Loan Forgiveness For Medical School Debt (Who PAYS?)

Are physicians eligible for student loan forgiveness? In my mind, there are three main ways that a physician can have their loan forgiven. Or at least a portion of their loan forgiven. The first would be if the employer simply agrees to pay a certain amount directly to the physician’s loan provider. The second would be if they’re part of the public service loan forgiveness program. Which is where they work for a federal entity for a period, generally out of training. And then third would be if there’s a state program. 

Not every state provides a loan forgiveness program, but many states do. Normally, it would be in rural areas that are hard to recruit to. And the state would then pay or forgive a certain amount of whatever their loan was. If the physician stays in the area practicing their specialty for a set amount of time.

Hospital Networks Loan Forgiveness Programs

Let’s just take each one individually and go through some of the things you need to think about. First, it would be with the hospital or hospital network. You are very rarely going to see any kind of loan forgiveness if you are joining a private physician-owned practice. It just simply does not happen. If you do enter loan forgiveness with a hospital or hospital network, it’s usually situated like this: they’ll say, we will pay this amount to your loan provider directly. 

And then as long as you stay employed with us, there’s no repayment. And there’s a couple of ways situating it. The first would be if they just give a lump sum upfront. Normally, the loan forgiveness would be somewhere between 50,000 to 150,000. Then if they give a lump sum upfront. It would be forgiven over time. This means if they give you $150,000 for loan forgiveness, and then you leave after six months, you’re going to have to pay back a large portion of it. 

It’s usually tied to the term of the agreement, sometimes beyond it if it’s a significant amount of money. Let’s say you have a three-year initial term, then they would state maybe for every month that you’re there 1/36 of the loan that the upfront money we gave you would be forgiven. 

That’s a normal way of doing it. Another would be, let’s just say it’s $50,000 stretched out over the term and it’ll just state every month, we’ll pay directly whatever the 1/36 of 50,000 is to your loan provider. That’s good in the fact that a physician wouldn’t ever have to repay anything which is annoying. And there are some tax implications as well. So, those are kind of the two main ways of doing it. 

Student Loan Forgiveness in a Big Hospital Network Setting

If you’re with a hospital network, they’ll just pay you a significant sum of money upfront, then you use that to pay off a portion of your loan, or they’ll just pay a certain set amount over time. Sometimes, if let’s just say they were going to pay you 150,000, they may do 50,000 at the end of each year of the initial term of the contract. So, after year one, they’d pay 50,000 to the loan provider after year two. That’s another way of avoiding having to pay anything back. And I would suggest doing it that way. 

Eligible Students: Public Service Loan as Loan Forgiveness

The next one would be with the public service loan forgiveness program. Briefly, this is if you become employed through the federal government and then stay employed for ten years is the amount then they will completely forgive your student loan.

The downside to that is you’re usually going to make less, so your compensation is going to be below market. So, you may need to do a cost analysis of, alright, well, if I’m making $50,000 less a year over the course of 10 years, could I have just taken a normal position, made more, and then paid it off in the end? Depends upon the situation, but that’s kind of the thinking that you need to go through is alright, which one ultimately would I make more money or have the forgiven faster? 

And then last, as I said before if there’s a state program. Some states will provide, once again, usually somewhere between 50,000 to 150,000 and they would just state that if the physician was working within a certain area for a period, they would have whatever set amount forgiven.

Private Physician Loan Repayment Program

Loan forgiveness is rarely provided. It’s not a common thing. And as I said before, if you’re joining a private physician-owned group, it’s exceedingly rare that you would get any kind of loan forgiveness at all. Obviously, it’s a great perk to a job. I know plenty of my physicians that I assist will then seek out those jobs in the first couple of years, get through the initial three-year term, get a bunch of their loans forgiven, and then move on to whatever city that they ultimately want to end up in. That’s a smart way of doing it. 

So yes, physicians are eligible for loan forgiveness. It generally will not be the entire sum. It will be a decent portion of it. But if you kind of look for those specific jobs, you certainly can find opportunities for that.

Loan Repayment: Do Hospitals Pay Off Student Loans for Doctors?

