Changes in Public Service Loan Forgiveness Worry Doctors

For most American medical students, graduating doesn’t just mean starting the job they dedicated years of training to — it also means paying off student loans. Physicians hold the highest student debt of any profession, with an average of over $230,000 for medical school alone. 

About a third of medical students say they plan to use the US Public Service Loan Forgiveness (PSLF) Program to pay off federal loans. If they work in a qualifying hospital or clinic for 10 years and make 120 monthly loan repayments, the rest of their debt will be erased. The amount forgiven depends on salary and the amount of loan repayments.

Some students and physicians are alarmed by language tucked into the Republican budget bill, now being debated in Congress, that would exclude residency years from counting toward PSLF. Residencies can range from 3 to 7 years depending on specialty.

“At a time when our country urgently needs more doctors, especially in underserved areas, this bill would create new financial and logistical barriers that disproportionately harm low-income students,” warned Shannon Udovic-Constant, president of the California Medical Association. 

At the same time, the Department of Education is holding public hearings on student loan program rules with the possibility of limiting which hospitals and clinics are eligible for PSLF. The agency did not respond to Medscape’s request for comment.

Today, rural and community hospitals, Veteran Affairs health services, and most nonprofit and academic medical institutions qualify for PSLF. Graduates can start their 10-year countdown at the beginning of their residency. 

Critics of the proposed changes say that making it harder for new doctors to use PSLF will discourage them from choosing lower-paid specialties like primary care or pediatrics and could reduce access to care in rural or underserved regions. 

“I went into pediatric endocrinology knowing that I would work for an academic non-profit hospital, and as such, would qualify for Public Service Loan Forgiveness,” wrote Brittany Bruggerman, a pediatric endocrinologist at the University of Florida, on Facebook. “If I thought I would have to pay back my $200k of loans on my own… I may have made a different choice.”

Limiting Options for Physicians

These aren’t the first attempts to reform the PSLF. While an important lifeline for many students, the program is far from perfect and suffers from bureaucratic hurdles and an overall lack of clarity, said Dimitri Koustas, an assistant professor at the Harris school of Public Policy, University of Chicago. 

Some of the rules of the program, including income thresholds and which employers qualify, can seem arbitrary, he said. The proposed PSLF changes reduce rather than expand eligibility. The intent is to address what is referred to as the “doctors’ loophole,” explained Audra McGeorge, communications director of the Republican-controlled House Committee on Education & the Workforce. 

Doctors who begin repaying their student loans during residency do so on a low salary which rises significantly once they become attendings; so for those years, they benefit from a high discount on their loan repayment. 

Supporters of PSLF changes say residency years should be considered part of doctors’ education, not employment. 

To that end, the budget bill would allow physicians and dentists to defer loan payments during their residency years without accruing interest, based on the premise that residency is education, not employment. 

That would benefit residents earning lower salaries, said McGeorge. Currently, federal loan payment can be deferred during residency, but in some cases interest continues to accrue. 

Broader Repercussions for Healthcare

Medical organizations and students worry that the proposed PSLF changes could have long-lasting repercussions for doctors’ careers and for healthcare more broadly. 

Reducing PSLF’s benefits for medical students “could have the effect of pushing indebted medical students away from academic practice and away from lower paying specialties,” said Jim Dahle, an emergency physician and the founder of The White Coat Investor, a personal finance site for doctors. Some low-income students, worried about decades of debt, may decide not to pursue medicine at all.

For medical students, having residency years no longer qualify for PSLF “would be a major blow,” said Santoshi Billakota, a neurologist and epileptologist at Wyckoff Heights in Brooklyn, NY, and the co-host of Be Empowered, a podcast offering financial advice for doctors. “PSLF was one of the few incentives encouraging new doctors to work in underserved or rural areas that often pay significantly less.”

Doctors and students also noted that, due to the structure of the residency matching process, they have limited control over where they end up in residency, and those who ended up in lower-paying positions would be penalized if they couldn’t offset the loss of income by participating in PSLF. The National Resident Matching Program, which places medical students in residency, did not respond to Medscape’s request for comment.

A Threat to the Healthcare System

The intent behind the PSLF program, said Koustas, is to encourage professionals — in this case doctors — to take on roles they would otherwise remain unfulfilled because of the incentive of seeing their debt forgiven. 

Once that incentive is gone, his research found, people tend to leave their posts and gravitate toward higher paying positions. 

This, said Koustas, was the unexpected part of forgiveness that happened during the Biden administration, which granted borrowers a one-time adjustment that would include payments made outside of qualifying employment to count toward debt forgiveness. “We did see that people switched out of public service and the not-for-profit sectors when they got forgiveness,” he said.

“I am a physician who is currently enrolled in PSLF. Neither of my parents were college educated nor did they have the funds to pay for my education,” said Mary Flaherty, a neurologist. “It saddens me that other people from my background will not be able to access higher education to make our country better. I would not be where I am today if it were not for federal student loans.”

Koustas’ research confirms that first-generation students and those from lower income tend to be more debt averse and may be more likely not to choose an expensive educational path if it didn’t come with an early opportunity of debt relief. 

“I entered medicine not for personal financial gain, but out of a sincere desire to serve our nation’s military veterans,” wrote Austin Miller, an incoming resident in Physical Medicine and Rehabilitation at Sinai Hospital of Baltimore, in a comment to the Department of Education. “The PSLF program has been the only realistic path forward to both manage [my] debt and serve in a lower-paying but essential public sector role, such as practicing at the VA after residency.”