Episode Transcript
Brenton: [00:00:00] Up to this point, there have been a number of occupations that have been frozen out of the opportunity to participate in public service loan forgiveness. But some lasting changes to these programs mean that in the future, these borrowers could be infinitely closer to student loan forgiveness.
Hello, my name is Brenton Harrison, founder of Escape Student Loan Debt, and your host for the Escape Student Loan Debt podcast. In our last episode, we talked about the timing and some of the specific changes that are coming to things like the income-driven repayment program and important to this episode, public service loan forgiveness program.
The public service loan forgiveness program offers public servants with federal student loans, the opportunity to have their student loans forgiven in full after making 120 months of payments while following certain criteria. Now those criteria, and there are three of them, have to be in place at the same time. You have to simultaneously be meeting all three metrics for a single payment to count. Those metrics are that you have [00:01:00] to be paying back those loans using an income driven repayment plan. That you have to be working for an eligible employer, which are a 501(c)(3) nonprofit, A government entity or a nonprofit that isn't a 501(c)(3) but performs a public service like law enforcement as an example.
And the last requirement is that you have to have direct loans as you pursue this forgiveness. Now of these three requirements, the one that we're gonna focus on today is that second one: being a full-time equivalent employee of a nonprofit or government entity. Because this is an area where a number of different occupations have been tripped up in their pursuit of loan forgiveness,
Prior to the changes we're gonna discuss today, full-time equivalent employment was considered the greater of 30 hours per week, or your employer's definition of full-time hours.
That sounds simple, but there are instances where you can be tripped up trying to [00:02:00] follow that definition.
You might work for a university where part of your time is paid for by one entity and part is paid by another. That happens very frequently, and thankfully the program rules do allow and did allow, even to this point, some exceptions. One of those exceptions being that if you worked for multiple eligible entities and you had hours that averaged at least 30 hours a week, you could use those hours from the multiple employers to equal one full-time equivalent employment. But the second part of this definition, what is an eligible institution is the part that has caused the biggest headache for federal student loan borrowers, especially in the states, as you'll see of California and Texas.
And here's why.
There are certain states in this country that have rules governing what they call the corporate practice of medicine. Now, some of those states are California, Texas, Ohio, Colorado, Iowa, Illinois, New York, and [00:03:00] New Jersey.
Now, the reason this is important to people with federal student loans is that some of those states' laws as it relates to the corporate practice of medicine, are more strict than others, and two of the most strict are California and Texas.
Now, the purpose of these laws is that for a person who is practicing as a physician, they should not be unduly influenced by a corporation's desire to make a profit.
And in these states, they have determined that when you have a physician who is directly employed by a corporation, it increases the risk that what they consider the right thing to do in terms of medical care could be compromised by that desire to earn a profit and they prohibit these physicians from being directly employed by these institutions.
What this means in practice for physicians operating in Texas and California is that, save for some exceptions, like being directly employed by a university hospital or the va, there are many instances where you might be working and seeing patients at a [00:04:00] nonprofit hospital, but be forbidden from having direct employer relationships with that hospital. And instead you would work for an institution like Kaiser with that hospital to provide them physicians.
This is extremely problematic as it relates to public service loan forgiveness. because even if you are seeing patients at a nonprofit hospital, if you are not directly employed by that eligible institution, you are not considered eligible for public service loan forgiveness.
If you're a physician listening I don't have to tell you, but this puts a huge crimp in the plans of people who might be doing their training for residency or fellowship in California or in Texas .
If you're a medical student who's listening to this or watching this, or the spouse or partner of a medical student who's listening to this or watching this, this has a huge impact on the institutions that you put on your list when you're trying to match for residency.
Imagine that for a 10 year program you could be in training for half of that [00:05:00] time or more in residency, making little to no student loan payment. , all the while getting credit towards your 10 years that's needed to have your loans forgiven.
But instead, by choosing a Texas or California hospital, you're getting zero months of credit by not being directly employed by that entity. . If you're someone who's already done your training in Texas and California and you're an attending physician, then you have been lamenting the fact that while your cohorts have been in other states getting credits for making $0 payments, a hundred dollars payments, $200 payments in training, that you missed out on that opportunity.
