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The Guide to Student Loan Forgiveness for Psychologists

Psychologists have student loan forgiveness options whether they work for a school, government, hospital, or even a private practice.

We’ve worked with dozens of psychologists here at Student Loan Planner® with average student debt around $220,000. Based upon our experience, here’s where they can save the most money and get student loan forgiveness.

In this guide, we’ll cover a few things including how student loan forgiveness for school psychologists is out there. They can get public service loan forgiveness (PSLF), taxable loan forgiveness, and use possible awarded money from the National Health Service Corp by using an income-driven repayment plan to make it work pay as little out of pocket as possible.

The 3 best options for  student loan forgiveness for school psychologists and more

We’ve done more than 1,500 consults and consulted on over $400,000,000 in loans. In our experience, we’ve found 3 overall approaches that save people the most money paying back their student loans.

Public Service Loan Forgiveness (PSLF)

This is one of the most powerful programs out there. It’s available for people who have “direct” student loans and work full-time for a non-profit or government employer for 10 years.

Psychologists would want to keep their payments as low as possible, save on the side, and stay on track for PSLF.

Taxable loan forgiveness using an income-driven repayment plan

For households that owe more than 2x their income in student loans (eg. psychologists who owe $200,000 and earn $100,000 or less), selecting an income-driven repayment plan like PAYE or REPAYE for 20-25 years could be the way to go. In the end, the remaining loan balance is forgiven but taxes will be owed on the forgiven amount.

The idea here is to keep student loan payments as low as possible, “save up for the tax bomb”, and work towards other financial goals along the way.

Aggressive repayment in combination with other available loan forgiveness programs

For psychologists who aren’t eligible for PSLF and owe 1.5x their income in student loans or less (eg owe $120,000 or less and make $80,000), their best bet is to throw everything including the kitchen sink to pay off the debt as quickly as possible.

The goal here is to pay as little interest as possible and eliminate the debt in 10 years or less (hopefully a lot less). This could be done in conjunction with other loan forgiveness programs like National Health Service Corp (NHSC) or National Institutes of Health (NIH). It could also include refinancing to get a lower interest rate.

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Public Service Loan Forgiveness (PSLF) for Psychologists Done Right

According to the Bureau of Labor Statistics, 27% of psychologists work for an elementary or secondary school, 10% work for a hospital and 7% work for the government (many at the VA). That means that nearly half of psychologists could be eligible for PSLF.

How do you know if you’re eligible? These are the 3 primary criteria:

1.Direct Federal Student Loans

This program was launched in 2010, so most federal loans issued after that should be direct but it’s important to check.

How to tell if your loans are direct: The fastest way to find out if your loans are direct would be to login to the NSLDS website and see the breakdown of your federal loans.

Any loans that are FFEL loans and not direct are not eligible for PSLF and may require consolidation. Read more about that here.

P.S. It is FREE to consolidate your loans so don’t pay anyone to do this for you!

2. You are on an income-driven repayment plan like PAYE, REPAYE or IBR.

Here’s more information on the different income-driven repayment options available.

3. You work full-time for a non-profit or government employer.

This can also be accomplished if you have 2 or more part-time jobs with qualifying employers totaling 30+ hours a week.

Read more about employment eligibility here.

How Psychologists Can Save Even More Money on PSLF

The ultimate goal when going for PSLF is to pay as little as possible and maximize loan forgiveness. This might mean your loan balance will go up over the 10 years, but that’s ok.

1. Select the repayment plan that requires the lowest monthly payment even if this means your loan balance will grow. Typically, this is either PAYE or REPAYE since the payments are 10% of discretionary income. Occasionally the best plan could be IBR for psychologists who are married and aren’t eligible for PAYE.

2. Lower adjusted gross income (AGI) by maxing out pre-tax retirement plans and health savings accounts (HSA). if you have a spouse whose income is factored in to calculate your payment, they should max out pre-tax retirement as well.

3. Do not make extra payments toward your loans. This is a huge mistake. Any extra payment will be money that goes into the oblivion since any unpaid balance will get forgiven anyway.

Psychologists would be better off saving aggressively on the side. That way, if you see PSLF to the end, you get to keep the extra money in your pocket instead of losing it forever. It also acts as a defense in case there is a change to the PSLF program or your career path. That way, you’ll have a chunk of money to throw at the loans if you need to.

After 120 qualifying monthly payments (which don’t have to be consecutive by the way), you can apply to have your remaining loan balance forgiven tax-free.

We suggest filing the employment certification form (ECF) at least once a year then checking each loan to make sure that they received the credit toward PSLF that you applied for. For people who are a few years in but haven’t sent in their ECF yet, do it immediately so you can get an accurate count of credit toward PSLF.

For more information on PSLF, check out our top tips here.

Taxable Student Loan Forgiveness for Psychologists Using Income-Driven Repayment

Psychologists who aren’t eligible for PSLF still have a loan forgiveness option paying back their student loans. This strategy works well for psychologists who owe more than 2x their income in student loans.

This process is very similar to what we covered in the PSLF section:

1. Select an income-driven repayment plan that will keep your payments as low as possible.

2. Do what you can to lower your AGI by contributing to pre-tax retirement accounts and an HSA if you have one available.

3. Don’t make any extra payments toward your loan than what’s required.

The major differences between PSLF and taxable loan forgiveness are as follows:

1. Payments span from 20-25 years.

2. The amount of loans forgiven will be treated as income in the year it’s forgiven so you’ll end up owing taxes. We call this the “tax bomb”.

First, let’s explore why keeping student loan payments as low as possible and maximizing the amount forgiven makes sense.

In this example, let’s say that Jessica has $220,000 in student loans at 6.8%. She’s earning $80,000 working in a private practice. She is projecting her income to increase at a normal 3% rate for her career.

