Forty million Americans have a combined $1.2 trillion in student debt. Since the last recession this is only type of consumer debt that hasn’t decreased. As these loans are mostly guaranteed by the government they keep accumulating. Whether going into debt to get a college education is a good idea is not my subject. Neither is whether going to college is good idea for those who elect to do so. Clearly there are many well paying occupations that don’t require a college degree. But there are some for which a college degree is necessary. Medicine is a good example of the latter, though I’m not sure why. Virtually nothing taught at any college I can think of prepares one for a medical career. Most likely the requirement of a bachelor’s degree to enter medical school serves as a placeholder between high school and medical school allowing at least 4 years to interrupt the passage from one to the other.

Because doctors are well paid, taking on a sizable student loan if you are a pre-med student makes more sense than if you are a philosophy major. What specialty a doctor end up in determines how much money he makes. An orthopedic surgeon make a lot more than a family physician. A family doctor who takes on a lot of student loan may find himself  hard pressed to repay his loan. But he should not despair as the government may be coming to his rescue.

The Doctors’ Loophole – Student Loans and PSLF  by Jan Miller describes how doctors may get out of paying off their student loans. Unfortunately Miller doesn’t tell her readers what PSLF stands for; its Public Service Loan Forgiveness. There are two other programs that you have to know about before you can understand how a doctor may get out of his loan. One is Income-Based Repayment (IBR) and the other is Pay As You Earn (PAYE).

These programs, with a starting date of 2007, were “designed to help those who had low incomes in relation to their total federal student loan debt. IBR and PAYE payments will always max out at the standard 10 year payment, no matter how much money the borrower makes. So regardless of how much money a doctor ends up making, they (sic) will never have to pay more than what the standard 10-year amount would have required.

“As a result, if a borrower’s income is low for a few years of residency (and it usually is), her or his required monthly payment will be nice and low to match it. But if they have a large surge in income once they establish their practice (and doctors usually do), then their required payment will never be higher than the standard required amount.” [quotation from Miller’s article]

Thus my hypothetical orthopedic surgeon mentioned above making a 6 or 7 figure income may have his loan forgiven at the end of 10 years after the he’s paid off only a small fraction of it. The reason may is used is that 10 years haven’t passed since the program started. While doctors and their financial advisors seem delighted with this loophole, many others less therapeutically oriented are not. It’s possible that this loophole may be closed by congress or administrative fiat.

As for my opinion, worthless as it is about anything touching economics, I’ve been told so many times that when the government gives money away the national economic health improves that it must be true. So forgive away. It is only another $1.2 trillion and can only make us stronger – whatever it is.