Do hospitals pay off student loan debt for doctors? If a doctor gets a job with a hospital or healthcare network, can that organization pay off student loans for them? Well, the answer to that is yes, they can. The better answer is how often do they do that? And then how is it structured? I would say it’s rare for any organization to agree to pay off student loan debt for a physician. I’d probably say less than 20% of the contracts I review include student loan assistance. And then also, there is easily a cap on how much the organization is willing to pay. I will say 150,000 is probably the max that I’ve seen.

Other Blogs of Interest

• What is Without Cause Termination in a Physician Contract?
• Family Medicine Contract Negotiation Tips

Length of Forgiveness for Loan Repayment

Usually, it’s somewhere between fifty to a hundred thousand. Let’s kind of talk about how that is structured. It’s usually one of two ways: if a physician signs an employment agreement with the hospital or network, there will be language in there that says, we will provide you with this amount of student loan assistance. And in that case, normally the physician is not just providing a check and then they pay off the loans.

The organization will pay an amount directly to whoever the physician has a loan with. And as I said before, the two most common ways that it’s done is, that the organization will just simply cut a large check, so a hundred thousand dollars, and then they will just pay that directly to the loan provider. And then the physician would then have to stay for a period, or they would have to pay back an amount of that money.

I would say a normal amount would be anywhere between two to four years for forgiveness. And then how that would be forgiven would be, let’s just say it’s four years. Every month that the physician stays with the employer, 1/48 of that student loan forgiveness would then be forgiven. This means that 1/48 of 100,000 would be forgiven every month. And then they would work until it was completely gone. That’s one way of doing it. 

Other Things to Think About

The other common way of doing it is that the employer will just set a standard amount. Let’s once again just say $100,000, and then they will say, alright, over three years, we will pay 1/36 of that $100,000 each month directly to the loan provider. The benefit is that the physician doesn’t have to worry about paying anything back.

The downside to that is with interest. It just makes sense to get a big chunk up front, pay it all off, and then the principle that interest is being drawn from is much smaller immediately. Now, if a physician goes into a job and they’re not certain they want to stay there for a while, or they may leave after a year or two, then it might not make a lot of sense to take a huge lump sum upfront and then must repay it. There are some tax implications with that. I mean, it’s kind of a mess, so it depends upon the physician’s situation. If they’re certain they will stay in the community, there’s no way they’ll leave, and getting that big lump sum upfront makes complete sense.

Federal Provider Can Help Students with Loan Repayment

And then if someone’s maybe iffy than the other, the monthly amount provided to the loan company would be a better option as well. You can certainly ask for loan forgiveness. It’s very unlikely if the physician is getting a job with a private physician-owned group that they’re going to get student loan assistance. That’s just reality. Most of the time that student loan assistance is provided is from a hospital or a healthcare network. So, that’s one thing to think about.

There are also some benefits of working for a federal program. You have the PSLF, Google that and I’ll go through that in a later video. But working for a federal provider is another way of getting all of your loans paid off quickly. Well, not quickly, but a better way of getting them paid off. So, I’ll make another video about that at some point. So, do hospitals provide student loan assistance? Yes. There are different ways of doing it. Do they do it very often? No, especially dependent, but hopefully, that’s kind of a little rundown, of how it works.

Physicians Compensation Models

What are the most common types of physician compensation models? Spoiler alert! There is no common model. I’d say from contract to contract the way that people are compensated varies the most, it’s kind of the most variable part of any kind of physician contract across contracts. I mean, I review hundreds of physician contracts a year, and it just blows my mind how many ways the different organizations compensate physicians. But there are probably three main types and I’ll go through those right now. 

The easiest and simplest way of compensating a physician is just a straight-based salary. There is no productivity attached to it, no volume expectations. It’s just you do the work; you get paid a base salary and that’s it. For people who are just coming out of training, it’s not uncommon for them to receive a guaranteed base with no productivity for the first year or two. And there are many jobs where they just pay the base and that’s it. 

RVU Productivity Compensation Model

However, there are also different ways to compensate physicians that kind of introduce some productivity. I’d say the first one is RVUs. When someone enters an organization, they just say, no matter if they’ve been out for a long time or just coming out of training if you’re joining an organization, and this goes mostly for hospitals and big healthcare networks. It’s rare to have a physician-owned practice use RVUs, so they’ll have an income guarantee usually for a year or two, and then their compensation will switch entirely to RVU production. This means that how much they make each year depends on how many RVUs they generate.

