Policy
HEA and 20/220: Implications for the Classes of 2008 and 2009

By Andrew Landstrom

On March 20th of this year, the Mayo Medical School Class of 2008 opened sealed envelopes containing their match results.  For many of my classmates, this time is one of excitement and anticipation for what the future will hold; however, it can also be an abrupt wake-up call to a broken medical education finance system.

The federal Higher Education Act (HEA), which was established in November of 1965 to “strengthen the educational resources of our colleges and universities and to provide financial assistance to students in postsecondary and higher education”, governs federal loans for higher education such as medical school (P.L. 89-329, 79 STAT 1219).  As such, the HEA dictates federal loan interest rates, the amount of time a student can defer payments of loans, as well as the eligibility criteria for borrowers, among other aspects.  Scheduled to be reauthorized every five years, the Act is currently being debated by Congress and, to date, is being informally conferenced between the Senate (S. 1642) and House (H.R. 4137).  Unless the currently extended version, which has not been reauthorized since 1998, is extended yet again, the new legislation will need to be completed by the end of the month. 

This is also a watershed moment for another piece of policy which can drastically affect the financial well-being of new residents.  The beginning of this academic year, in the fall of 2007, Congress eliminated the 20/220 pathway for economic hardship deferment with the passage of the College Cost Reduction and Access Act (H.R. 2669/P.L. 110-84)¹.  Despite the unassuming name, the 20/220 pathway provided the best financial option for eligible students entering into residencies while shouldering large amounts of educational debt.  Eligibility is determined based on the amount of debts versus the income of the residency program:

• Criteria 1: Student debt > 20% of income
• Criteria 2: Gross income – debt < 220% of the Federal Poverty Level (FPL)
• FPL = $10,210 for individual, $13,690 for couple

Under these criteria, approximately 67% of all medical residents are eligible to defer payment on their student loans for up to three years².  In addition, the federal government will pay the student’s accruing interest on the subsidized portions (only) of the loans. Ineligible students who do not meet the criteria for 20/220 deferment, must either pay back the student loans immediately, or claim forebearance.  Forebearance allows for the borrower to avoid making payments through the duration of their ACGMA-accredited residency program; however, interest will continue to accrue during this time, leave the borrower with substantially more debt than when they first graduated from medical school.

In a direct response to massive grassroots advocacy of physicians, residents, and perhaps most importantly medical students, the Secretary of Education Margaret Spellings temporarily maintained the 20/220 deferment pathway through July 1 of 2009.  At this point, due to the “cost” of allowing students to defer their student loans through the 20/220 pathway, medical students will once again face elimination of this pathway as it will be replaced by a new income-based repayment (IBR) program.  IRB will be better than forebearance, as it will cap the maximum amount of loan repayment that residents need to shoulder based on:

• Maximum amount of repayment = 15% of Gross income – 150% FPL

Given the average resident’s salary of $44,747, the Class of 2009 will need to pay about $340/month³.  This is far cry from total deferment.  Currently, two pieces of legislation, S. 2303 and H.R. 4344, in the Senate and House respectively, will reinstate the 20/220 pathway through legislative means and provide an opportunity for continued advocacy.

Each of these financial policies illustrate the very personal way that federal legislation can affect the lives of each of us and our families.  Further, it underscores the need to be fluent in health policy so that one can see these changes coming, as well as the importance of grassroots advocacy to lobby for positive change.  These pieces of legislation are not going to simply fade out of existence.  Rather, we have an opportunity to alter their course and ensure that, when each is ultimately based, it protects the interests of all of us, not just the Classes of 2008 and 2009.

REFERENCES:
¹ “Grassroots Talking Points on New Student Loan Deferment Provisions,” American Medical Association.
² Association of America Medical Colleges.
³ “Income Based Repayment,” FinAid.

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