Finishing Residency with $300,000 in Debt: How Physicians Can Approach Public Service Loan Forgiveness in 2026
A walkthrough of PSLF, the new Repayment Assistance Plan, and the lowest-cost way for a high-earning nonprofit physician to repay – updated for the Department of Education’s final RISE rule.
By Ron A. Rhoades, JD, CFP® and Chris Brown, Ph.D., CFP®
When Dr. Elena Marsh signed her first attending contract with a nonprofit children’s hospital, the offer letter carried a number she had waited years to see: a salary that, for the first time in her adult life, would comfortably cover her bills. It also carried a second number she had been dreading. Through four years of medical school and the interest that compounded through residency, Dr. Marsh had accumulated roughly $300,000 in federal student loans.
Dr. Marsh is a composite – not a real person – but her predicament is common among physicians who finish training with six-figure federal balances. What makes mid-2026 an unusually consequential moment is the changes to Public Service Loan Forgiveness (PSLF): the One Big Beautiful Bill Act (OBBBA) rewrote the repayment system in 2025 and the Reimagining and Improving Student Education, or “RISE,” rule, will take effect mainly on July 1, 2026 (U.S. Department of Education [ED], 2026a, 2026b).
For doctors like Dr. Elena Marsh – signing contracts, budgeting a comfortable salary, and weighing the options of student loan repayment – there exists a critical reflection point: What is the lowest-cost path for a higher-income doctor? How can borrowers already in the system adjust to the new rules?
How to Earn PSLF
Public Service Loan Forgiveness (PSLF) is the reason a $300,000 balance does not have to mean repaying $300,000 plus interest. A borrower who works full time for a qualifying employer and makes 120 qualifying monthly payments can have the remaining balance on eligible federal Direct Loans forgiven, and that forgiveness is tax-free under current law (Federal Student Aid [FSA], n.d.-b; Association of American Medical Colleges [AAMC], n.d.). Three conditions have to line up.
First, the employer must qualify. Government employers and 501(c)(3) nonprofit employers are the core of the program (FSA, n.d.-b). A nonprofit hospital is therefore often, but not automatically, a qualifying employer; the reliable way to confirm is to run the employer through the PSLF Help Tool on StudentAid.gov. One new caveat is worth noting: under a separate final rule effective July 1, 2026, the Department may withdraw qualifying status from an employer it determines has a “substantial illegal purpose” – a change now being challenged in several lawsuits (ED, 2025). For a mainstream children’s hospital this is unlikely to be an issue, but it is now part of the rulebook.
Second, the loans must be eligible federal loans. Direct Loans qualify directly; older federal loans such as FFEL or Perkins loans generally must be consolidated into a Direct Consolidation Loan first (FSA, n.d.-b). This is done online through the Federal Student Aid portal (StudentAid.gov) by using the Direct Consolidation Loan Application, which combines multiple federal student loans into one loan with a single monthly payment.
Third, the 120 payments must be made under a qualifying repayment plan while the borrower is employed full-time, and they need not be consecutive (AAMC, n.d.). There are two key factors here:
- “employed full-time” means that your weekly average is at least 30 hours either (a) during the period certified, (b) through contractual or an employment period of at least 8 months in a year, such as for elementary or secondary school teachers, or (c) determined by multiplying each credit or contact hour taught per week by at least 3.35 in non-tenure track employment at an institution of higher education (for professors / instructors) (StudentAid.gov).
- “need not be consecutive” means that you can have periods where you do not make payments – i.e., if you work for a nonqualifying employer, or have a period of unemployment, your prior payment counts still remain and will count once you resume working for a qualifying employer again.
One caveat: You must still be working for a qualifying employer at the time you submit your form for forgiveness.
In general, it is highly recommended that you submit the PSLF form annually or whenever you change employers – this is the only time StudentAid.gov will update the number of qualifying payments you have made and keeps potential administrative delays at bay when you get close to the 120 payment threshold and are ready to submit your forgiveness application. It can also help identify any payments that do not count so that you can submit appeals or identify problems before it is too late.
For physicians, one detail does most of the heavy lifting: residency and internship time counts, provided the training employer qualifies and the other rules are met. Because most residencies are served at nonprofit or government teaching hospitals, the modest income-driven payments a resident makes during training count toward the 120, and the Department has confirmed that PSLF continues to credit residency time after the 2025 changes (AAMC, n.d.; ED, 2025). For Dr. Marsh, who trained for three years at a nonprofit academic medical center while making income-driven payments, this is the quiet engine of the strategy: she may already hold roughly three years of qualifying payments, leaving her closer to seven years from forgiveness than ten.