I’m not going to get into what an RVU is or how it’s calculated. I do have a couple of videos. If you’re interested, you can look at it. I go through kind of what an RVU is and how a physician is compensated for it. But on the basic level, they just multiply the number of RVUs you generate times the compensation factor, like a monetary amount that kind of varies by specialty. Usually, it’s somewhere between 40 to $80. And then they just multiply that times your RVUs, and that’s how much you make for the year. Now, obviously, there must be some details that go into that. Usually, there’ll be a base draw, so the physician will continue to get a regular salary each month, but then it’s reconciled quarterly.

Important Thing to Know About RVU Productivity Model

For instance, let’s just say they’re taking home 20,000 a month. At the end of the quarter, they’ve been given 60,000 from the employer. And then they’ll do a look back on how many RVUs they generated times the compensation factor if there is a surplus. This means, they generated more RVUs than they made, then usually they’re then given a bonus. Most employers in that scenario will not give a full percentage with a base draw. Let’s just say in the previous year, someone just via RVUs generated like $240,000, right? So, it’s 20,000 a month. The employer is not going to just give them a base of 20,000 a month because there are going to be variables involved. If someone takes a two-week vacation, they keep getting paid 20,000 per month.

Well, then there’s going to be a deficit that either they’re going to have to pay back or carry forward. Most employers will give maybe around 80% of what they made in the previous year as their base draw. And then that way there aren’t a lot of negative balances to carry forward. Most physicians do not like that at all. That’s one way of doing it is just after the income guarantees straight RVU compensation. 

Hybrid Productivity Compensation Model

There are others that will do a hybrid of a guaranteed base in addition to RVUs. They’ll give a target: for the monthly, quarterly, and yearly target of RVUs. And then once the physician hits that amount, then they can then receive a production bonus. And as I said before, it would be just the RVUs generated above a certain number of times the compensation factor. That’s primarily used in hospitals and healthcare organizations. 

Net Collection Productivity Model

A different model is net collections-based and that’s used, I would say primarily by physician-owned groups from smaller practices. How that would work is that the amount collected by the practice that is a direct result of the physician’s services would be calculated. And then the physician would get a certain percentage of that.

Usually, the percentage would be between 30% to 40%, somewhere in there. Now, if you’re a physician, you think, well, that’s completely unfair. I only get 30% to 40%, but when you consider overhead staffing, supplies, payroll taxes, all that kind of stuff, it does work out mathematically to be equitable for both parties around that amount. You are not going to get net collections-based compensation. It is like 50% or anything, it’s just not going to happen. A net collections-based compensation model is kind of like an RVU-based model and the fact that there’ll usually be monthly reconciliation. And then, if you were to generate whatever a hundred thousand dollars in a month, then they would just do the calculation.

If you’re on 40%, then you’d get $40,000, usually paid within 15 to 30 days of the end of the month. And that’s what you make. 

The Tricky Part

Some more variables go into and this is the tricky part, is if you just go into a job and it’s just pure collections from the very beginning, you aren’t going to make a lot in the first couple of months because the average accounts receivable cycle from when you do a service to when you get paid through the insurance companies can be anywhere from 30 to 90 days. You could work for the first month or two and make a tiny amount of money. And then it grows over time. Usually, in those scenarios, we try to bake in the draw so that the physician isn’t just making a tiny amount in the first few months. 

Qualify a Lawyer’s Opinion 

What’s my opinion on what’s fair and what’s not, it really just depends upon the job and the specialty of the physician. I think all the different compensation models are fair if the compensation is right. I think on a kind of motivational level, it makes sense to incorporate some production into the contract. Someone who just has a base salary and there’s just absolutely no bonus or upside in producing more, working more.

It’s just human nature though, that they’re just. I don’t know if being ‘stagnant’ is the right word, but people are motivated by money. That’s just a reality. And if an employer can incorporate some way of compensating a physician who’s ultra-productive, there’s no downside to that. It’s just. I guess probably a matter of whether the employer’s creative or not, but, I mean, there are a million ways of doing compensation. So those are the three most common models: straight-based salary, RVU-based production, and net collections. And then there are so many permutations that would then kind of be a hybrid of all three of those.

