PSLF question

[Frenchy1011]

Hey all,

I have a quick question about PSLF and PAYE payments. Hopefully I can get some clarification, or reassurance.

As background info, I am a relatively new attending, currently 1.5 years out of residency. So last year when I applied reapplied for PAYE, I did not have them use the previous years tax return when calculating my payments, as they said that if my income had significantly changed that I should not use the previous years tax return, rather I submitted two current pay stubs for that calculation. My monthly payment was $1000.

This year, without really thinking about it, I reapplied and gave the ok to use my previous years tax return. Now that I think about it, my previous years tax return was only taking half of a year of attending salary and half a year of residency into calculation, so my income was most likely significantly lower than my 2017 tax return will be when it comes to income. Anyway, my new payment based on the 2016 tax return will only be $380. All the paperwork looks right, and they approved me and everything.

I guess my question is, is this ok? My loans are approximately $300,000 so that $400 monthly is not even a drop in the bucket. I am currently 4 years into PSLF. My concern is how much lower my monthly payment is this year from last year. Should I do something about this? Do I call FedLoan and try to update it to get a more reasonable monthly payment? Or do I simply thank whoever made that calculation and take what I get handed to me? I guess I just feel weird paying $600 less a month when essentially I am making the same I did at this time last year. Just looking for reassurance that this is fine to do, and that my payments will remain ok and consistent with PSLF. Sorry for the long winded question, and thank you to anybody who took the time to read this.

[nachos31]

Hmm I would have just used your prior year's tax return the year you graduated and then you wouldn't be in this quandary. However, hindsight is 20/20.

Perhaps the solution is to enjoy this year and next year submit pay stubs again. This way they can't tell when your income increased. If you use a tax return next year they could potentially wisen up to the fact that you should have been paying more this year. The year after that then perhaps go to tax returns if you choose.

Not very helpful but there are not a lot of definite answers regarding PSLF. Case in point: we are still waiting for that first magical unicorn who applies for and receives PSLF formally.

 

[Frenchy1011]

Fair point. Although if I use pay stubs next year it’ should essentially be the same as if I used the tax return as my income will not change much between 2017 and 2018. I liken this a bit back to first year residency, where I was maybe making 50k yearly but had PAYE payments of $0. I think as long as they approve me for PAYE and they’ve done the calculations, then I should be fine. I think I will most likely leave it as is and enjoy this year and go back to paying $1000 monthly next year. At the end of the day I’m not doing anything illegal or going against the rules of PSLF. I’m simply reapplying for PAYE using previous years tax return, which is the most common and generally accepted way of doing it. Probably shouldn’t of submitted pay stubs last year, but oh well. I still feel like I’m following all the rules, and I don’t see how the government would find fault with this. Thanks for the response though. Definitely things to think about over this next year.

[cgossage]

If they approved you, you don't have anything to worry about for PSLF.  PSLF only requires that you make 120 qualifying payments and they aren't going to look back to check that you were consistent in the way you applied for PAYE.

The payments only count though if you are working for qualifying employer, so make sure you are working for a 501c3 and are submitting your employment certification form every year as well.  You also may want to double check that all of your loans qualify for PSLF since FFEL, Perkins, and Private Loans will not.

[Frenchy1011]

Great. Thanks for the response. I am working for a 501c3 and all my loans are federal loans and I submit an ECF every year so I’m good on that front. I think I will just count my blessings and take the year of reduced payments. Thanks again!

[Chase_WrenneFinancial]

cgossage wrote:

If they approved you, you don’t have anything to worry about for PSLF.  PSLF only requires that you make 120 qualifying payments and they aren’t going to look back to check that you were consistent in the way you applied for PAYE.

The payments only count though if you are working for qualifying employer, so make sure you are working for a 501c3 and are submitting your employment certification form every year as well.  You also may want to double check that all of your loans qualify for PSLF since FFEL, Perkins, and Private Loans will not.

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I would actually be careful about this.  The whole lawsuit fiasco from a few months ago was due to Servicers approving PSLF payments that weren't actually valid.  It cost a lot of people a lot of money -- they thought they were eligible for PSLF, but they weren't, despite being approved by the servicer.

