Many of our clients in the medical profession have been interested in available options to get their med school student loans forgiven. Although this article was originally published in 2023, we thought posting it would be helpful so you are aware of the topic.

Who Qualifies for the Updated Public Service Student Loan Forgiveness (PSLF) Program?

The PSLF program is available to physicians working full-time in public or private non-profit hospitals, clinics, or medical offices. This program offers eligible physicians the opportunity for loan forgiveness. However, until recently, state laws in California and Texas prevented physicians from participating due to restrictions on physician employment by private non-profit hospitals. With this expansion, healthcare professionals in these states can now benefit from the program, alleviating their financial burden and allowing them to focus on patient care.

If you meet the following criteria, you may qualify for student loan forgiveness:

Student Loan

Physicians must have outstanding student loans.

Service in Nonprofit Facilities

Physicians should provide services in a nonprofit hospital, clinic, or office owned by a 1206(l) foundation or another nonprofit entity. The average weekly commitment should be at least 30 hours.

Qualifying Payments

Physicians must make 120 qualifying payments.

For-Profit Employment Consideration

Even if physicians worked for a for-profit sole proprietorship, partnership, or were employed by a for-profit medical group, they may still qualify if the services they provided were in a facility owned by a nonprofit.

Will My Forgiven Loan Be Taxable?

If you receive med school loan forgiveness, the amount of forgiven debt is not taxable by the federal government. However, your state may tax the forgiven amount.

Can I Apply for CalHealthCares if Pursuing Loan Forgiveness from PSLF?

Applicants pursuing Public Service Loan Forgiveness (PSLF) are eligible to apply for CalHealthCares. Individuals who receive PSLF must submit documentation from PSLF and their lender, verifying the date and amount forgiven. The Department of Health Care Services (DHCS) will review award amounts, and adjustments may be made, including prorated awards for partial PSLF forgiveness, withdrawal from CalHealthCares for complete PSLF forgiveness, or repayment to CalHealthCares for any overlapping funds received. These guidelines are general, and each case will be reviewed to determine an appropriate resolution.

Will California State Tax the Funds Received from NHSC?

No. Payments received through the National Health Service Corps (NHSC) or similar state programs designed to enhance access to healthcare services in underserved or health professional shortage areas are not included in gross income. This exemption applies to amounts received starting from tax years beginning after December 31, 2008.

According to the Internal Revenue Service (IRS), certain loan repayment or forgiveness programs aimed at supporting health services in specific areas fall under exceptions to debt cancellation rules. While these amounts must be reported, they are not considered taxable income. Please note, this information is not intended as tax or legal advice, and individuals with questions about the taxable or reportable status of these programs should seek guidance from a qualified tax advisor.

Sources
Physicians for a Healthy California
Physcians for a Health California – CalHealthCares FAQs