Income Guarantees and Student Loans

Today, I’m going to talk about how a physician income guarantee works. There are different ways that this can work. And we’ll kind of walk through the different models. First, if you just have a straight base salary, there’s no productivity attached to it, and there are no volume expectations, you could consider that an income guarantee. Most people would just consider that a base salary, but theoretically, you consider that an income guarantee, meaning, no matter what happens, you’re going to get this amount of money, completely independent of volume, productivity, encounters, net collections, RVUs generated. This is what you’re going to make. In most situations that involve a base salary with no productivity incentives, there will be some expectation from the employer.

Certainly, if a physician who comes into practice is unproductive, and doesn’t see as many patients as they should, the expectation is, at some point, the employer is either going to tell the physician they need to increase productivity. In some contracts, there’s a language that the employer can unilaterally reduce the base salary based upon productivity. If it’s not going well, the employer could always just terminate the agreement without cause. And let the physician go for being unproductive. In a normal kind of income guarantee, it would normally be thought of with a hospital. So, if a physician is employed by a hospital, there will normally be a period, usually, one or two years, where no matter what happens, they are guaranteed this amount of money. And then after that period, and let’s just say it’s two years, then their compensation will shift to a productivity model.

Hospital Network RVU Setting

If it’s a hospital, then it would normally be RVU based. Let’s just say someone is a hospitalist and they’re coming into work. They may just be given a flat base and say, you must work this many shifts a year. And then after that, it might be a productivity model. Now, using a hospitalist is probably a bad idea since it’s pretty volume-dependent and the hospitalists can only do so much. Let’s use a different example because that was a terrible one on my part. Let’s just say they’re in primary care. The hospital employs them, they set up a clinic in the area, and it takes usually 12 to 18 months for a practice to reach maturity. And so, they say, no matter what happens, you will get $200,000 in year one or two.

And then, after that income guarantee period is over, we’re going to compensate you due to how productive you are. So, they will track your RVUs for the first year or two. Most places would do it. They would say, alright, you generated this many RVUs in year two, which then equals this amount of money, so then we’re going to give you a base of this in year three. And then, if you generated a certain amount of RVUs over that amount, then you’ll get compensated either monthly, quarterly, or annually. Most places would do it quarterly. I mean, it is frustrating for a physician to work all year and must wait the entire year to get any kind of productivity bonus. I would suggest making certain it’s smaller than a year, but quarterly is kind of a normal amount.

Negotiate Income Guarantee for Repayment of Loans

Is there any negotiation in an income guarantee? Well, certainly you can negotiate the amount of the income guarantee, but if you’re in a health network or a hospital, you’re not going to be able to change the model with how they compensate all their physicians. You should be aware of how it’s calculated, different places do it very differently. You should talk to someone who can walk you through it, alright, here’s how this is going to work after the income guarantee ends.

And then this is what you should expect, during the kind of moving forward after that. If you have a job that you come into and it’s immediately productivity-based, that’s a big red flag for several reasons. Well, one, let’s just say, if it’s RVU based, it’s a little fairer because, in work RVUs, you’re paid for what you do, not what’s collected. If you’re in a pure net collections-based agreement, it usually takes 60 to 90 days for a normal accounts receivable cycle. You could be working for 30 days and not see a dime. And then it slowly trickles in and builds up over the course of the year to 18 months, as I said.

In that situation, you need to be very careful. Normally, we would work in a short-term income guarantee in that situation so that they would at least get a certain amount, and then it would likely be forgiven over time as the collections come in. Hopefully, that was helpful and just a basic of what is an income guarantee.

What are “Physician Recruitment Agreements?”

Some practices couldn’t afford to compensate a physician at the very beginning completely. And so, the hospital may need that specialty in the area, but they don’t want to employ that physician themselves. They might say, if you bring in this physician in this specialty, we’ll cover their first-year expenses plus some bonuses. In the recruitment agreement, it may state, “We’re going to give you a signing bonus. We’ll be helping with relocation assistance, and then cover a certain amount of compensation for the entire first year.” Let’s say you’ve got a primary care physician, and they’re making 200,000 a year. The hospital would say, alright, we’re going to supplement 200,000 for that first year.

And then they’ll offset that by whatever the physician brings in. They’ll cover the practice’s expenses as well. And then at the end of that year, there will be an outstanding amount of money.

