Paying off Your Student Loans Part 2: Forbearance and Forgiveness

Graduating from medical school is a euphoric experience. All that hard work, all that studying, all that sacrifice. And now, it’s official – you are a doctor.

Congratulations!

You’ve made a lot of sacrifices, personally and financially. And as reality begins to set in, you start to wonder how you’ll pay off all your student loans.

In Part 1 of this series, we discussed the pros and cons of loan consolidation. Here in Part 2, we explore ways in which you can defer your payments or reduce your debt substantially through Public Service Loan Forgiveness.

Forbearance alternatives

If you have a federal loan, there is a medical-resident-specific forbearance you may select which allows you to put your payments on hold for an extended period of time during training, although you will have to reapply every 12 months. During this forbearance period, interest accrues (with no subsidy on subsidized loans) and is added to your loan balance every 12 months. As a result, the balance grows, and interest charges increase throughout the time.

Although forbearance may feel like the easiest short-term solution, the resulting accumulation and subsequent capitalization of interest charges make it one of the costliest debt management approaches. For many, the capitalization of interest during a forbearance period can feel like a snowball growing as it barrels downhill.

Despite the steep cost, many residents decide to forbear their loans for as long as possible and begin paying down the debt while working as attendings. While some residents favor this method, the rapid accumulation of interest charges usually result in additional years of payments.

The Public Service Loan Forgiveness Program

If you work full-time in a public service position within a not-for-profit organization or for a U.S., state, local or tribal organization, you can have the remaining balance of your federal loans forgiven under the Public Service Loan Forgiveness (PSLF) Program when you meet the following requirements.

The Program requires you to make 120 qualifying monthly payments against the student loans with limited exceptions. It also requires you to make those payments and apply for forgiveness while being full-time employee in a public service position such as a nonprofit tax-exempt 501(c)(3); a federal, state, local, or tribal government organization, agency, or entity; a branch of the military; or a public service organization. However, the payments do not have to be consecutive, so if you have a period of employment with a nonqualifying employer, you won’t lose credit for any prior qualifying payments you made.

In most cases, debt forgiveness under the PSLF Program is only an option if you use an income-driven repayment service such as Income Based Repayment (IBR), Pay As You Earn (PAYE), or Revised Pay As You Earn (REPAYE), as payments under the standard 10-year repayment plan would result in the loans being paid off at the time of your debt forgiveness qualification.

In summary

For those who qualify, the PSLF Program can be invaluable in relieving you from a good portion of your debt.