Student Loan Forgiveness Options For Healthcare Workers

At the onset of the coronavirus pandemic in the United States, Congresswoman Carolyn Maloney (D-NY) introduced the Student Loan Forgiveness Front Line Healthcare Workers Act. This bill would establish a federal and private student loan forgiveness program for loans used to receive medical and professional training (e.g. medical school, nursing school, etc.). This bill would cover frontline healthcare workers who have made significant contributions to COVID-19 patient care, medical research, testing, and enhancing the capacity of the healthcare system to respond to this health crisis.

Eligibility under this bill would extend to:

• Nurses;

• Doctors;

• Medical researchers;

• Lab workers; 

• Other healthcare professionals who are responding to the coronavirus pandemic; and

• Professionals who have shifted their normal specialties to support the needs required by the pandemic.

Although this bill did not pass Congress in 2020, frontline healthcare workers do have access to federal student loan forgiveness options. Below, you will find out what you need to do to qualify for federal student loan forgiveness if you are a healthcare worker. 

Many Healthcare Workers Are Eligible for Federal Student Loan Forgiveness

If you are a healthcare worker, you may qualify for federal student loan forgiveness. Student loan forgiveness programs can provide significant debt relief. In order to qualify for federal student loan forgiveness, you must: 

• Be employed by a U.S. federal, state, local, or non-profit organization;

• Work full-time;

• Have direct loans (or consolidate other federal student loans into a direct loan);

• Repay your loans under an income driven repayment plan; and

• Make 120 qualifying payments (10 years of qualifying payments).

Healthcare workers at public hospitals or not-for-profit hospitals may be able to take advantage of public service loan forgiveness (PSLF). Be sure to check with your loan servicer to determine whether you have eligible loans.  For example, healthcare workers who have private student loans do not qualify for public service student loan forgiveness for their non-federal loans; neither do healthcare workers who work for for-profit organizations. 

Student Loan Forgiveness vs. Student Loan Cancellation

The key difference between student loan forgiveness versus loan cancellation is the effect it has on your taxable income for the year in which the loan was forgiven or canceled. 

If your loans are forgiven, the amount of forgiven debt does not count towards calculating your taxable income during that year. Meaning, you will not have to pay taxes on the amount of the loan that has been forgiven. Thus, student loan forgiveness may be an attractive option for you because you will not have to make a lump sum tax payment after your education loan is forgiven.

However, if your loans are canceled, the amount of loan that is canceled counts toward your taxable income - the amount canceled will be taxed. This may affect how much money you owe to the federal government after you file your tax return.

Understanding the effects of student loan forgiveness versus student loan cancellation helps with effective planning for the future. Before choosing a payment plan, you may want to weigh whether your loan or loans qualify for student loan forgiveness, cancellation, or neither of these options. If you do not meet the requirements for loan forgiveness, you may qualify for a loan cancellation. This will depend on how many payments you've made and the period of time you have been paying your loans.

Maintaining Eligibility for Student Loan Forgiveness

Even if you meet all of the requirements for student loan forgiveness, your loans will not be forgiven automatically. Not only do you have to meet the criteria outlined above, you must also certify annually that you continue to meet the requirements for student loan forgiveness. Healthcare workers working for for-profit organizations and healthcare workers working for non-profit organizations without a tax exempt status are ineligible for this type of forgiveness. Healthcare workers who work part-time are also ineligible. 

The type of loan and payment plan also matter when determining eligibility for student loan forgiveness - you must have direct loans and you must be paying your loans under an income driven payment plan. If you do not have direct loans, you can consolidate your existing federal loans into a direct loan to qualify. You also should note that your loans do not automatically enter into an income driven payment plan. You will need to contact your loan servicer to choose an income driven payment plan that best fits your needs and goals. 

A useful tool to help understand federal student loan forgiveness is the PSLF help tool. This tool will help you understand what you need to do to participate and qualify in the student loan forgiveness program. This tool will help you identify whether your employer  qualifies for public service student loan forgiveness, determine your loans qualify for student loan forgiveness, and tell you what actions you need to take to make sure you receive loan forgiveness.

