Message Boards
Today's Active Topics Today's Active Cases Browse Forum Categories My Recent Activity My Messages Private Groups My Marked Threads My Subscriptions
Today's Active Images Today's Active Polls Most Active Topics Global Townie Map Advanced Message Board Search Message Board Terms of Use

What You Need to Know About Student Debt Relief By Todd Balsley

View Comments (0)
If you are a dentist or orthodontist, you are among the borrowers with the highest levels of student loan debt and who collectively owe a trillion dollars in student loans. Therefore, it is critical to explore and analyze all available options and strategies to lower the cost of your education due to the impact it can have on your lifestyle.

The federal government has developed programs to address this issue. If used correctly, they can provide dentists and physicians (two of the most expensive degrees) with effective means to reduce the cost of their student debt.

Due to certain characteristics of practicing dentists, like relatively high salaries, not all programs described may be applicable. However, given the significant debt levels, it is important to fully understand the options.

CCRAA and Student Debt Relief Programs

The College Cost Reduction and Access Act of 2007 or CCRAA introduced the Public Service Loan Forgiveness (PSLF) program to help borrowers who choose careers in public service. The main feature of this program is total loan forgiveness after the fulfillment of the required years of public service and number of qualified payments by the borrower. On July 1, 2009, Income-Based Repayment (IBR) became available. Despite being a more complex program than PSLF, IBR has proven to be very helpful for many because it allows borrowers with high amounts of debt to significantly reduce their monthly payments. Qualification for IBR requires financial hardship on the part of the borrower and monthly payments are capped based on a percentage of the borrower's discretionary income. When the CCRAA changed the criteria for eligibility of Economic Hardship Deferment (EHD) on July 1, 2009, IBR was seen as a better payment relief alternative to forbearance, which costs borrowers more in accrued interest. As of December 21, 2012, certain borrowers can utilize the Pay as You Earn (PAYE) program, also known as Income Contingent Repayment Plan (ICR-A). This new program is similar to IBR but with a reduction in payment structure to 10 percent from 15 percent of discretionary income, providing borrowers more liquidity. Also, the forgiveness of the remaining balance of federal debt takes effect five years ahead of the 25-year term under IBR. Even with high salaries, the introduction of PAYE makes loan forgiveness a potential benefit for certain dentists.

Federal Loan Consolidation Program

This Federal Loan Consolidation Program is limited to debt owed to the U.S. government and is not applicable to private loans. Federal Loan Consolidation allows borrowers to transfer multiple federal loans into one lender on a fixed rate. PSLF can only be applied to Direct Loans, so borrowers who want to enroll in PSLF must consolidate their debt to Direct Loans. Proper consolidation of student loans requires timing and structuring considerations. Every borrower will have a unique debt situation that requires proper evaluation before consolidation. For variable rate Federal Loans, consolidation still provides a mechanism to lockin a fixed rate. However, the last variable rate loan was made prior to 2006 so it is not relevant for many borrowers.

Payment Relief Programs

Here is a more complete description of federal programs for student debt and includes a breakdown of what a borrower needs to know based on current legislation. New legislation continues to be proposed and when new regulations take effect, it is likely that interest rates and payment relief programs such as the ones described will be affected.

PSLF

As the name implies, PSLF forgives debtors who have worked in public service for a specified time. Indebted professionals already in public service are not automatically enrolled and only payments made after October 1, 2007, qualify. Healthcare professionals are often well-positioned to enroll in PSLF because of the volume of health-care workers needed in the military, law enforcement and emergency management agencies. However, enrollment in PSLF with the guaranteed forgiveness after 10 years of qualified monthly payments must be weighed against other career choices.

Specifically, the program will forgive all Direct Loans if a borrower works full time in a qualified public service organization for a total of 120 monthly payments. All Direct Loan types are eligible:
  • Direct Subsidized and Unsubsidized Loans for students
  • Direct PLUS Loans for parents
  • Direct Consolidation Loans for students and parents

How is public service defined under the PSLF program? According to the Federal Student Aid website, regardless of the nature of one's job, if you are employed in a "federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC)," you may qualify for PSLF. Furthermore, "the type or nature of employment with the organization does not matter for PSLF purposes" excepting "time spent participating in religious instruction, worship services or any form of proselytizing." Labor union, for-profit and political organization jobs do not qualify for PSLF. Working for religious organizations where the employee engages in worship services, preaching and other forms of religious instruction and evangelical service will not qualify in PSLF either, although humanitarian workers under a religious organization may qualify.

If you hold one of the following jobs, you may qualify for PSLF: Jobs in a non-profit organization that fall under IRS code 501(c)(3) or 501(a), full assignment under Peace Corps, active duty in the military and full-time National Guard duty, Federal government, state or local government organizations, tribal government organization, tribal school, law enforcement (non-private), public education and public library services, school-based services, public service for disabled individuals, public child agencies, family service agencies, public service for the elderly, public legal services, emergency management, public safety, AmeriCorps, Head Start, early childhood education, state-funded kindergarten.

