Public Service Loan Forgiveness, also known as PSLF, is a program for removing student debt for those that work full-time in public service.
In essence: work 10-years full time at a public service organization (generally a 501(c)3 not-for-profit or government agency) and any remaining balance on your loans is forgiven!
So is this program for everyone? No, but we’ve decided that this is the right plan for us.
So how are we approaching it and how are we mitigating risk?
Honestly, we were reluctant to get on the PSLF bandwagon. My wife’s medical school debt contributed to the vast majority of our student debts and we knew it was going to be a big burden for us, as a family, to tackle.
After medical school, we consolidated my wife’s loans for convenience. Then during residency, we had to use an income-based repayment plan in order to simply stay afloat. The standard repayment plan was simply too high for our budget. Furthermore, my wife’s residency was at a government hospital. This meant that her time in residency would count towards PSLF.
However, during this time, we had a great suspicion if anyone was actually going to get forgiveness through PSLF since no one had received forgiveness to-date. Nevertheless, we plodded along during residency paying a small monthly payment and allowing our loans to, admittedly, grow in size since we were not even paying off the interest.
We finally had reached a turning point.
After residency, we started to look more seriously at our loans. We finally had enough income to consider refinancing our loans to lower the interest rate and then paying off our loans in an aggressive fashion. However, by now, we had also accumulated a significant amount of qualifying payments towards PSLF. We finally had reached a turning point.
So what did we decide?
Basically for us it came down to two options: continue the course for PSLF or refinance our loans and pay them off with abandon. We actually ended up talking with a student loan consultant who helped center our thoughts.
just in case there’s a change of heart for forgiving loans to high-income earners, we’re also hedging our bet
Fortunately, there have been some reports of people receiving forgiveness already. First, a FedLoan employee mentioned that it’s real — someone actually got their loans forgiven. Then someone posted who had had $185,000 forgiven. Even recently, someone else posted that they got forgiveness, but admittedly had difficultly getting it approved — even went as far as contacting their US Senator!
Nevertheless, the program seems to be legit — borrowers are getting their loans forgiven.
However, just in case there’s a change of heart for forgiving loans to high-income earners, we’re also hedging our bet, so to speak. How, you ask?
By also investing heavily in a taxable account.
Essentially for us, our 10-year repayment plan was around $3,600 a month. That’s a lot of money. At the moment, our repayment plan has us paying around $1,600. We’ve then decided to contribute $2,000 a month to a taxable investment account.
The logic being that if for some reason, our PSLF gamble doesn’t pan out — the government decides that “bailing out doctors” isn’t in their game plan, we’ll have stocked up a good amount of money to just pay down the loans and then attack the rest.
However, if we do receive forgiveness, then we’ll just keep the investment account and be that much closer to our financial independence / retiring early (FIRE) goals!
Where are we at?
As of this writing, my wife is still on track to PSLF by working for a government position full-time. We’ve had some skipped months in our counts due to either changing repayment programs or gaps in work, but according to FedLoan, we are on track to receive loan forgiveness on January 10th, 2023.
That’s only a little more than 4 years away. We are over the hump of PSLF!
So for us, we’re just going to keep on the path of PSLF and also keep saving on the side. You never know what the future may hold, and for us, this is the safest way to ensure our family is taken care of.
Are your loans PSLF-eligible? Are you planning on PSLF to handle your student debts? Why or why not?