The good news is that pharmacists make a great living with a median salary of $121,500. The bad news is that pharmacists, especially new practitioners, are often swimming in student loan debt. According to the American Association of Colleges of Pharmacy Graduating Student Survey for 2015, 89% of pharmacy students borrowed money to pay for college expenses, with a median loan balance of $150,000 on graduation. In 2009, that figure was just $100,000. With student loan debt rising exponentially, the conversation around choosing the right student loan repayment option is becoming much more prevalent. Specifically, more borrowers are wondering if they should opt into the Public Service Loan Forgiveness (PSLF) program. [Note: This article will focus on student loans and repayment options offered by the federal government. If you have loans with a private lender, you should consult with that lender to determine your options before making any decisions.]
Overview of Student Loan Repayment Options
Before getting into the details of PSLF, we must have a good understanding of the common federal loan repayment options. Visit the U.S. Department of Education Federal Student Aid website to evaluate the repayment options available regarding the loans you have taken out. Although there are many options to consider for repayment, the default option for most federal loans accrued by pharmacy students is the Standard Repayment Plan. Under this option, payments are a fixed amount per month over a 10-year period (possibly longer for consolidated loans) and include the principal owed as well as any accruing interest. Although this option will likely result in the highest monthly payment, which can be difficult to budget during your residency training year, it will also result in a lower amount of interest paid over the life of the loan than the other options such as the extended and graduated repayment options.
Another repayment option that is growing in popularity (especially for pharmacy residents with a lower salary during the residency year) are the income-driven repayment plans. These include the Revised Pay as You Earn (REPAYE), Pay as You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR) plans. Although these repayment options vary slightly regarding the loans eligible for repayment and how the monthly payment amount is calculated, the overarching theme with these plans is to have a monthly payment that is based on the amount of income you are making. For example, with REPAYE, the monthly payments are calculated to be 10% of your discretionary income. The discretionary income is the difference between your adjusted gross income [AGI] and 150% of the poverty guideline for your family size and state of residence.
A Closer Look at PSLF
Many borrowers debate whether PSLF is right for them. This option forgives loan balances on direct loans (and some others, if consolidated) after making 120 qualifying payments while working full-time (the greater of 30 hours a week or full-time, as defined by your employer). A qualifying employer is defined as (1) a government organization; (2) a tax-exempt, nonprofit organization; or (3) the AmeriCorps and Peace Corps programs. Because many pharmacy residents work for a qualifying employer (e.g., a nonprofit hospital/health system) and plan to continue doing so after completing residency training, the forgiveness program is worth looking at.
If you choose PSLF, you will select one of the income-driven repayment plans because any remaining balance owed beyond the payments made will be forgiven after 10 years. Note that if you choose an income-driven repayment option outside PSLF, the amount forgiven after the period when payments are required for that program (e.g., 20-25 years for the REPAYE program) will be subject to taxation at your income tax rate. In comparison, if you choose an income-driven repayment option inside PSLF, the remaining balance after 10 years that is forgiven will not be taxed. Other important notes about PSLF include the following:
- The 120 qualifying monthly payments do not have to be consecutive.
- Although submitting the Employment Certification form is not required, the PSLF website encourages borrowers to do so once a year or when a job change occurs to help with the tracking of qualifying payments and to minimize having to find information later on when the forgiveness is ready to be realized.
- Moreover, submitting the Employment Certification form will allow the borrower to hear back from the U.S. Department of Education to ensure the employer qualifies and to gather information about the number of payments left until the borrower qualifies for forgiveness.
- The U.S. Department of Education has a helpful fact sheet and Q&A document that are worth an initial reading and revisiting from time to time.
So, under PSLF, what happens to your loan balance at the end of 10 years if you meet all of the above requirements? Poof. Gone without any taxes to pay. Sounds like a pretty sweet deal right? It can be, but let’s look further at the pros and cons of the PSLF program.
You can read the rest of this article on ACCP’s web site at http://www.accp.com/docs/resfel/Ulbrich_Answer_final.pdf