The Education Debt Reduction Program (EDRP), administered by the Department of Veterans Affairs (VA), has been around for quite some time. But, in 2018, Congress changed the amount that borrowers could receive for this VA loan forgiveness program.
These new rules have made this program worth considering for any medical professionals who are passionate about helping veterans. Here’s everything you need to know about VA loan forgiveness in 2021.
What is the VA EDRP?
The EDRP application process is designed to recruit quality health-care workers for difficult-to-recruit, direct patient care positions. The VA publishes a list of positions that are eligible for the EDRP. To find EDRP-eligible jobs, search “EDRP” on VAcareers.va.gov or USAJobs.gov.
If you’re applying for a VA position specifically because of this VA student loan repayment program, you’ll want to ask the human resources department about it during your contract negotiations. If your job is eligible for the EDRP, it will be included in your final employment offer.
In addition to working in a qualifying position, you’ll need to earn a degree from an accredited school or program. Your education debt also must be for a degree that relates to your job. Finally, you’ll have to maintain an acceptable level of performance during your EDRP service period.
Changes in the program
In 2018, Congress changed the max you could receive with the VA EDRP. Before the change, the most you could get was $120,000 cumulatively over five years.
But the annual limit was increased from $24,000 to $40,000 per year. This means participants can now receive up to $200,000 for a five-year period with this VA student loan repayment program.
Program payments are tax-exempt
One of the great things about this VA student loan forgiveness program is that it won’t create a taxable event with the IRS. That’s a huge plus. With many programs, including income-driven repayment (IDR) forgiveness, the remaining balance that’s forgiven is considered taxable income.
To demonstrate why the EDRP’s tax-exempt status is such a big deal, imagine that you received the full $200,000 limit from this VA student loan repayment program. That would work out to an extra $40,000 of taxable income each year. If you were in the 25% tax bracket, that could add an extra $10,000 to your tax bill each of the five years.
One thing to keep in mind is that some hospitals may offer their own student loan repayment programs that are taxable. If you’re accepted into the EDRP, you should probably avoid these employer-based programs. Here’s why:
Let’s say you have $120,000 in student loans, and your employer offers $20,000 of student loan repayment per year. By combining your employer’s program with the EDRP, you could pay off your loans in two years instead of three. But you’d also generate $40,000 of taxable income. Why use taxable money today when you could get your hands on tax-free money tomorrow?
The fact that the VA EDRP reimbursements are tax-free honestly makes it one of the best forgiveness programs available. In fact, it could be better than the Public Service Loan Forgiveness program in some circumstances, since you don’t have to wait 10 years to receive forgiveness. And while PSLF is only available for Direct Loans, private student loan borrowers can qualify for EDRP too.
But what if you could participate in the VA EDRP and PSLF at the same time? Let’s take a look at when — and if — that would be a smart student loan repayment strategy.
Is it worth it to use the VA EDRP and PSLF together?
Health care VA jobs do qualify as public service for PSLF. In most cases, it can make sense to pursue both the VA EDRP and PSLF at the same time. But there are a couple of things to keep in mind.
First, note that the VA EDRP is a reimbursement program. You can only receive reimbursements for student loan payments that you make. Second, it’s important to remember that medical professionals can begin making qualifying payments toward PSLF as soon as they begin residency.
Here’s why those two facts matter: If you begin PSLF as soon as you start residency, you may have less than five years remaining by the time you start your VA job. In that case, you’re welcome to apply for VA EDRP reimbursement for your IDR payments.
But you probably wouldn’t want to increase your monthly payment amount toward your federal student loans. Why? Because if you pay more than your IDR plan requires, you could risk having your loan placed in “paid ahead” status. And that can present problems for PSLF.
There’s really no reason to risk that if you’re going to get full, tax-free forgiveness from PSLF in less than five years anyway.
Other VA loan forgiveness programs
EDRP isn’t the only student loan forgiveness program offered by the VA. The VA Student Loan Repayment Program (SLRP) offers up to $10,000 per year ($60,000 lifetime maximum) of student loan repayment for qualifying VA employees. And while EDRP is only available to medical professionals who work in hard-to-fill direct care positions, more VA workers may be able to qualify for SLRP.
It may come as a surprise to some readers that you don’t actually have to be in the military to qualify for either of the VA student loan forgiveness programs listed above. However, military service members have several student loan relief options too. Here are a few examples:
- Total and Permanent Disability Discharge (TPD): Disabled veterans can qualify for TPD discharge by verifying the VA’s disability determination. The documentation must show that they (1) have a service-related disability that is 100% disabling, or (2) have been deemed totally disabled by an individual unemployability rating. In 2019, former President Trump streamlined the TPD discharge process for veterans. Learn how.
- Military College Loan Repayment Program (CLRP): Through the CLRP program, new military recruits can receive up to $65,000 of student loan repayment assistance.
- National Defense Student Loan Discharge: If you have federal Perkins loan debt and spent at least a year of active-duty service in an area of hostile fire, you may qualify to have your Perkins Loans discharged.
- Public Service Loan Forgiveness (PSLF): Military members are eligible to join PSLF as long as they’re serving on active duty. Since it takes at least 120 qualifying monthly payments (10 years) to earn PSLF forgiveness, this will only be a viable option if you plan to serve multiple terms.
The above list is by no means exhaustive. For a full breakdown of all your military student forgiveness options, check out our complete guide.
VA EDRP: A great option for VA medical professionals
The VA EDRP is one of the most generous VA student loan repayment programs available today.
If you’re able to find a job that qualifies for the EDRP, it could earn you up to $200,000 of tax-free loan repayment. And you may even be able to pursue the VA EDRP and PSLF at the same time.
Looking for more student loan debt advice and ideas? You may want to consider setting up a consult with one of our expert student loan consultants. Book a consultation today.