The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is the largest federal relief program in history, surpassing even President Roosevelt’s New Deal by a factor of two. Much has been made of this unprecedented act in terms of financial support for hospitals, the emergency fund for personal protective equipment (PPE) and the Paycheck Protection Program (PPP). However, given the current state of physician debt, most physicians have directly experienced CARES through a much smaller package tucked away in the language of the law: student loan forbearance.
Student loans affect 80% of medical graduates. Of the total $1.6 trillion in federal student loans, an estimated $150 billion is for ongoing health care school loans, and nearly all of those loans have all been frozen.
The CARES Act
Enacted at the start of the pandemic on March 27, 2020, the CARES Act is a $2.2 trillion economic stimulus package. The provisions of this bill provided more than $350 billion for PPP, $274 billion for state and local government response to the COVID-19 outbreak, and more than $100 billion directly to hospitals. to support their loss of income and cover the costs of purchasing PPE.
Student loan relief was a much smaller fraction of the bill: $43.7 billion allocated to establishing temporary relief for borrowers. The CARES Act provided for three fundamental changes in the federal administration of student loans: the suspension of loan repayments, the reduction of the interest rate to 0%, and the cessation of collection practices. For the borrower, this means that their student loans have effectively been frozen in time, with no continued interest growth and no penalties for non-payment. For those looking for a Public Service Loan Remission (PSLF), there has been an expanded benefit these months of $0 cash for the full 120 required for remission.
Initially, student loan relief was for 6 months. This temporary forbearance has now been extended six times: four times by President Trump and two more times by President Biden. Currently, the forbearance period is set to expire on May 1, 2022. This means that many borrowers would see their first student loan bill in over 2 years come due in May or June.
There has been a lot of talk about whether this will be extended again. More optimistic, many hope that student loans will be forgiven. Although they are in favor of full student loan relief (Figure), we will assume that student loans will be back online in May this year.
Reasons for other extensions
At the start of the student loan payment freeze, there were 45 million borrowers with outstanding student loans. With the initial forbearance, student loan servicers had to radically restructure their operations. Student loan balances did not change from month to month, and thus the need for entire departments was reduced to zero. This involved laying off many employees, especially those responsible for facilitating payments, call center workers and administrative staff.
Without receiving payments and with restrictions on debt collection, student loan officers have gone into a sort of quiescence.
The resumption of these basic operations will not be trivial. Many of the laid-off workers have almost certainly found other employment in the past two years. Moreover, the shifting timeline of this political football has not given the services a specific timeframe to plan.
As a result, three of the nine federal service members decided not to renew their contracts with the US Department of Education. Navient, Granite State Management and Resources (GSMR) and MyFedLoan (also known as the Pennsylvania Higher Education Assistance Agency) have all said they will not continue their contracts, leaving nearly a third of borrowers hanging in the air without Service Agent. The transfer of all of these borrowers, along with their payment history, PSLF eligibility and payment records, has been repeatedly cited by the Consumer Financial Protection Bureau as a cause for concern.
Effects on physicians
As the cost of medical education has increased, for many graduates, student loans are the biggest debt. This debt is so large that it requires targeted management techniques at different stages of training and your career.
For example, without intervention, student loans convert to a payment plan based on a standard 10-year repayment plan. Few residents and fellows would be able to afford these payments, which would amount to more than $2,000 per month for a starting capital of $200,000. If you’re one of many borrowers who owe a lot more than that (like me – see figure), you might owe a lot more than that. My own loans would cost over $4700 per month if I weren’t on an income-based repayment (IDR) plan.
Many borrowing physicians have already entered the student loan forbearance period in an IDR plan. These plans require annual renewal and recertification, which will have expired for many borrowers. It would be very difficult to see your loans come back online at the full payment amount, which would be devastating from a cash flow perspective for doctors who have already battled lost wages due to COVID-19.
Preparing is the best safeguard against the upheaval caused by the resumption of student loan repayments. What this preparation will require depends on your future plans.
Obtain historical records. If your current servicer is changing – Navient, MyFedLoan, or GSMR – it’s important to call and get records of your current loan status. This includes the dollar amount, historical payments, and your PSLF eligibility. Even if your manager doesn’t change, now is a good time to ensure you have an accurate picture of the health of your loans. Since call volumes are down, wait times are also down, and you should be able to receive this information by email without too much of a hassle.
Make an IDR request. If you are unable to make full payments (either because you are still in training or because your salary decreased last year), submit your IDR request at studentaid.gov. This will ensure that when payments come back online, they will be at a manageable amount for your current financial situation.
Submit your annual Employment Attestation Form for PSLF. If you are considering participating in the PSLF program and your employer is currently eligible, now is the perfect time to submit a proof of employment form. This will prompt your servicer to recalculate the total number of eligible payments and you’ll have an up-to-date count of your progress towards the discount. This is especially important if your repairer changes, so that you have an updated tally to give your new repairer in case of any discrepancies.
The CARES Act changed student loans more than any other piece of legislation. After almost 2 years of abstention, it is important to prepare for the resumption of payments. As physicians with oversized loan balances, these preparations can avoid a surprise bill of thousands of dollars.
While the expiry date for forbearance is currently set for May 1, these preparedness measures are valuable even if the date is pushed back further. More importantly, these preparations do not prevent the borrower from benefiting from possible forgiveness measures.
Follow this column for more information on the financial health of physicians, especially the handling of student loans.
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About Dr. Ned Palmer
Ned Palmer, MD, MPH, is chief operating officer and co-founder of Panacea Financial, the national digital bank for physicians. He is also a pediatric hospitalist at Boston Children’s Hospital and on the faculty of Harvard Medical School. It 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 physicians and physicians-in-training.
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