She’s choosing between REPAYE where her payments would be based upon 10% of her income or IBR where her payments would be 15%. Both are 25-year programs with taxable loan forgiveness at the end. Let’s project that the forgiven balance will be taxed at 40% in the 25th year, as represented in the table below. The total amount owed is the loan payment plus the taxes.





Out of Pocket

First Payment


(25 years, 10% of income)







(25 years, 15% of income)






REPAYE is the clear winner here and is projecting to save Jessica nearly $90,000 vs IBR. That’s almost real money 🙂 Her loan balance will be higher on REPAYE so she’ll owe more in taxes, but she’ll save so much more on her payments vs IBR that even the extra taxes still make it financially worth it.

Income-driven repayment vs refinancing

Now let’s examine why a psychologist would choose taxable loan forgiveness rather than paying off their student loans in full.

Let’s say that Jessica was deciding between PAYE (20 years of payments based upon 10% of her income) vs refinancing to a 20 year 5.75% interest rate. That refi would lower her interest by more than 1% vs keeping them in the federal program. One would think this would save her money, but…



Balance Forgiven

Taxes Due

Out of Pocket

Monthly Payment


(20 years)







(20 years at 5.75%)






It doesn’t, not by a long shot.

PAYE is still the clear winner. Both PAYE and refinancing would have her debt free in 20 years, but paying off her loans in full by refinancing is projected to cost her $84,000 more out-of-pocket than going with PAYE.

The bottom line is that loan forgiveness even when it’s taxable is still a great benefit for those not eligible for PSLF.

What about saving for the tax bomb on income-driven repayment?

Psychologists should be saving up for the tax bomb on top of their student loan payments. It can seem daunting to see such a large number owed in the future, but it’s actually fairly manageable.

Let’s just say that Jessica is saving in an investment account that is projected to earn 5% a year for the next 20 years.



Balance Forgiven

Taxes Due

Out of Pocket

First Payment

Tax Penalty Savings


(20 years)







If she put equal monthly payments of $339 per month into that account, it is projected to grow to the $126.768 in 20 years when the tax bomb would be due.

Saving up for the tax bomb over the years would also save Jessica money. The taxes owed is projected to be $126,000. But if she saves $339 per month for 240 months (20 years), that only ends up costing her $81,360 because she’d get projected investment growth of about $45,000 on her money. That means she’d spend $45,000 less paying the tax bomb than if she had tried to put together the money last minute when she gets the tax bill in 20 years.

It may seem counterintuitive but taxable loan forgiveness using an income-driven plan where your loans actually grow could end up saving money compared to refinancing and paying off the loans in full.

What should psychologists do with NHSC, NIH & Employer Student Loan Repayment Money

One of the more common mistakes I’ve seen is how school psychologist loan forgiveness use the money awarded from the NHSC, NIH and even how they apply the money that their employer gives them towards their student loans.

Let’s say that Jessica gets awarded $50,000 from the NHSC to put toward her student loans. Remember that she owes $220,000 at 6.8% and is just about to exit the grace period. She chooses PAYE as her repayment plan.

Based upon her income projections, her student loan payments will total about $12,500 over the next 2 years on PAYE.

Should she take that $50,000 to pay down her student loans right away or use the money to fund her student loan payments for 2 years then apply the remaining money ($37,500) toward her principal?



Balance Forgiven

Taxes Due

Total Out of Pocket


(Pay down $50k up front)






(Pay down $37.5k up front with $12k payments)





The total out-of-pocket cost of paying back her loan on PAYE would basically be the same at $260,000. The question is would she rather pay $12,500 less toward her loans over the next 2 years or pay $12,000 more in taxes in 20 years?

In my opinion, I’d take the savings today and do something more productive with that money like put it into a retirement account.

If Jessica used the NHSC money to cover her monthly payments for two years and took the money she would have paid and instead invested it, that money could grow to $45,000 in 20 years if it earned a 7% average rate of return!

The bottom line is that people who get awarded money from other forgiveness programs could be better served using it to cover their payments and putting the remaining awarded money toward the principal of their loan.

Before making any moves like this, it’s very important to check with the program awarding the loan forgiveness (NHSC, NIH or any other program) on the particular nuances to use the funds granted.

You’d want to make sure that these moves would not jeopardize your eligibility to receive the funds from that particular program. You definitely don’t want to put yourself in a position to have to return the funds.

Should a psychologist refinance if awarded money from NHSC or NIH?

This is a pretty complex question.

In our experience, if the student loan debt would be less than 1.5x household income after applying the awarded money, then it would make sense to explore.

Here are a few things to keep in mind:

1. In most cases, PSLF could still end up saving more money than refinancing. Plus, once you refinance, PSLF is gone for good.

2. Check with the NHSC or NIH program to make sure it doesn’t affect your eligibility for the awarded money. The last thing you’d want would be to lose out and have to pay the money back. If it would affect it, then do not refinance. Keep your federal loans for those 2 years and reevaluate when that time is up.

3. Can you afford the payment to become debt free in 10 years or less? If not, then don’t refinance.

adv for a guide about student loans for psychologists

Save the most money with school psychologist loan forgiveness options

There are student loan forgiveness options for school psychologists. I have laid out a general framework here.

But your situation is unique.

With all the money at stake when we’re talking about paying back 6-figure student loan debt, it could make sense for an expert to review your specific situation including family size, career path, household income, etc.

By the end of a consult with us, you’ll understand the path that will save you the most money paying back your loans and gain the clarity you need to feel in control.

I’ve worked with many PsyDs, and I’d love to help you finally feel confident about how you’re handling your student loans.

Please feel free to reach out with any questions or take a look at our consult page to learn more.