Physical Therapy Loan Forgiveness | Options for Physical Therapists

physical therapy loan forgiveness

Physical Therapy loan forgiveness is becoming a very popular topic as student loans creep past $100,000 for more than 30% of new grads.  The cost of PT school continues to rise, leaving new physical therapy grads with insane levels of debt compared to their earning potential.  The weight of these student loans lead borrowers to ask the question: should physical therapists pursue student loan forgiveness?

Should I Pursue Physical Therapy Loan Forgiveness?

While the answer will be different for every physical therapist, the decision will usually hinge on a few factors:

1. How much do you owe?

If you owe less than $75,000, you may just want to buckle down and pay off your loans on your own.  Stretching out $75,000 over 10 years or even worse 20-25 years could make for more stress and financial burden for the average person.  On a physical therapist’s salary of $70-$80,000 or more, a PT should be able to pay off 75k within 3 to 5 years. 

If you owe $100,000 to $150,000 (or MORE), then it may be smart to pursue PSLF. As a physical therapist myself, I personally think PSLF is the most responsible way to pursue loan forgiveness, but you have to be willing to work in the public sector.  

2. Are your loans federal or private?

If your loans are eligible federal loans, then loan forgiveness might make sense for you (especially if you pursue PSLF). Private student loans, however, are not eligible for forgiveness, so you’re stuck paying them off on your own. Your best bet is to refinance those private loans at the lowest rate possible and to focus on paying them down quickly regardless of your decision to pursue forgiveness on your eligible federal loans.

3. Are you willing to work in the public sector?

This is probably the most important question because if you’re set on working at a private clinic or a for profit home health agency, you won’t qualify for PSLF.  You could qualify for general loan forgiveness after 20-25 years of qualified payments on an Income Driven Repayment plan, but that’s a ridiculous amount of time to maintain student loans, not to mention the forgiven balance will be taxable to you. 

For new PT grads who want to pursue loan forgiveness, I highly recommend pursuing PSLF and working in the public sector for 10 years.  See PSLF below for more information

Physical Therapy Loan Forgiveness Programs

If you want to pursue loan forgiveness for your physical therapy loans, you have a few options. The type of forgiveness program you pursue will depend on a few factors such as the type of work setting (public vs private) and also the time frame you’re willing to commit to before forgiveness.

Let’s review some of the most common physical therapy loan forgiveness programs available.

Public Service Loan Forgiveness (PSLF)

The PSLF program is the most attractive option for physical therapy federal loan forgiveness for a number of reasons.

  • Shortest Forgiveness Period (10 Years)
  • Forgiven Amount is Tax Free
  • Income Driven Payments Count Towards 120 payments

The biggest caveat to the public service loan forgiveness program is that physical therapists must work in the public sector for 10 years and make 120 qualified payments on their loans.  

Physical Therapists who work in private clinics are not eligible for PSLF.  So in order to pursue PSLF, you need to work in a hospital (inpatient or outpatient clinic), government owned (VA) or an eligible non-profit organization. 

The majority of physical therapists do not qualify for PSLF because of their choice in job setting.  Changing jobs to work at a hospital, government, or approved non-profit organization may be a very smart career move if you have over $100,000 in federal student loans.

Applying for PSLF

If you are a physical therapist (or OT) you will need to submit the appropriate paperwork for forgiveness.  

Employer Certification Form

You don’t technically need to submit this form every year, but it’s good practice.  This form will certify you were employed by an approved organization during the period you made the qualifying payments.  You can submit the form online in your MyFedLoan account.

Make 120 Qualified Payments

You must make 120 qualified payments on the federal student loans eligible for PSLF.  The payments do not need to be consecutive. The nice feature of PSLF is that eligible payments include Income Driven Repayments, which are typically much lower than the standard 10 year repayment option.  Applying for an Income Driven Repayment program like REPAYE will ensure the lowest payment possible and the greatest amount of forgiveness after 120 payments.  

PSLF Forgiveness is Tax Free

Not only does PSLF forgive your loans in the shortest amount of time (10 years / 120 payments) but the forgiven amount is completely tax free. This is a huge benefit because the forgiven amount on non-PSLF forgiveness plans results in a huge tax bomb for participants.

Let’s look at an example:

A physical therapist with $100,000 of forgivable balance after 10 years of the PSLF program will see $0 in additional taxes.

A physical therapist with $100,000 of forgivable balance after 20 years of income driven repayment (non-PSLF) will be treated as though $100,000 was earned income that year.  That may result in a $20,000 to $30,000 tax bill to be paid the year your loans are forgiven!

As a physical therapist, I personally feel that PSLF is the better option for PTs who want to pursue loan forgiveness. The biggest challenge is for therapists to choose to work at a qualified employer and not the private sector. 

See below for Public Sector Physical Therapy Jobs

Income Driven Repayment (IDR)

If you’re not pursuing PSLF and still want to pursue loan forgiveness, you may qualify by making 20 to 25 years of payments while on an eligible Income Driven Repayment plan. 

Personally, I think it’s a horrible idea to make 25 years of income based payments on your student loans with the goal to pursue forgiveness because of a few reasons.

  • Huge Tax Bill
  • Lifetime of Debt
  • Investment Risk

Let’s say a physical therapist has $200,000 in student loans and wants to just make income based repayments for 25 years, barely covering half the interest on their loan.  In 25 years, the forgiven amount may be well over 400,000 due to accumulated interest. This amount is considered taxable and may result in a huge bill due the year your loan is forgiven. Using a conservative estimate of 35% for taxes owed, you’re looking at $140,000 due!  That’s the amount you could owe in taxes alone when they forgive your student loans. It’s not that great of a deal.  