What changed in 2025–2026: OBBBA and the RISE rule
OBBBA (Public Law 119-21) became law on July 4, 2025, and restructured federal repayment more sharply than any statute in over a decade (Congressional Research Service [CRS], 2025). The Department’s RISE rule then translated the statute into operational regulations, finalized on April 30, 2026 (ED, 2026a). Four points matter most for a borrower in Dr. Marsh’s position.
It created a new income-driven plan. The Repayment Assistance Plan (RAP) becomes available July 1, 2026 (CRS, 2025; FSA, n.d.-a).
It narrowed the menu for future borrowers. For loans first disbursed on or after July 1, 2026, the only options are RAP and a new Tiered Standard plan; the older income-driven plans are closed to those borrowers (CRS, 2025; ED, 2026a).
It set sunsets for legacy plans. PAYE and ICR are scheduled to end on July 1, 2028, and the SAVE plan – already halted in court and since eliminated through a litigation settlement – is going away; borrowers in the SAVE forbearance must choose a new plan within roughly 90 days of being notified by their servicer (FSA, n.d.-a; Bartels, 2026).
It preserved PSLF. PSLF remains available as a separate forgiveness pathway, and the final rule confirms that RAP payments qualify for it (ED, 2026a, 2026b).
How the new Repayment Assistance Plan works
RAP sets a monthly payment as a percentage of adjusted gross income (AGI) – not of the smaller “discretionary income” figure used by older plans. The percentage starts at 1% for the lowest income band and rises one point per $10,000 of AGI, reaching 10% for any AGI above $100,000; the result is then reduced by $50 for each dependent, subject to a $10 minimum payment (CRS, 2025). For borrowers, the payment ranges are as follows:
| Total Adjusted Gross Income (AGI) | Annual Base Payment | Monthly Payment Amount Range |
|---|---|---|
| $0 – $10,000 | $120 | $10 |
| $10,001 – $20,000 | 1% of your AGI | $10.00 – $16.67 |
| $20,001 – $30,000 | 2% of your AGI | 2% of your AGI |
| $30,001 – $40,000 | 3% of your AGI | $75.00 – $100.00 |
| $40,001 – $50,000 | 4% of your AGI | $133.34 – $166.67 |
| $50,001 – $60,000 | 5% of your AGI | $208.34 – $250.00 |
| $60,001 – $70,000 | 6% of your AGI | $300.01 – $350.00 |
| $70,001 – $80,000 | 7% of your AGI | $408.34 – $466.67 |
| $80,001 – $90,000 | 8% of your AGI | $533.34 – $600.00 |
| $90,001 – $100,000 | 9% of your AGI | $675.01 – $750.00 |
| $100,000 or more | 10% of your AGI | At least $833.33 |
*Chart obtained from StudentAid.gov as of June 5, 2026. Note that the base payment is a percentage of your AGI that is used to determine what would be paid over 12 months without accounting for any reductions for your dependents. The chart assumes that you have no dependents. You can subtract $50 from the monthly payment amount for each dependent you claim on your federal income tax return, but your monthly payment amount can never be less than $10.
RAP also carries two borrower-friendly features. If a borrower’s full, scheduled payment does not cover the interest that accrued that month, RAP’s interest subsidy waives the unpaid interest, so the loan does not negatively amortize for a borrower who pays on time; the plan also adds a matching principal contribution of up to $50 when a payment reduces principal by less than that amount (CRS, 2025). Any balance remaining after 360 qualifying payments – thirty years – is forgiven, but that forgiveness, unlike PSLF’s, is generally treated as taxable income absent a future change in tax law (CRS, 2025).
The decisive point for a high earner is what RAP lacks: a payment cap. Because the plan applies a flat 10% to all AGI above $100,000 with no ceiling, a physician’s RAP payment keeps climbing as income climbs.
The lowest-cost path for a higher-income doctor: Legacy IBR
For a borrower pursuing PSLF, the strategic question is not which plan eventually forgives the loan – RAP, IBR, PAYE, and ICR all count toward the 120 payments – but which qualifying plan produces the smallest payments over those 120 months, because the remainder is forgiven anyway (FSA, n.d.-b). For a physician whose income roughly triples from resident to attending, legacy Income-Based Repayment (IBR) is often the lowest-cost fit, and the reason is its payment cap.
IBR bases payments on discretionary income – AGI minus 150% of the federal poverty guideline for the borrower’s household – and never charges more than the 10-year standard payment, regardless of how high income rises (FSA, n.d.-b). RAP has no comparable ceiling. At low incomes, RAP’s bottom brackets can be cheaper, but once income clears roughly $80,000, the comparison tips toward IBR, and the gap widens as income grows. A nonprofit that advises high-debt clinicians notes that IBR’s minimum payments are generally lower than RAP’s, particularly once AGI exceeds about $80,000 (Bartels, 2026).