While the payments are approved by the servicer, the forgiveness is granted by the Department of Education.  There's technically a risk of DoE auditing your payments and considering your application invalid or even fraudulent.  While this hasn't yet happened, big money is on the line, so it's not out of the question.

This is a completely gray area, so I'm not sure there is a right answer.  I would just be aware of the risks you're assuming -- mainly that it could be audited, and deemed invalid.

[Frenchy1011]

Chase_WrenneFinancial wrote:

cgossage wrote:

If they approved you, you don’t have anything to worry about for PSLF.  PSLF only requires that you make 120 qualifying payments and they aren’t going to look back to check that you were consistent in the way you applied for PAYE.

The payments only count though if you are working for qualifying employer, so make sure you are working for a 501c3 and are submitting your employment certification form every year as well.  You also may want to double check that all of your loans qualify for PSLF since FFEL, Perkins, and Private Loans will not.

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I would actually be careful about this.  The whole lawsuit fiasco from a few months ago was due to Servicers approving PSLF payments that weren’t actually valid.  It cost a lot of people a lot of money — they thought they were eligible for PSLF, but they weren’t, despite being approved by the servicer.

While the payments are approved by the servicer, the forgiveness is granted by the Department of Education.  There’s technically a risk of DoE auditing your payments and considering your application invalid or even fraudulent.  While this hasn’t yet happened, big money is on the line, so it’s not out of the question.

This is a completely gray area, so I’m not sure there is a right answer.  I would just be aware of the risks you’re assuming — mainly that it could be audited, and deemed invalid.

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Although I agree with you that there is a risk, I don't think I have an option at this point. I spoke with FedLoan this morning, and they were not helpful at all. They stated that I was already approved for the new PAYE and that if I wanted to reapply it would take 1-2 months to be put through, and my first new payments comes due in January, so not sure that would work.

 

Also, the lawsuit that was done was because the job that those people had were non-profit, and there was a question as to the validity of that. This has nothing to do with the PSLF/PAYE question. I am clearly doing PAYE payments, and am in a 501(c)3 corporation, which in my opinion is under much stronger footing that what the people bringing the lawsuit were under. I suppose if I get audited, then they may not approve this next year of payments under PAYE towards the PSLF, in which case I would need to make an extra year of payments, which would not be the end of the world. I find it very hard to believe that they would invalidate the entire 120 payments because I was given a lower monthly payment (yet still under official PAYE) for 12 of those. At the end of the day, I don't think there's much for me to do now about it, and I will cross the line if that comes. Stressful situation all around though unfortunately. Thank you for your answer.

[ChristopherMD20]

I was always skeptical that my loans would actually get paid off even if I made all the qualifying payments etc. However, it seems that you are much more confident in the program and have committed to it. Therefore, I agree that you should take the reduction since it is counting towards your 120 payments and decreasing the total amount paid over the 120 payments. Sounds like a pretty awesome deal assuming the Department of Education keeps their word.

 

My skepticism lead to my wife and I refinancing my loans during residency. I am currently a PGY-5 fellow and we will be paying off my loans by the end of this year's fellowship. I may pay a significant amount back in loans in comparison to those who get their loans forgiven. However, this was a very personal decision for my wife and me. I personally do not like feeling "enslaved" by the debt and it provided my wife and I emotional/stress liberation by living well below our means during training. It has been incredibly gratifying by chunking away at the debt so we will not have anything hanging over our heads.

[MPMD]

ChristopherMD20 wrote:

I was always skeptical that my loans would actually get paid off even if I made all the qualifying payments etc. However, it seems that you are much more confident in the program and have committed to it. Therefore, I agree that you should take the reduction since it is counting towards your 120 payments and decreasing the total amount paid over the 120 payments. Sounds like a pretty awesome deal assuming the Department of Education keeps their word.

 

My skepticism lead to my wife and I refinancing my loans during residency. I am currently a PGY-5 fellow and we will be paying off my loans by the end of this year’s fellowship. I may pay a significant amount back in loans in comparison to those who get their loans forgiven. However, this was a very personal decision for my wife and me. I personally do not like feeling “enslaved” by the debt and it provided my wife and I emotional/stress liberation by living well below our means during training. It has been incredibly gratifying by chunking away at the debt so we will not have anything hanging over our heads.