Yes, you could plot some projections showing me how you could invest the money you saved (instead of paying off your loans) and how you might come out ahead. But I just don’t buy it.  If you think you can commit to 25 years of investing to outperform the tax bill you’ll owe on your forgiven student loans, you’re taking a huge risk. Not only are you placing a lot of faith in your ability to be a disciplined investor for 25 years – you’re assuming your investments will perform well enough to cover the tax burden. If you really want your loans to be forgiven, you are much better off just pursuing PSLF by working as a PT in a hospital setting in my opinion. 

But, while I don’t support the idea of a PT pursuing loan forgiveness through the general income driven repayment program, it’s still worth mentioning that you are able to receive loan forgiveness by making 20-25 years of income driven payments. (20 years for undergrad loans, 25 years for graduate loans). 

Types of Income Driven Repayment Plans

Whether you are pursuing PSLF or the non-PSFL forgiveness, you will need to enroll in an income driven repayment plan.  (Otherwise, you’re enrolled in the 10-year repayment plan and you will have paid off your loans in 10 years…leaving no balance to be forgiven!)

These income driven repayment plans provide borrowers with affordable payments calculated based on your income. Typically payments are calculated at 10% to 20% of your discretionary income. This calculation is defined as your adjusted gross income – 150% of the poverty level divided by 12.  You can use the Federal student aid calculator to estimate your payments in each of these plans. 

There are multiple income driven repayment plans available, each offering slightly different features that you should understand.

Revised Pay As You Earn (REPAYE) – If you are going to pursue income driven repayment, this is typically the most beneficial payment plan to pursue.  Your payment is 10% of your discretionary income and if your monthly payment doesn’t cover all the interest, the federal government will subsidize half of the interest for the life of the loan.

Pay As You Earn (PAYE) – The precursor to REPAYE, PAYE is only available to certain borrowers who took out a federal Direct Loan on or after October 1, 2011.  Your payment is capped at 10% of your discretionary income and does not include an interest subsidy like REPAYE. Unlike REPAYE, spouses may file separately to avoid spousal income in the payment calculation. 

Read this article next: PAYE vs REPAYE

Income Based Repayment (IBR) – In general, PAYE and REPAYE are more favorable options to pursue, but IBR will be your payment plan of choice if you have FFEL loans.  Like the other programs, your payment is based on your adjusted gross income and may change annually based on your income level. 

Income Contingent Repayment (ICR) – This option is usually not recommended as it caps your payments at 20% of your discretionary income. However, if you have parent PLUS loans or a consolidation loan that includes a parent PLUS loan, it may be the only IDR payment you qualify for.  Remember, the type of loan you have determines whether or not you qualify for one of these programs.  

You can estimate your income driven payment using this calculator

Other Loan Forgiveness Programs for Physical Therapists

VA National Education for Employees Program (VANEEP)

The VA National Education for Employees program provides scholarships to employees who pursue health care related degrees. As a recipient of a VANEEP scholarship, you will agree to work at the facility during academic breaks and to return work for the facility.  While this program agrees to cover $38,630 of a 3 year program, you may also continue receiving a salary from the VA while you are in the program, which can further offset costs to attend a PT program. 

Education Debt Reduction Program (EDRP)

One of the fastest ways to forgiveness is by working at a difficult to recruit Veterans Health Administration (VHA) facility. The program allows for up to $200,000 towards a qualified loan over a 5 year period ($40,000 annually). 

Employee Incentive Scholarship Program (EISP)

The Department of Veterans Affairs awards scholarships to permanent full time and part time VHA employees pursuing degrees in healthcare. To be eligible, you must currently be employed by the VHA for at least a year and then accepted to an academic program. The VA will award up to $39,563 for graduate level coursework.  The recipient must agree to a 1 to 3 year service obligation to be fulfilled after graduation. 

Indian Health Services Student Loan Repayment Opportunity

The Indian Health Service (IHS) Loan Repayment Program (LRP) offers loan forgiveness for physical therapists up to $20,000 per year in exchange for a minimum two-year service obligation. 

Faculty Loan Repayment Program (FLRP)

Physical therapists from disadvantaged backgrounds can apply to receive up to $40,000 in loan assistance through the Health Resources and Services Administration (HRSA) Faculty Loan Repayment Program. 

Perkins Cancellation for Physical Therapy

While new Perkins loans have not been available since 2017, physical therapists can still pursue Perkins loans cancellation. Over a 5 year period of full time employment as a PT, your Perkins loan may be cancelled if you submit the proper forms each year. (Perkins form and a letter of current employment.) The cancellation rate is graduated, meaning the amount increases every year: 

  • 1st year: 15%
  • 2nd year: 15%
  • 3rd year: 20%
  • 4th year: 20%
  • 5th year: 30%

What if You Have Private Student Loans?

There are currently no federally sponsored programs to forgive private student loans.  This means your best option is really to pay them off as fast as possible, especially if you have a high interest rate.  

If your private student loan rates are over 6%, you should look at refinancing your private loans to a lower rate.  One of the best ways to compare student loan refinancing rates is to use a service like Credible or LendKey to compare lenders who are fighting to earn your business. 

Final Thoughts on Physical Therapy Loan Forgiveness Programs

If you are set on pursuing federal loan forgiveness, do not refinance your federal loans.  However, if you have a plan to pay off your private and federal loans in the next 3 to 5 years, you are almost always better off refinancing your loans to lock in the lowest interest rate while you do everything you can to pay off your loans quickly.  

Tim Fraticelli, DPT | Physical Therapist

Tim Fraticelli is a Physical Therapist, Certified Financial Planner™ and founder of PTProgress.com. He loves to teach PTs and OTs ways to save time and money in and out of the clinic, especially when it comes to documentation or continuing education. Follow him on YouTube for weekly videos on ways to improve your financial health.