Does anyone have experience with PSLF?

[crimp]

I’ve been dating my partner for about a year. She just finished school and works at a nonprofit hospital with low-income patients making just over $70k. I admire her career -- she's helping people who really need the help and doing it without just shoving opioids at them. She is frugal in many ways but has accumulated a rather staggering amount of debt in student loans. The debt is primarily from graduate school (DPT) but also partially from undergrad. Apparently many DPT students are graduating with MD levels of debt ($100k+) but to jobs with salaries far below that of an MD, around $70k to $90k. She has about $200k in federal student debt at this point. She also has a $10k EFund and about $80k in cash savings (mostly from a recent and earlier than expected inheritance, unfortunately).

We’ve talked candidly about the debt and how it constitutes a pretty dramatic financial emergency. I have been teaching her about basic investing over the past several weeks before having a conversation about her student loans. I don’t have the expertise to suggest the best course of action for how to handle the debt. She hasn’t been ignoring the debt build up and has been planning throughout school to take advantage of the Public Student Loan Forgiveness (PSLF) program. The idea of PSLF is that someone working in a service position (e.g. nonprofit healthcare) makes income-based payments on the loan over a 10 year period after which point PSLF is supposed to forgive the outstanding federal loan balance. She will be speaking with a financial advisory service through her employer soon to get advice on this. I’ve read some startling statistics about how few people applying have been able to actually discharge their balance through PSLF. I’m also a little concerned about relying on a program that might not exist in 10 years because of political shifts in the wind. Is anyone in the MMM community familiar with PSLF and how to compute whether it would be a better call to make the PSLF payments and invest the difference versus refinancing and paying down debt directly?

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service
https://www.npr.org/2018/09/21/650508381/data-shows-99-of-applicants-for-student-loan-forgiveness-denied

[SwordGuy]

If she goes the PSLF route, every single year she needs to get, in writing, that her employment that year qualified for PSLF.
If she wants to change jobs, get that it qualifies in writing before the job change.   Keep multiple copies of that documentation in different locations, like a copy at a parent's house.

I don't know whether all that's possible, but from the horror stories I've read, I sure as hell would try to make it happen.

Alternatively, she could live like a pauper for 4-5 years and be done with them.

[washingtonteach]

I am in it (I am a teacher). You don't necessarily have to fill out the Employment Certification Form every year. It is a good idea to do it whenever you switch jobs to make sure your new job counts in the PSLF program. I would also get on an income based repayment plan. This lowers your payment (to something like 10% of your disposable income if I remember right). You can still qualify for PSLF on an income based repayment plan.

I don't think this program will go away, if it does I would bet the people already in it would be grandfathered in.

[FI45RE]

I am in it (I am a teacher). You don't necessarily have to fill out the Employment Certification Form every year. It is a good idea to do it whenever you switch jobs to make sure your new job counts in the PSLF program. I would also get on an income based repayment plan. This lowers your payment (to something like 10% of your disposable income if I remember right). You can still qualify for PSLF on an income based repayment plan.

I don't think this program will go away, if it does I would bet the people already in it would be grandfathered in.

Just clarifying that, as far as I understand it, being on an income-based repayment program is *required* to qualify for PSLF.

[crimp]

Thanks all for the comments.

We had another conversation yesterday about this, and I think she has a reasonable plan. It seems like mathematically the best options are either to 1) completely commit to the PSLF program and only make income-based repayments or 2) to refinance and pay down the debt directly. She's not comfortable with either of those plans. In the first case, the IBR payments don't even cover the growth of the interest -- the balance will explode over the next decade, which is kind of terrifying. In the second case PSLF is off the table entirely. Her plan is sort of a hybrid.

She's planning to put the $80k towards the highest interest loans to eliminate those with interest rates above 6%. She's also going to sell her car now that she's living / working in the city and doesn't have to commute and put the proceeds towards the balance as well. She'll then continue to pay the qualifying IBR payments while also paying extra monthly to get the total balance below $100k as fast as possible. This is significant because at just below $100k, the IBR payment amount more than covers the growth of the interest. She'll reevaluate at that point whether it makes more sense to invest the difference between the IBR payment and the increased payment and wait for PSLF to kick in or to just finish off the balance directly.

[Daisyedwards800]

That is super terrifying to hear that some income-based repayment plans don't cover the growth of interest.  In my opinion, that is criminal of them to allow a program that will GROW the balance for people who are not financially savvy.  I am glad you two are on top of this and it sounds like a good plan.  I paid off $75,000 myself and it wasn't as bad as expected.  I made about $70-90k doing this.

[crimp]

That is super terrifying to hear that some income-based repayment plans don't cover the growth of interest.  In my opinion, that is criminal of them to allow a program that will GROW the balance for people who are not financially savvy.  I am glad you two are on top of this and it sounds like a good plan.  I paid off $75,000 myself and it wasn't as bad as expected.  I made about $70-90k doing this.

I agree, it's definitely not made clear on the loan servicer website that the payments made through IBR won't prevent the balance from increasing. I imagine some of the horror stories SwordGuy has heard were the result of people making IBR payments for a decade before finding that they hadn't made a dent in the balance and that they were ineligible for PSLF.

Thanks for the positive feedback, it's good to hear at least one success story.

[Psychstache]

That is super terrifying to hear that some income-based repayment plans don't cover the growth of interest.  In my opinion, that is criminal of them to allow a program that will GROW the balance for people who are not financially savvy.  I am glad you two are on top of this and it sounds like a good plan.  I paid off $75,000 myself and it wasn't as bad as expected.  I made about $70-90k doing this.

I agree, it's definitely not made clear on the loan servicer website that the payments made through IBR won't prevent the balance from increasing. I imagine some of the horror stories SwordGuy has heard were the result of people making IBR payments for a decade before finding that they hadn't made a dent in the balance and that they were ineligible for PSLF.

Thanks for the positive feedback, it's good to hear at least one success story.

As an ALMOST success story, I have been working on PSLF for about 9 years now. I complete and submit an ECF every year, and every year I get a letter back sayinf how many qualifying payments I have made, how many i have left, and my projected date of eligibility. Every time I sent it in, the numbers all line up with my calculations, so I'm just gonna trust the process at this point (while hanging on to all the copies of my documentation and the DoE letters).

I get back to you in March 2021 to see where I end up  ;)

[crimp]

...

As an ALMOST success story, I have been working on PSLF for about 9 years now. I complete and submit an ECF every year, and every year I get a letter back sayinf how many qualifying payments I have made, how many i have left, and my projected date of eligibility. Every time I sent it in, the numbers all line up with my calculations, so I'm just gonna trust the process at this point (while hanging on to all the copies of my documentation and the DoE letters).

I get back to you in March 2021 to see where I end up  ;)

That's exciting! It's good to know they respond with the number of payments / eligibility date. I was under the impression from what I had read that the DoE was very opaque about the process. I hope everything works out for you!