28 October 2008

by Maria Lapointe

With college costs rising at twice the rate of inflation, many students will start their health careers with thousands of dollars in student loan debt. One student recently asked EHC:

"How do health care institutions decide how much loan repayment to give to a particular student or employee?"

The answer is: It depends.

Federal agencies and state governments will help pay off students loans for certain health care practitioners if they agree to practice in geographically or economically underserved communities for a certain length of time after they graduate.  The amount that you may be eligible for depends on a number of factors, including the agency where you work, the length of time you work there, and the types of loans you have.   

Although the rules can be complicated and every program has different requirements, take heart! There is a wealth of information available about those programs for people who are willing to look. To make the process a little easier to understand, we’ll tell you the types of programs that are available (and when possible, include links to program requirements), as well as what careers are eligible, and how much you may be able to save by participating.

Federal Loan Repayment Programs for Health Professionals

Students in the health professions may be eligible for the following programs:

Faculty Loan Repayment Program

Who’s eligible: New faculty at qualified health education institutions. 

Time and money: A maximum of $40,000 for two years of teaching at qualified health institutions, plus matching funds from the host institution.

National Health Service Corps Loan Repayment Program

Who’s eligible: Allopathic and osteopathic physicians, dentists, certified nurse-midwives, certified family nurse practitioners, and physician assistants.

Time and money: Service terms range from three to seven years; repayment is based on a sliding scale (up to $35,000 per year for the first four years of service; repayment levels decrease with each additional year of service). 

Nursing Education Loan Repayment Program

Who’s eligible: Nurses.

Time and money: Award based on financial need and the area served.

National Institutes of Health Loan Repayment Programs

Who’s eligible: Physicians interested in medical research.

Time and money: Up to $35,000 per year for a two-year contract.

Indian Health Service Loan Repayment Program

Who’s eligible: Special consideration is given to nurses, nurse practitioners, mental health workers and medical specialties in high-need fields.

How much: Up to $20,000 a year for two years, plus up to an additional 20% to offset the tax liability of award.

Only the most basic eligibility requirements for the above programs are listed in this article.  For specifics, consult the program website by clicking on the appropriate link.  

The Federal Student Loan Repayment Program

Health professionals may also be eligible for the Federal Student Loan Repayment Program.  This program allows individual federal agencies to establish loan repayment programs at their discretion as an incentive to recruit and retain highly-trained employees. 

If you are employed at a qualified federal agency, you may be eligible for up to $10,000 of federal student loan debt per employee per calendar year, with a cumulative maximum of $60,000 per employee; in return, you agree to work for the agency for at least three years. 

The following loans common to health professions students are eligible for the Federal Loan Repayment Program:

• Loans for Disadvantaged Students (LDS)
• Primary Care Loans (PCL)
• Nursing Student Loans (NSL)
• Health Professions Student Loans (HPSL)
• Health Education Assistance Loans (HEAL)

Students with Federal Family Education Loans (FFEL), loans from the William D. Ford Direct Loan Program (Direct Loans), and loans from the Federal Perkins Loan Program are also eligible for the Federal Student Loan Repayment Program.

U.S. Military Programs

Branches of the U.S. military have programs for dentists, doctors, nurses, and medical technicians that include sign-on bonuses, up to 100% tuition payment, and stipends while in school.  In exchange, you agree to serve in the military for as many years as you received program benefits.

• U.S. Navy Health Care
• U.S. Army Health Care
• U.S. Air Force Health Care

Hospitals and Private Health Care Facilities

Many hospitals and private healthcare facilities use loan forgiveness to recruit occupational and physical therapists, as well as other health care professionals.  If you’re considering working for such an institution, check with them individually to see what loan repayment assistance they may offer.

State funding 

Remember to check with your state health planning office, too. Nearly all states have scholarship and loan forgiveness programs targeted toward placing small numbers of primary care professionals in medically underserved areas. The rationale behind these programs is that they will assist states that have few primary care residency medical programs and states that have medical residency programs with unfilled positions.  State-by-state opportunities are available here.

Things to Consider

If any of these loan repayment programs interest you, there are a few things you’ll want to consider as you proceed:

• Tax implications. Any money that you receive from a loan repayment is considered taxable income.  Lump sum loan repayments can be helpful because they will generally lower the amount of interest you pay over the life of your loan - but they can also result in a higher tax burden.  Gradual loan repayments over the year may lessen your tax burden, but you may end up paying more in interest. If given the choice between lump sum and gradual loan repayments, take a close look at your personal financial situation to decide what’s best for you.  Some agencies will also cover the cost of your taxes, so make sure to ask about this too.
• Application dates. Some programs require that you sign up before you finish school.  For this reason, it’s a good idea to consider these programs early to get the best deal.
• Service contracts. Loan repayment in the majority of these programs is contingent on a specified length of service as outlined by your service contract. Breach of this contract is serious business and can result in heavy financial penalties (not to mention loss of repayment funds)!  Make sure you don’t have other commitments on the horizon that will prevent you from completing your term of service.
• Eligibility requirements. It sounds simple, but make sure you are eligible for the loan repayment programs to which you are applying.  As an example, some of these programs require that you come from a disadvantaged background (as certified by your educational institution) to be eligible.  In this instance, it truly pays to read the fine print up front – if you focus your efforts on something you’re not eligible for, you may miss out on other opportunities that could save you a lot of money.
• False assumptions. Some students may be turned off by loan repayment programs because they’re afraid they will lose control over where they will live and work in the few years after graduation.  This is true in some, but not all, cases.  Don’t let assumptions about a program prevent you from participating.  Do your homework and find out what each program will require of you – they’re all different.
• Future goals. Want to buy a house? Help younger brothers and sisters pay for their higher education?  Open your own practice? Enter academia? Be a leader in community service?  The faster you can decrease your debt load, the faster you can focus on your other dreams.  Loan repayment programs are a great way to make this happen.

For more information about loan repayment programs, contact your institution’s financial aid office.  They may be able to help you navigate the many loan repayment programs mentioned in this article, as well as clue you in to institution-specific programs.    

ADEA and EHC have made every effort to ensure that the information in this article is correct, but makes no warranty, either express or implied, of its accuracy or completeness. The information is intended as a guide only and does not intend that the reader rely on the information herein as a basis for advice for personal or financial decisions.