Significant changes were made to the federal student loan program in 2010. Some of the changes were generated by the Patient Protection and Affordable Care Act (PPACA) and most of the changes are beneficial for borrowers. For medical students about to graduate, understanding the changes and how they may help you more effectively manage your money during your lean residency years and beyond is essential.

Expanded Tax Benefits to Physicians in Health Professional Shortage Areas (HPSA)

As part of a larger effort to strengthen the health care workforce, the Internal Revenue Service announced that under PPACA, health care professionals who received student loan relief through state programs that reward those who work in underserved communities may qualify for refunds on their 2009 federal income tax returns, as well as an annual tax cut going forward.

Health care professionals who have not yet filed for 2009 need not report eligible loan repayment or forgiveness amounts when they file. Those who have already filed may exclude eligible amounts by filing Form 1040X, Amended US Individual Income Tax Return. This form can be downloaded from this website or obtained by calling the IRS toll-free at 800-TAX-FORM (800-829-3676). Individuals filing Form 1040X to claim this exclusion should write "Excluded student loan amount under 2010 Health Care Act" in the Explanation of Changes box.

Health care professionals may request an employer or other issuer provide a Form W-2c, Corrected Wage and Tax Statement, or 1099, and may attach the corrected form to the Form 1040X. Form 1040X may also be filed without attaching a corrected form, however.

Expansion and Additional Funding for National Health Service Corps (NHSC)

PPACA provided significant increases in funding for the NHSC programs-authorizing the following amounts for NHSC scholarships and loan repayments: $320,461,632 for FY2010; $414,095,394 for FY2011; $535,087,442 for FY2012; $691,431,432 for FY2013; $893,456,433 for FY2014; and $1,154,510,336 for FY2015. For FY2016 and subsequent years, the amount authorized to be appropriated will be based on the amount appropriated for the preceding fiscal year, adjusted by both the change in the costs of health professions education and the change in the number of individuals residing in HPSAs.

Additionally, PPACA provides NHSC participants more flexibility in what time may be counted toward their service commitment. Up to 50 percent of time-spent teaching by an NHSC member now may be counted toward the service obligation-20 percent for those in general practice situations and 50 percent for those working in teaching health centers. This change is a positive one, especially for rural programs that rely on their NHSC participants to spend some of their time teaching students.

Finally, the NHSC now allows part-time work to count toward fulfillment of NHSC obligations and increases the annual maximum NHSC loan repayment amount from $35,000 to $50,000.

Change in How Student Loans are Funded

One provision of the Health Care and Education Reconciliation Act of 2010 replaces the Federal Family Education Loan Program (FFELP), through which federally insured banks and other private lenders made loans to students or their families. Banks will no longer be involved as middlemen in the federal student loan system.  Loans made after July 1, 2010 will be made directly through the federal lending program, offering students the same types of loans as before. If you are still receiving student loans, you likely will receive a letter from your old lender explaining changes and how they may affect you in the future. More information is available here.

Marriage "Penalty" Reduced for Income-Based Repayment Program as of July 1, 2010

Under changes made to the IBR regulations that took effect July 1, 2010, married borrowers who file joint tax returns and who both have eligible student loan debt now will have their individual IBR eligibility determined based on their joint income and the combined eligible loan debt of both spouses. For couples that are both physicians and/or who both have significant student loan debt, student loan payments may be reduced substantially, especially for those in residency training or who work for non-profits or in other low-paying sectors. Prior to these changes, a spouse's income but not debt were considered, causing married couples with significant debts to make much higher monthly payments than singles. More information on the Income Based Repayment Program is available here. 

Reduced Penalties for Non-Compliance with Primary Care Loan Program

The Primary Care Loan Program (PCL) provides low-interest loans to financially needy students wishing to pursue careers in primary care medicine. For new loans made after March 23, 2010, PPACA requires borrowers to complete residency training in primary care and subsequently practice in primary care health for either 10 years total or until the loan is repaid in full, whichever occurs first. Previously, borrowers were required to practice in primary care until the loan was paid in full.

Borrowers who do not complete their commitment will now be charged an interest rate two percentage points greater than the rate the borrower would pay if compliant. In previous years, borrowers were penalized by having their interest rate recalculated to 18 percent. 

PPACA now also does not require independent students to provide parent financial information for consideration for a PCL, although individual schools may still require this information. An independent student is at least 24 years old and has been independent for a minimum of three years.

The Primary Loan Program is administered by HRSA and more information is available here.