How Non-Profit Hospital Tax Changes Could Threaten PSLF

House GOP members have floated the idea that they could raise billions of dollars in revenue by changing the tax status of non-profit hospitals to for-profits.But for millions of healthcare workers with student loans, the real cost could be far greater — losing access to Public Service Loan Forgiveness (PSLF).This shift could be the most significant threat to PSLF yet, reshaping loan forgiveness eligibility and leaving many borrowers scrambling for alternatives.Here’s what this means, why it matters and why it’s unlikely to go anywhere.

What’s being proposed about PSLF and non-profit hospitals? The House GOP needs to generate huge amounts of revenues or spending cuts to partially pay for the anticipated multi-trillion dollar tax cut bill, which would extend at least part of the 2017 Trump tax cuts.This reconciliation bill can proceed without any Democratic votes, as Republicans currently control both chambers of Congress.These types of bills originate in the House before moving to the Senate, and then both bodies of Congress hammer out the details.The two chambers negotiate the final version of the bill and then send it to the President’s desk — then he signs it or vetoes it.

The Republicans have proposed plenty of bills that would impact student loans before, but I believe this situation focuses on revenue generation rather than the unintended consequences of slashing PSLF — although it’s true the House GOP caucus might not be opposed to that idea.According to the House GOP memo, proposing this tax entity change could generate about $260 billion in new revenue.How could this impact PSLF? PSLF eligibility requires borrowers to work full-time for 501(c)(3) or government organizations to qualify for forgiveness.The Biden administration introduced some regulatory changes to broaden this definition of “full time” to include hospitals where some providers, such as physicians, are legally unable to be employed directly by the hospital.

But a bill that removes 501(c)(3) status from hospitals could mean that these hospitals would cease to be a qualifying non-profit.That means doctors, nurses, and other medical professionals with student loans could be locked out of receiving the PSLF benefit unless they transfer to a government hospital system (which maybe could include state-specific hospital systems, which may or may not be exempt from the bill).Most likely the bill’s authors have no idea of the PSLF impact I remember a situation where a non-profit hospital system in western North Carolina sold to a for-profit group, and it created mass chaos and distress for employees with student loans.Overnight, the hospital system's employees lost access to qualifying PSLF employment.

It was the only large hospital system in the region, so professionals with a large student loan impact were forced to choose: either they uproot their lives to work in another city or stay put and abandon their loan forgiveness plans entirely.From what I saw, it was clear that hospital management hadn’t considered the impact of a hospital buyout on their employees with student loans.It was done because the math made sense on the merger to hospital administration.Likewise, I’d anticipate what’s driving the GOP proposal to make non-profit hospitals for profit is the simple math of how much money it would raise in tax revenue — not the PSLF benefits it would erase for medical professionals everywhere.

What happens if this proposal made it to the Senate? Non-profit hospitals have enormous impacts on their surrounding communities.If they suddenly faced hundreds of billions in new taxes, the impact would go far beyond their own budgets.These hospitals fund massive construction projects, research initiatives, advertising campaigns and community donations that these mega employers (and spenders) have.I can’t go to a major league sports game without seeing a non-profit hospital’s name plastered everywhere.

Their presence is just as strong on local television, as well as cultural events like the symphony, opera, performing arts, etc.There’s a large downstream impact on taxing large hospital system profits that would involve taking money out of local communities and sending it to Washington, D.C.  Would the Senate block this proposal? My thought when a proposal like this makes its way out of the more ideological House is that the Senate would be reticent to consider it.Senators are often more cautious — especially when reelection is on the line.Those in key reelection races would be more likely to oppose this effort if major health systems back home lobbied them to resist this move.

And that’s easier to do with a Senator who represents an entire state vs.a more scattered group of House members, who may or may not have the state’s largest hospital employers in their districts.Physicians in particular would rise up in revolt if PSLF was threatened How did PSLF get added to non-profit hospitals? And how did medical residency — a required step for nearly every doctor — end up counting toward PSLF’s 10-year service requirement? The answer is simple: the lobbying and advocacy interests that represent physicians are very powerful.Physicians hold an outsized influence on society compared to their numbers, and huge numbers of physicians fighting hard to keep access to PSLF would likely cause members of the Senate in particular to shrink from enacting the most conservative plans coming out of the House.

A more likely scenario: A limited version of the House GOP’s proposal Hospital systems could face higher tax bills from more modest changes that would likely generate less political backlash than eliminating their tax-exempt status and cutting PSLF eligibility for employees.One option is to simply tax hospital endowments, much like a proposal put forward to tax university endowments.This tax would weaken the financial strength of these institutions and reduce the money flowing into the communities where these health systems operate.But at the same time, there is a huge amount of money in these endowments.

I recall one CFA Society event where I met a team of analysts responsible for managing the investment portfolio of a local hospital system.If I recall correctly, it was worth several billion dollars.Taxing investment income of hospitals might be a middle-ground approach that raises revenues while also dodging major political consequences.How to advocate for PSLF as a hospital employee If you're concerned about potential changes to PSLF, the best thing you can do is speak up — reach out to your representative or senator with your concerns.

Congressional members value thoughtful, detailed, technical constituent feedback more than you might think.(In my own experience, whenever I’ve submitted a concern about an arcane regulatory issue affecting small businesses, I’ve often received a thoughtful, substantive response.) Of course, your message carries the most weight if your representative: Faces a challenging reelection race.Is a member of the majority party.Sits on a key committee.  The earlier you reach out, the better — before the bill’s final text has been voted on.

If you belong to any professional organization that comprises thousands or tens of thousands of members, make your leadership aware of the proposed PSLF changes.  Advocate for yourself and your financial interests, as that’s exactly what democracy allows you to do.If you need help coming up with a PSLF strategy (and a backup plan, just in case), we’re here to help.