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dude i don't think getting out of debt is ever a bad idea. esp with a program like this. we still don't have a case study of a doc being forgiven do we?

[ChristopherMD20]

No docs have been reported to have their loans forgiven yet. I haven't really seen anything confirmed regardless.

MPMD- I am super pumped about us nearly paying off the debt. However, the original poster seems committed to the program. My bias is towards paying off debt but I was fortunate to have a wife earning a good salary. I don't know the OP situation so it would be irresponsible of me to encourage he/she to refinance and pay it off instead of sticking with the PSLF program when his/her circumstances may not dictate that.

[Frenchy1011]

ChristopherMD20 wrote:

MPMD- I am super pumped about us nearly paying off the debt. However, the original poster seems committed to the program. My bias is towards paying off debt but I was fortunate to have a wife earning a good salary. I don’t know the OP situation so it would be irresponsible of me to encourage he/she to refinance and pay it off instead of sticking with the PSLF program when his/her circumstances may not dictate that.

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Yea so I am an FP physician in the Midwest, so making $175k yearly, and am the sole breadwinner of the family. Am already 4 years into the PSLF program, and my loans are currently at 330k. In my opinion, the best course at this point is hoping that the PSLF program continues and I do what I can to make sure I get those loans forgiven. I am maxing out my retirement accounts, and have a 50% savings rate not including my loan payments, so as long as the program sticks around, I am well on my way. If disaster comes and I can no longer do the PSLF, I will most likely have to simply divert the retirement savings to the loan payments, and do that for however long it takes to pay it off. This is the best way for me to maximize things. That being said, I find it very very unlikely, if not impossible, to imagine that they would cancel the PSLF program AND not grandfather in people who were already paying into it and submitting the Employment Certification Forms, etc. I do think that they will cancel the program eventually, but I find it hard to believe that they would not allow somebody who has paid multiple years into the program to not finish it out. Even Trump's previous proposal that did away with the PSLF program allowed people already enrolled to continue on. Essentially, just keeping my fingers crossed haha.

[cgossage]

I expect the program to to be cancelled or modified for high wage earners as well, but as of now all signs point to those that are currently eligible will be grandfathered in.  I think you are taking a smart approach.  Play the game according to the current rules but plan for the worst in case the rules change.

[cgossage]

The lawsuit was for people told they were working for an eligible institution or that their loans were eligible when they were not.  I haven't heard of anyone been audited for submitting documentation for an income-based plan.  Most payers will use the prior year tax return regardless.  There aren't any rules that say you must submit current pay stubs instead of the prior tax return or you will be ineligible for an income-based plan or PSLF.

[ChristopherMD20]

Agree with cgossage 100% about playing the game with the current rules but having a backup plan. I think you are doing things the way I would if I were in the same boat Frenchy. I will keep hoping for the best.

The thing that concerns me is the public perception of "rich doctors" having their loans paid off by taxpayers when the Dept of Education is on the hook for >$25billion over the next 10 years.

[Frenchy1011]

cgossage wrote:

The lawsuit was for people told they were working for an eligible institution or that their loans were eligible when they were not.  I haven’t heard of anyone been audited for submitting documentation for an income-based plan.  Most payers will use the prior year tax return regardless.  There aren’t any rules that say you must submit current pay stubs instead of the prior tax return or you will be ineligible for an income-based plan or PSLF.

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Thank you for the response, I tend to agree with you.

ChristopherMD20 wrote:

Agree with cgossage 100% about playing the game with the current rules but having a backup plan. I think you are doing things the way I would if I were in the same boat Frenchy. I will keep hoping for the best. The thing that concerns me is the public perception of “rich doctors” having their loans paid off by taxpayers when the Dept of Education is on the hook for >$25billion over the next 10 years.

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I agree as well. The optics of the forgiveness is not great for sure. Which is why I would assume the process will change eventually. Just hopefully for new borrowers haha.