Other Student Debt Relief Options for Healthcare Workers

There may be one reason or another that you do not qualify for student loan forgiveness. But there are other options that may help to relieve the burden of your federal student loans. Loan deferment or forbearance may give you temporary relief from your student loan debt. The key difference between deferment and forbearance is the amount of interest that accrues during the period of time your loans are in deferment or forbearance. When your loans are in deferment, no interest will accrue. When your loans are in forbearance, interest will accrue. 

You can request a deferment with your student loan servicer, providing documentation that you meet the eligibility requirements for deferment. Eligibility will vary depending upon your situation. For example, you may qualify for an economic hardship deferment if you are enrolled in graduate study for the duration of that study. Loan forbearance, on the other hand, may be granted for no more than 12 months at a time and there is a limit on general forbearances of three years. 

Healthcare workers may also consider entering into an income driven repayment plan, wherein your loan payment owed is based on your income. There are several different options available to you: 

• Revised Pay As You Earn Repayment Plan (REPAYE) 

• Pay As You Earn Repayment Plan (PAYE) 

• Income-Based Repayment Plan (IBR)

• Income-Contingent Repayment Plan (ICR Plan) 

Under all of the above income driven repayment plans, your loan balance will be forgiven after 20 to 25 years if not repaid during that time period. 

When it comes to other alternatives, unfortunately, filing for bankruptcy will not relieve you of your student loan debt. It is extremely difficult to discharge student loans in bankruptcy. However, bankruptcy may be an appealing option if you have other debts such as credit card debts or medical bills. Filing for bankruptcy may give you the opportunity to manage your other debts, which will then allow you to focus on your student loans and other financial priorities.

Additional Student Loan Relief From Coronavirus Pandemic Legislation

In light of the coronavirus pandemic, and the effects that it had and continues to have on the U.S. economy, the federal government has enacted several forms of relief from student loan debt.

Starting March 13, 2020 and effective through September 30, 2021, federal student loan borrowers were automatically placed in an administrative forbearance. This means that if you have federal student loans, you will not be required to make payments during this time. Additionally, interest on those loans has been suspended. If you are currently in a federal student loan forgiveness program, these months count towards your 120 payments if you otherwise qualify. 

You can still make payments toward your loans during this time. If you are in a position to do so, and would like to make payments, your payments will be applied directly to your principal balance rather than the interest on your loan, thus chipping away at your loan balance. Either way, you should take advantage of special debt relief opportunities created in light of the Covid-19 pandemic, if any apply to your situation. 

Unfortunately, during the coronavirus pandemic, private loan servicers are not required to offer relief in the form of forbearance or suspending interest. However, some companies have chosen to do so, and it is important to contact your lender to determine what - if any - relief they may be offering.

Let's Summarize…

If you are a healthcare worker, you may be eligible for relief from your student loan debt in the following forms:

• Federal student loan forgiveness;

• Forbearance;

• Deferment; 

• Income driven repayment plans.

To qualify for student loan forgiveness you will need to meet the following requirements: 

• Be employed by a U.S. federal, state, local, or non-profit organization;

• Work full-time;

• Have direct loans (consolidation of other federal student loans into a direct loan);

• Repay your loans under an income driven repayment plan; and

• Make 120 qualifying payments.

There are several different options to choose from when it comes to an income driven repayment plan: 

• Revised Pay As You Earn Repayment Plan (REPAYE) 

• Pay As You Earn Repayment Plan (PAYE) 

• Income-Based Repayment Plan (IBR)

• Income-Contingent Repayment Plan (ICR Plan) 

Most importantly, if you hold federal student loans at this time, you are eligible for temporary relief via the federal government’s automatic suspension of monthly payments and the suspension of interest through September 30, 2021.

In order to determine if you are eligible under the above forms of relief, it is important to know what type of loans you have and the requirements for student loan forgiveness. Working closely with your student loan servicer will help you understand the details of your loan, payment plan, and what kinds of relief you may be entitled to.