The table below illustrates the difference for a single filer with no dependents, a $300,000 balance, and a roughly 7% interest rate. These are rounded estimates for illustration only; actual payments depend on the loan balance, interest rate, household size, tax-filing status, and the year’s poverty guidelines.
| Attending AGI (single, no dependents) | Legacy IBR (10% of discretionary, capped) | RAP (% of AGI, uncapped) |
|---|---|---|
| $150,000 | ~ $1,050 / month | ~ $1,250 / month |
| $300,000 | ~ $2,300 / month | ~ $2,500 / month |
| $500,000 | ~ $3,500 / month (the cap) | ~ $4,170 / month |
Illustrative estimates only. Adding a spouse’s income, dependents, or a married-filing-separately election can shift these figures materially. Verify your own numbers with your loan servicer.
A few patterns stand out. At every attending-level income shown, IBR’s payment is lower, and at $500,000 the cap saves Dr. Marsh on the order of $670 a month. Because her income will likely keep rising before she reaches 120 payments, the cap’s value compounds. The reverse is also true and worth stating honestly: in a genuinely low-income year – a research fellowship, reduced hours, unpaid leave – RAP’s bottom brackets and interest subsidy can beat IBR. That is why the choice is a planning judgment rather than a fixed rule.
The practical takeaway for a higher-income physician with loans disbursed before July 2026 is that legacy IBR will often be the lowest-cost plan on the PSLF path. That is an analytical conclusion, not a guarantee: the right answer shifts with income trajectory, marital status, family size, tax-filing elections, and how confident the borrower is about staying in qualifying employment for ten years (CRS, 2025; Bartels, 2026).
One provision in the final rule sharpens the decision: Months paid under RAP do not count toward the 20- or 25-year forgiveness clocks of the legacy IDR plans, although months paid under IBR, PAYE, or ICR do count toward RAP’s 30-year clock (ED, 2026a; Bartels, 2026). For PSLF itself this asymmetry does not apply – qualifying payments under any of these plans count toward the 120 – but it matters for a borrower who might leave public service before forgiveness, because time parked in RAP would not advance an eventual IBR discharge.
Three execution details turn the recommendation into a plan:
- First, enroll in IBR while you still qualify; IBR entry requires a partial financial hardship, which is easy to meet during residency or the first attending year but can become impossible at very high incomes – and once enrolled, the cap keeps you on the plan as income grows (FSA, n.d.-b).
- Second, do not consolidate or take out new federal loans after July 1, 2026 if you want to preserve legacy-IBR access, because new post-cutoff loans push a borrower toward RAP (Bartels, 2026).
- Third, married physicians should model filing separately versus jointly each year, since filing separately can lower an income-driven payment by excluding a spouse’s income even as it may raise the overall tax bill (FSA, n.d.-b; Bartels, 2026).
Grandfathering: how existing borrowers are treated
The reassuring part of the story for someone like Dr. Marsh, whose loans were all disbursed during medical school before July 1, 2026, is that existing borrowers are treated differently from new ones. Under the final rule, borrowers with pre-July 2026 loans keep access to IBR and may remain on PAYE or ICR until those plans sunset on July 1, 2028 (ED, 2026a; FSA, n.d.-a).
Progress is not erased. Switching among qualifying plans does not reset the PSLF count; qualifying payments made under IBR, PAYE, ICR, or RAP all carry forward toward the 120 (FSA, n.d.-b; Bartels, 2026). A servicer portal may briefly show a “0” after a plan change while records update, but credited payments are restored once processing finishes.
Two timing points bound the grandfathering. PAYE and ICR end on July 1, 2028, and borrowers who have not chosen a plan by then are moved into RAP (CRS, 2025; FSA, n.d.-a). And although IBR remains available to pre-2026 borrowers, the prudent course is to settle onto the plan that fits the PSLF strategy deliberately and to avoid moves – new loans, consolidation, or an unnecessary detour through RAP – that could complicate legacy access or forgiveness credit (Bartels, 2026). Borrowers who first enter federal borrowing on or after July 1, 2026, are not grandfathered at all; for them RAP is the only income-driven plan, and it still qualifies for PSLF (CRS, 2025; ED, 2026a).
Dr. Marsh’s game plan
- Confirm that all loans are federal Direct Loans, consolidating any older ineligible federal loans into a Direct Consolidation Loan if needed. Do this before July 1, 2026.
