the last thing you want to be doing. Using a service like Plannery’s can take “debt” of your to-do list. We can help you consolidate your debt loans, and take auto deductions right from your payroll, getting you closer to becoming debt free with each paycheck.

The latest on the Biden-Harris student loan forgiveness program

Since the announcement, there has been a lot of chatter on the pros and cons of forgiving student loan debt including legal challenges. Here is the latest on where the program stands:

On October 21st, the U.S. 8th Circuit Court of Appeals issued an order to prohibit the Biden-Harris administration from “discharging any student loan debt” under the relief program.

While the Education Department cannot implement the student loan forgiveness program, while the court ordered hold in place, it is still taking in applications in hopes of implementing the program if the court order is lifted. You can apply for loan forgiveness here

While it's hard to know when and how these cases will turn out, it makes sense to apply for the forgiveness program in case you qualify.