The Golden Handcuffs For Doctors – Loan Forgiveness

Graduating doctors often have a significant problem to overcome – student loan debt. Many new doctors will not consider a job unless there is some form of debt repayment or ability for debt forgiveness. Jobs that offer debt repayment can end up being a golden handcuff that keeps new doctors attached to their job for potentially longer than they would like. Think long and hard before accepting a job that requires employment for a prolonged period of time until initial “bonuses” are forgiven. After all, doctors switch jobs so often that you might be unlikely to take advantage of the loan or forgiveness offered.


Bonuses Disguised as Loans

Flyers come in the mail weekly offering relocation and loan forgiveness or bonuses. In reality these bonuses are meant to highly discourage new hires from leaving a new job. For example, one job offer I received offered $50,000 in loan repayment bonus upon joining. In the fine print on the 14th page of a 25 page contract was “the catch.” The bonus was to be structured as a loan if new employees left before 5 years of employment. After 3 years, 1/3 of the bonus is forgiven. By the 4th year, you’ll receive another 3rd in loan forgiveness. Finally after 5 years, the full bonus would be completely forgiven.

If a new employee left before the entire balance was forgiven, the remaining balance would have to be repaid with interest. Interest started calculating from the day the bonus (disguised as a loan) was distributed. The interest rate on this so-called bonus, 4.5%.

student loan refi for doctors

The alma mater of my better half. Football season here we come!


Golden Handcuffs Of Public Service Loan Forgiveness

Working for a non-profit often means taking a lower pay compared to doctors who work in private practice. There are many reasons to choose to work in an academic or non-profit setting. However, many of these companies will put a timeline on debt repayment. The $200,000 in debt repayment may sound great, but read your contact carefully. Often times, there will be a time requirement to stay at the job. Leave before your time is up?  Get ready to pay the money back (with potential interest).

The same can be said for PSLF. Using these programs ensure that another 10 years post medical school are devoted to serving in this type of location. Before committing to his program, ask yourself “Do you really want to work in a job that meets PSLF requirements till your almost 40 years old?”


Comparing Apples To Apples

my latest homebrew beer
My latest homebrew beer

Sit down all job offers and see what total compensation entails. Total compensation will include

  • Pay for services rendered to patients
  • Insurance paid for by the employer: Health/Dental/Disability/Life/Malpractice
  • CME, other allowances
  • Bonuses if any
  • Loan repayment
  • Moving stipend


The Problem With PSLF for Doctors

Since at least 2015, there has been talk about doctors potentially being excluded from Public Service Loan Forgiveness. A more recent article from CNN describes Betsy DeVos’ discussion on how government “budgets in the future will ensure funding for programs with proven results for students while taking a hard look at programs that sound nice but simply haven’t yielded the desired outcomes.”

The first batch of students eligible for PSLF will occur next month in September 2017. Only time will tell how long this program continues for doctors.

My concern is that if the economy were to take a downturn and budgets are more closely scrutinized, doctors receiving PSLF might be high on the list of programs to cut. It will not look good in a recession for a doctor, who has a stable job making six figures, is expected to get hundreds of thousands of dollars in debt forgiven.


What If Jobs Change Or Are Bought Out

One of my colleagues worked for a company that was recently bought out. The job was reclassified as a for-profit. If he stayed with this company, he would no longer meet the 120 payments of PSLF requirements. This forced him to sell his house and move to another city, in order; to obtain a job that could meet these requirements.

If you think your group is too big to be bought, think again. IPC, an internal medicine hospitalist group, was bought by Team Health for 1.6 Billion dollars.


Public Service Loan Forgiveness For Doctors

Looking to the future, no one can predict what things will hold. Continuing the 120 loan payments is in some ways betting that the Public Service Loan Forgiveness program in the next 10 years does not change at any given time. The government can change their mind any time. If you’re able to, refinance your loans rather than taking advantage of Public Service Loan Forgiveness.







7 thoughts on “The Golden Handcuffs For Doctors – Loan Forgiveness

  • August 21, 2017 at 9:44 AM

    Yup- I have a “signing bonus” That is forgiven in year 5, 6, and 7 of service. 7 Years! It is okay though since at 5 years I am vested in my 401k (first road mark), 7 years the loan is paid off (second road mark), and then finally at 10 years I am vested in my pension at the age of 46. So my goal is to make it 10 years…check back with me in 5 and lets see how I am doing.

    • August 21, 2017 at 1:34 PM

      Seems to be similar to what my friends have been receiving. I’m glad to know you’re halfway there and are fully vested in the 401k! That’s one milestone down:)

  • September 4, 2017 at 7:29 PM

    Where do we find the principle documentation or organization that runs the PSLF program? Is it just the DOE?

  • September 4, 2017 at 7:55 PM

    New higher? Seriously?

    • September 4, 2017 at 8:47 PM

      Thanks for pointing out the error. It has been corrected.

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