- Verify the hospital’s PSLF eligibility with the PSLF Help Tool and submit the PSLF form to certify qualifying employment.
- Get on – or stay on – legacy IBR while a partial financial hardship still qualifies her, to lock in the payment cap.
- Avoid new federal loans or consolidation after July 1, 2026, which could forfeit legacy-plan access and force a move to RAP.
- Recertify income on time every year, and model married-filing-separately versus jointly each tax season.
- Track the count toward 120 qualifying payments at least annually, and especially when changing employers, and keep copies of every servicing notice and payment record.
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About the Authors
Ron A. Rhoades, JD, CFP®
Ron Rhoades is an Associate Professor of Finance at the Gordon Ford College of Business, Western Kentucky University. He also serves as a financial advisor at Scholar Financial, a practice within XY Investment Solutions LLC. With a background as both an attorney and a CERTIFIED FINANCIAL PLANNER™ professional, Ron is a nationally recognized authority on the fiduciary duties of financial advisors.
Chris Brown, Ph.D., CFP®
Chris Brown is a faculty member in the Department of Finance at the Gordon Ford College of Business, Western Kentucky University, and a financial advisor at Scholar Financial, a practice within XY Investment Solutions, LLC. He holds the CERTIFIED FINANCIAL PLANNER™ designation and a Ph.D. in Finance. His research and teaching focus is on behavioral finance, retirement planning, and evidence-based investment strategies.
Disclosure
The 2025–2026 changes are now embodied in a final rule, but servicer implementation is still rolling out and several pieces – notably the PSLF employer-eligibility provision – are being litigated, so operational details can still shift (ED, 2026a). The dollar figures here are rounded illustrations that depend on interest rate, household size, filing status, and the year’s poverty guidelines. Before acting, Dr. Marsh – or any real borrower – should confirm the current rules at StudentAid.gov, verify her payment counts with the loan servicer, and consider consulting a qualified student-loan specialist who can model the exact numbers. Your fee-only financial advisor can recommend such a specialist.
This article is for educational purposes only. The characters depicted are fictional and any relation to real persons is solely incidental. Scenarios and references to real people or experiences are used solely to illustrate educational concepts. These examples may not apply to your individual circumstances. It should not be construed as financial, legal, tax, or investment advice, nor as a recommendation to implement any specific strategy, product, or investment. As a fiduciary, we provide advice tailored to each client’s goals and financial situation. Consult with a qualified financial professional before making investment decisions.
Advisory services are offered through XYPN Sapphire and its various IAR brands under which it operates. XYPN Sapphires is an SEC registered investment adviser. For additional disclosure and privacy information, please visit XYPNSapphire.com/disclosures.
References
Association of American Medical Colleges. (n.d.). Public Service Loan Forgiveness (PSLF). https://students-residents.aamc.org/financial-aid-resources/public-service-loan-forgiveness-pslf
Bartels, T. (2026, May 6). Repayment Assistance Plan (RAP) rules finalized: Major unexpected change coming. VIN Foundation. https://vinfoundation.org/repayment-assistance-plan-rap-rules-finalized-major-unexpected-change-coming/
Congressional Research Service. (2025). The Repayment Assistance Plan (RAP) in P.L. 119-21, the FY2025 reconciliation law (In Focus No. IF13075). https://www.congress.gov/crs-product/IF13075
Federal Student Aid. (n.d.-a). One Big Beautiful Bill Act updates. U.S. Department of Education. Retrieved June 10, 2026, from https://studentaid.gov/announcements-events/big-updates
Federal Student Aid. (n.d.-b). Public Service Loan Forgiveness (PSLF) program. U.S. Department of Education. Retrieved June 10, 2026, from https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
U.S. Department of Education. (2025). U.S. Department of Education announces final rule on Public Service Loan Forgiveness to protect American taxpayers [Press release]. https://www.ed.gov/about/news/press-release/us-department-of-education-announces-final-rule-public-service-loan-forgiveness-protect-american-taxpayers
U.S. Department of Education. (2026a, May 1). Reimagining and Improving Student Education – Federal student loan program; Final regulations. Federal Register. https://www.federalregister.gov/documents/2026/05/01/2026-08556/reimagining-and-improving-student-education-federal-student-loan-program-final-regulations
U.S. Department of Education. (2026b). U.S. Department of Education finalizes landmark rule to lower college costs and simplify student loan repayment [Press release]. https://www.ed.gov/about/news/press-release/us-department-of-education-finalizes-landmark-rule-lower-college-costs-and-simplify-student-loan-repayment
