Student Loan Forgiveness Plans Exclude Physicians

In the run up to the midterm elections in November, President Biden has warmed to student loan forgiveness. However, before even being proposed, severe restrictions have been attached to the forgiveness that would severely limit any effective forgiveness for physicians.

What Was the Plan?

During the 2020 election, student loan forgiveness was a hot topic as the COVID epidemic raged. The CARES Act has placed all federal student loans in forbearance, with no payments made and the interest rate set to 0% to prevent further accrual. While this was tremendously useful to 45 million borrowers around the country (including the author), nothing material was done to deal with the loans.

The Biden Administration's approach at that time was multi-tiered, and chaotic. Plans were put forward that either expanded Public Service Loan Forgiveness (PSLF), or capped it. Plans were put forward that either extended free undergraduate, or severely limited it through Pell Grants. Unfortunately, that duality continues today, with current plans not having a clear goal or a target group of beneficiaries.

Necessary CARES Act Extensions

The Biden Administration has attempted repeatedly to turn the student loan apparatus back on, restarting payments en masse. However, each time, they are beset by challenges, ranging from repeat COVID spikes to servicer withdrawals or macroeconomic indicators of a recession.

At each step, the administration has had little choice but to extend the CARES Act forbearance, lest they suffer retribution for hastily resuming payments for 45 million borrowers without the apparatus to do so. Two years ago, the major federal servicers laid off hundreds, if not thousands, of staffers responsible for payment processing, accounting, customer care, and taxation. Hiring, training, and staffing these positions is nontrivial.

The administration has been out of step with servicers such that three of the largest have chosen not to renew their contracts: Navient, MyFedLoan, and Granite State Management and Resources. This has left 15 million borrowers in the lurch, not knowing who their servicer is — and, even worse, losing track of qualifying payments toward programs like PSLF.

Avenues of Forgiveness

There are two major pathways to forgiveness. It is widely believed that the executive branch has the authority to broadly forgive student loans under executive order and managed through the US Department of Education.

The alternative is through congressional action, voting on forgiveness as an economic stimulus plan. There is little appetite in congress for forgiveness, and prominent congresspeople like Senators Warren and Schumer have both pushed the executive branch for forgiveness in recognition of this.

What Has Been Proposed?

First, it's important to state that as headline-grabbing as it is to see that $50,000 of forgiveness has been proposed, the reality is that President Biden has repeatedly stated that he will not be in favor of that level of forgiveness. Instead, the number most commonly being discussed is $10,000. This would represent an unprecedented amount of support, alleviating 35% of borrowers of all student debt.

The Impact of Proposed Forgiveness Plans for Physicians

For the medical community, sadly, this doesn't represent a significant amount of forgiveness. At graduation, the average MD has $203,000 in debt, and the average DO has $258,000 in debt. These numbers grow during residency for years before any meaningful payments are made.

Further weakening forgiveness plans for physicians has been two caps proposed by the administration in recent days. The first is an income cap of $125,000. While this would maintain forgiveness for nearly all residents and fellows, this would exclude nearly every practicing physician. The alternative to an income cap is specific exclusion of certain careers seen to be high-earning: doctors and lawyers.

The Bottom Line

Physicians are unlikely to be included in any forgiveness plans being proposed recently by the Biden Administration. If they are considered, it will be for exclusion from any forgiveness offered.

For physicians no longer eligible for PSLF, this exclusion needs to be considered in managing student loan debt associated with becoming a doctor.

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About Dr Ned Palmer

Ned Palmer, MD, MPH, is the COO and co-founder of Panacea Financial, the national digital bank for doctors. He is also a practicing pediatric hospitalist at Boston Children's Hospital and is on faculty at Harvard Medical School. He has been published on Medscape and in Academic Medicine on the topics of physician debt, and has lectured nationally on student debt and financial literacy for doctors and doctors-in-training.

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