Remember that you have to be a full-time employee or working a minimum of 30 hours a week in a qualified job. On the other hand, if you hold multiple part-time jobs, you may still qualify by clocking in a combined 30 hours a week, but only counting the work hours spent in qualified jobs. For dentists, this program is typically most relevant for those in the armed services, working for the government or non-profit clinics, or for those in academia.

Income-Based Repayment (IBR)

The popular IBR program lowers monthly payments, helping you avoid the more costly forbearance and allowing you more financial leg room for other expenses. However, the mechanics of IBR payments require precise documentation and calculations and can be quite daunting for individuals who want optimal savings on loan payments and to avoid accrued unpaid interest. All Fed Loans are qualified except defaulted loans, Parent PLUS Loans and consolidation loans that repaid a Parent PLUS Loan.

To qualify, you must have partial financial hardship (PFH), that is to say your annual federal student loan payments are more than 15 percent of annual discretionary income (adjusted gross income – 150 percent of poverty line). Payments under IBR are adjusted based on: total federal student loan, discretionary income, family size and state poverty level. Once enrolled, you can continue to avail of the IBR program even if you are no longer in partial economic hardship. You are, however, required to submit current documentation on AGI, income tax and family size so monthly payments can be adjusted accordingly.

All qualified federal loans will be eligible for forgiveness after 25 years of payment under the IBR program. For borrowers in public service, you can be forgiven in 10 years if you have made 120 continuous monthly payments. Additionally, the federal government also provides interest support for a maximum of three years on your Direct Subsidized Loans or Subsidized Federal Stafford Loans.

IBR monthly payment is calculated as follows:
IBR monthly payment = .15(Adjusted Gross Income (AGI) – 1.5 x Poverty level)/12 months

Monthly payments under the program are almost always drastically lower than monthly payments based on the 10-year Standard Repayment Plan. With the freed-up liquidity, residents and health professionals with a growing practice can begin improving their net worth earlier than usual. Proper utilization of IBR, however, is dependent on supporting documentation, tax data and timing of enrollment. If you are already on IBR, you will need to re-apply every year with a new set of documents. Due to its complexity, individual borrowers sometimes make mistakes when applying or re-applying for IBR. Borrowers may confuse AGI data with annual salary, file a joint income tax when a couple can save more filing separately and miss out on positive adjustments after a new member of the family is born. Furthermore, simple documentation mistakes or delayed submissions can cost borrowers the opportunity to save thousands of dollars in a given annual payment period.

PAYE

Pay As You Earn can be viewed as an enhancement to IBR and just like IBR a borrower needs to prove partial financial hardship (PFH). The program is only available to "new borrowers" and features two main improvements over Income-Based Repayment: 1) the monthly payment is reduced from 15 percent to 10 percent of borrower's discretionary income and 2) Fed Loans are eligible for forgiveness in 20 years instead of 25. A "new borrower" must have a Fed Loan that has been disbursed on and after October 1, 2011, and must not have any outstanding Fed Loan balance as of October 1, 2007.

Only Direct and Direct Consolidation Loans qualify for PAYE. The PAYE program does not cover payments for the Federal Family Education Loan (FFEL), which is one of the qualified loans for IBR. An individual with FFEL Loans will have to enroll for the IBR program or use the consolidation program to refinance the FFEL Loans into a Federal Direct Consolidation loan. Federal support for accrued interest for the first three years (maximum) is also available for PAYE as with IBR (for subsidized loans).

To help borrowers understand the implications of enrolling in either IBR or PAYE, the Federal Student Aid website (StudentAid.ed.gov) provides calculators for each. The calculators require income information and the most recent tax return, so have them on hand before you begin.

IBR and PAYE are probably the most relevant programs for dentists as both can be very beneficial during residency or during the initial stages of their career. After these periods, a more aggressive approach to debt retirement may often be the optimal approach. That said, each circumstance is unique and there are many scenarios where forgiveness under IBR and especially PAYE can result in the best economic outcome for the borrower.
The Bipartisan Student Loan Certainty Act of 2013,
signed on August 9, 2013, by President Obama will affect the interest rates on new federal loans that dental students receive. Further details available on GL Advisor's website.
Author's Bio
Todd Balsley is the Chief Marketing Officer of GL Advisor. GL Advisor helps professional graduates improve their financial net worth through effective management of their educational debt burden and comprehensive financial planning. The majority of its clients are health professionals. You can reach its financial advisors at finad@gladvisor.com or through its website: gladvisor.com.
Dentaltown Magazine
September 2025
Dentaltown Magazine September 2025 Read Current Issue Read Archived Issues
Sponsors
Townie Perks
Townie® Poll
Who or what do you turn to for most financial advice regarding your practice?
  
Site Menu
Message Boards Magazine Continuing Education Podcasts Blogs Classifieds Dental News Events Townie® Poll Ebooks Townie Choice Awards
Company Info
Contact Us Advertise With Us Howard Farran DDS, MBA Policies and Agreements
Site Help
Sally Gross, Member Services Specialist
Phone: +1-480-445-9710
Email: sally@farranmedia.com
©2025 Dentaltown, a division of Farran Media • All Rights Reserved
9633 S. 48th Street Suite 200 • Phoenix, AZ 85044 • Phone:+1-480-598-0001 • Fax:+1-480-598-3450