How Physician Loans Work

And that amount is going to be kind of thought of like a forgivable loan. And as long as the physician stays within that geographic area of the hospital. The recruiting agreement will say, as long as you stay within these zip codes, we’ll continue to forgive the loan. There’ll usually be a one-year income guarantee period for compensation, and then there’ll be a forgiveness period after the fact. Usually, it’s three to four years.

How they usually would do it is they’ll take that amount. In this scenario, the total amount with signing bonuses, relocation assistance, base salary, and practice expenses is 300,000. And it’s a three-year forgiveness period. They’ll say, alright, for every month you’re here, we’ll forgive 1/36 of that 300,000. If you stay in the area practicing for three years, we’ll forgive that amount at the end of that period. You do not owe us anything. Then you’re free to move on and do what you want.

Why Would a Physician Sign a Physician Recruitment Agreement?

Now, why would doctors sign physician’s recruitment agreements? Well, during recruitment, I would avoid it if possible. But there are some jobs that would only exist if supplemented in some way by the hospital network. And so, you need to say, is the practice just doing this not to have to pay me? And I will not tell the practice that they’re doing something dumb. They’re not, they’re being smart about the business. Why wouldn’t they accept supplements? Why would they say no, we’ll pay everything, when they could have a hospital cover many of the fees. 

The Downside to Physicians in Signing Physician Loan Agreements?

The downside to the physicians is several things. One, they will ultimately be responsible for the outstanding amount at the end of the initial income guarantee period. And let’s have a scenario where they have a non-compete in their contract with the employer. Still, the recruitment agreement states they must stay within a geographic region to forgive the outstanding amount. They could be completely limited in their options if they have a terrible non-compete in the employment agreement.

Ideally, the hospital would require the employer to remove any non-compete language. I’d suggest making sure that happens. And you need to press the hospital network to press the employer to remove that language. If you go to the employer and say, I’d like that removed, they may say, no, we’re not doing that. If the hospital insists that the employer remove that type of language, you need to tell the hospital. Therefore this needs to happen. They will much more likely remove them if the practice requires a physician. Still, they don’t want to pay the entire amount of compensation and bonuses at the beginning. It’s likely worth it for them to remove the non-compete to get supplemented with all the things I just mentioned.

If you have physician recruitment forgivable loans, you get the non-compete removed from the physician’s employment contract. Because if you’re in a rural environment, there aren’t that many opportunities in your specialty. And you did have a non-compete, maybe there are no opportunities for you. It would be impossible for you to work out that three-year forgiveness period. You’re stuck with a significant amount of money.

There is interest in that amount as well. They’ll likely have you pay it back immediately and fully as soon as you’re no longer practicing within that region. So, that’s something physicians must be cautious about. And then another one is, every job looks great at the beginning, right? Everyone is nice, the huge growth opportunity, but it may not be as nice when you get there.

Other Issues to Think About 

There may be problems that there’s just no way of knowing about in the interview process. You may come into a job and think, oh man, this isn’t gonna work for me. If you’re under a recruitment agreement, it could cause big problems for you. One, getting out of that job or two, paying back significant amounts of money. I would be cautious about signing a recruitment agreement with a hospital network without really thinking about it. Is this the absolute place that I want to be? Do I have other opportunities elsewhere that won’t require me to sign a recruitment agreement? It’s an arduous process. When I’m going over physician’s contract agreements with someone who just had training, they generally don’t know about these things.

When adding a recruitment agreement on top of an employment agreement, it’s like information overload for physicians. Sometimes, it’s difficult to convey the dangers of signing something like that. It’s probably infrequent. The contract agreements that I review containing or having a recruitment agreement attached is perhaps less than 10%. I’m not saying this is a terrible opportunity. As I said, some jobs may not exist if the hospital doesn’t supplement them for the first year. And they can become tremendous opportunities.

But you always must look at, alright, what’s the worst-case scenario in this situation? The worst-case scenario is someone signs a contract, starts a job, hates it, gets out, and owes 200,000. I can tell you if you’re just out of training, you’re not going to have, at least not immediately. So, that’s a breakdown of physician forgivable loans. I would suggest talking to somebody, an attorney, about each document before you sign anything. Especially Physician Loan Agreements or Physician Recruiting Agreements. Honestly, be careful if you’re going to do both and find somebody with expertise in doing this. To get a set of eyes on it and kind of walk you through the dangers of it.