And if you are considering moving to one of those states and aiming to have your loans forgiven under P S L F, these types of things in the past have helped dictate whether that is a good option for you or whether that would be the wrong move for you financially.
Thankfully in the first episode of this series, thankfully in the first episode in this series, we started going through a document [00:06:00] entitled The Future of P S L F.
And in that document, the Department of Education outlined a number of temporary changes that will help those who are getting retroactive credit towards their loans. But they also discussed some lasting changes that will be implemented after July of 2023.
And in that document there was a bit of an Easter egg. We will put this document in the show notes, but on page four of this document, it talks about the changes to the employment status of those in states like Texas and California, where there are employment laws that have previously prohibited them from participating in public service loan forgiveness. And after the break, we'll tell you about not just the changes as it relates to these physicians, but also a number of other occupations that should take note as well.
Welcome back. Before the break, we talked about how certain physicians in states like Texas and California have been prohibited from participating in public service loan forgiveness as a result of the employment [00:07:00] laws in that state. But we also intimated that there are other occupations who have made their journey more difficult based on their employment status because of an inability to claim employment at an eligible nonprofit, or a confusion as to the amount of hours that they were working at said institution. Remember that based on the previous rules you had to meet the higher bar of your employer's definition of full-time pay or 30 hours per week.
So let's consider the plight of an adjunct professor or a teaching assistant that's a PhD student at a local university. You might work a certain amount of credit hours in terms of what you teach, but in the past, your employer might have struggled to figure out how many hours of work that translates to in terms of whether they will sign off on a form, verifying that you're eligible for public service loan forgiveness.
Well, thankfully, the Department of Education has simplified that task on both fronts. The first simplification is adopting a single [00:08:00] standard of employment. Rather than giving you that two-pronged approach of your employer's definition of full-time or 30 hours per week, they are now adopting a single standard of employment at 30 hours per week.
So it doesn't matter what your employer's definition of full-time is, as long as you've hit 30 hours, you're considered full-time in the eyes of the Department of Education.
The second simplification addresses the plight of adjunct faculty and these contingent employees. It states that for employers, for purpose of public service loan forgiveness, who employ adjunct and contingent faculty, they must credit them at least 3.35 hours of work for every credit hour they teach for every credit hour they teach.
This means that if I'm adjunct faculty, but I'm teaching 10 credit hours per semester, I'm going to be able to use a conversion factor that multiplies 10 times 3.35, and I will be granted status of [00:09:00] 33.5 hours per week as it relates to public service loan forgiveness, meaning I would hit the bar needed to be considered a full-time employee.
And lastly, for our physicians out there who have been employed by entities that contract with nonprofit hospitals, thus making them ineligible based on prior P S L F rules, this document states that the department is aware of specific circumstances where existing state laws generally prevent doctors at nonprofit hospitals in California and Texas from working for the hospitals directly.
This change would cover those individuals as well as any other contractor whose employment is similarly barred by state law. What this means is that no matter your occupation, if you are giving full-time hours worth of service at an eligible nonprofit, but you cannot be employed by that nonprofit for the sole reason that state employment laws disallow it, you will be given the opportunity to have these months of [00:10:00] service counted towards your 10 years.
Now, moving forward, this is a monumental development for people who are currently employed by these institutions in these states, but it's also an improvement for those medical students who are considering whether to include these institutions on the list when they do their ranking for match day.
But this is also a tremendous deal for people who work for these entities in the past.
So if you're a physician out there and you're listening to this or watching this and you've been finished with your training, but you happened to do that training in the state of California or Texas, but instead of working directly for that hospital, you were actually employed by Kaiser or a similar institution, you can go after July of 2023 and fill out an employment verification form. And based on these new regulations, have those terms of employment added to your 120 months total.
So if your medical specialty required a longer runway of [00:11:00] residency than others, like urology, or you are a cardiologist out there who not only did residency, but also did a fellowship, or if you're a surgeon who might do 7, 8, 9 years worth of training and you did it in these states, you want to be fully aware of these updates so that you can go and have that employment verified because you might be way closer than you think to having your student loans forgiven, reduced, reorganized, or expedited.
