Student Loans + Public Service Loan Forgiveness: Everything you need to know

William Miller |

For many physicians and medical professionals one of the top concerns they have starting out revolves around student loan debts. The average physician comes out of medical school with around $203,000 in debt. This can seem like an insurmountable amount of money and can lead to a lot of stress. Having a plan for your student loans and knowing how you are going to pay them down will help you to minimize the “cost” of the loans. There are two commons methods that are used to pay off student loans: refinancing your loans and public student loan forgiveness. These concepts are what we will be focusing on for this blog.

What is Refinance?

Refinancing is simply replacing your existing student loans with a new loan. How can you benefit from this? Refinancing can offer you:

  • A lower monthly payment
  • A lower interest rate
  • Consolidating multiple loans into one (refinancing is not the same as consolidating)

Student loan interest rates can range between 3% - 14%. If the average interest rate on your private student loans is 8% on $203,000 (with a 10-year repayment) you would have a monthly payment of $2,463 and would have paid a total of $295,554 over the 10 years. With that same $203,000 (10-year repayment) with a 5% interest rate on your student loan, your monthly payments would $2,153 and you would have paid a total of $258,376. By refinancing your student loan and lowering your interest rate by 3%, you would save $310/month or $37,178 over the lifetime of the loans.

There are no limits to the number of times you can refinance your loans, but it’s important to note that each time you do refinance the new company will combine your unpaid interest and principal into the new loan’s principle. When you refinance your loans, you should compare offers from multiple lenders to choose the best one for your situation.

Should I Refinance My Student Loans?

This question has two parts because odds are you have private and federal student loans.

Private Student Loans

You should consider refinancing your private student loans. As mentioned above, by refinancing your loans you can lower your interest, lower you monthly payment and extend the term of your loan to give you more flexibility.  

Federal Student Loans

This depends on if you are going to work for a qualifying public service employer for 10 years.

  • If you are going to work in the public sector, then you should not look into refinancing your federal loans and you should look it to qualifying for Public Service Loan Forgiveness.
  • If you are going to work in private practice/own your own practice and are not going to qualify for Public Service Loan Forgiveness then you should treat your federal loans as if they were private ones.

What is Public Service Loan Forgiveness?

Public service loan forgiveness is a federal program that allows employees of public service employers to have their federal student loans forgiven after 120 qualifying payments (10 years).

With federal loans there are a lot of ways to pay back the loans, which ones are eligible to qualify?

  • Income-Based Repayment (IBR)
  • Pay As You Earn (PAYE)
  • Income Contingent Repayment (ICR)

Lastly, all the loan amounts forgiven under PSLF are not taxable.

Can I Apply For Public Student Loan Forgiveness?

Absolutely! You will need to complete the PSLF form (you should complete this every year and every time you change employers). After you have submitted the form for your 120 payments you should be notified. However, if you don’t hear anything from your servicer, follow up with them to make sure that you qualify for the PSLF.

Final Thoughts

While having student loans, especially the amount the average physician takes on during medical school, can cause a lot of stress. There are options available to you that minimize the total amount that you pay:

  • Refinancing
  • Public Service Loan Forgiveness

Having the right strategy to utilize these options to their fullest capabilities will help you create the foundation of your financial plan.



*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax, legal, or investment advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their accountant, financial planner, and counsel. Neither the information presented, nor any opinion expressed constitutes a representation by WM Wealth Planning as a specific recommendation to the purchase or sale of any securities/investment. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by WM Wealth Planning for educational purposes*­­­