Q. I understand there’s a way to get my student loans forgiven if I work for a non-profit hospital. How does that work?

A. You’re referring to the Public Service Loan Forgiveness (PSLF) program. This federal program allows you to have the remainder of your federal direct student loans forgiven, tax-free, if you make 120 monthly payments under an eligible payment plan while being employed full-time by the military, Veterans Administration, or a 501(c)3 employer (ie, a non-profit employer).

Eligible payment plans include the standard 10-year repayment plan along with three income driven repayment (IDR) programs: Income Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (RePAYE). These IDR plans also have a forgiveness component to them, which doesn’t require you to work for a 501(c)3, but they require 20–25 years of payments, after which most emergency physicians (EPs) would have paid their loans off anyway. The amount forgiven is taxable. Thus, PSLF is really the only federal forgiveness program that most EPs should consider.

Most residency and fellowship programs qualify as non-profit employers, as do many academic positions and some community emergency physician positions. Bear in mind that working in a non-profit hospital doesn’t necessarily allow you to qualify. You must be an employee of the hospital, not a partner or employee of a private group that contracts with the hospital.

A typical EP with a typical medical school debt burden wouldn’t have any debt left to forgive after making 120 monthly payments under the standard 10-year repayment plan. The secret to actually receiving economic benefit under this program lies in enrolling in one of the other programs. PAYE and RePAYE have the lowest required payments—10 percent of discretionary income, which is defined as the difference between your income and 150 percent of the poverty line for your geographic area and family size. Note that the payments have nothing to do with the amount or interest rate of your debt. During residency, RePAYE is often the best program to enroll in because it may actually subsidize the loan, lowering your effective interest rate. PAYE is usually the best program after residency because, unlike RePAYE, it caps payments at the 10-year standard repayment plan amount.

The amount left to be forgiven after 10 years of payments turns out to be essentially the difference between what you would’ve paid under the standard repayment plan and what you did pay under an IDR plan. So, a typical medical student may graduate with $200,000 in debt, which grows to $250,000 during residency (IDR payments don’t even cover the interest on the debt). The student then pays it down to perhaps $150,000 as an attending, at which point the rest is forgiven. The more payments you make that are less than the standard payments, the more debt is left to be forgiven after 120 payments.