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4. Funding and Loan Repayment Agreements

This section will discuss funding for MSLRP loan repayment agreements, including required employer contributions.  It will also describe the length of loan repayment agreements, how agreement amounts are determined, minimum agreement amounts, and provide additional related information.  

MSLRP Funding: MSLRP agreements are funded by a federal/state/local partnership:

  • Federal funds awarded by the Health Resources and Services Administration (HRSA);
  • State funds appropriated by the Michigan Legislature: and
  • Local funds from employer contributions toward MSLRP agreements awarded to their healthcare providers.  Per federal program guidelines, employer contributions must consist entirely of non-federal funds.

The percentage of each of these types of funds used to support MSLRP loan repayment agreements may vary depending on the availability of federal and state dollars, as well as MSLRP application volume.  Participation in MSLRP is contingent upon the availably of program funds at the time of contracting.  Although the program expects to receive funding for loan repayment agreements resulting from the current application period, applicants should be aware that state and federal budgeting processes may affect their participation.  Applicants are asked not to call the MSLRP Office to inquire about funding status.  Applicants will be notified as soon as information is available.

Employer Contributions:  The contribution requirement for nonprofit employers is 20 percent of their providers’ agreement amounts.  For-profit employers placing providers in nonprofit practice sites, such as state prisons, contribute 50 percent.

Loan Repayment Agreements:  Providers may participate in MSLRP for up to ten years and receive up to $300,000 in income-tax free funds to repay their eligible educational debt.  Providers may not receive MSLRP payments in excess of their total eligible debt.

Please Note: Loan repayment agreement amounts for Northern Obstetric Service Providers are discussed in the Selection Criteria, Review Process and Final Phase of Application Process section of this website.  Agreement amounts described below apply to all other MSLRP applicants. 

Length and Amount of MSLRP Agreements:  MSLRP loan repayment agreements require two-year service obligations, which begin October 1 following each application period. Two-year loan repayment agreements will be determined by the calculation described below and applicants must have sufficient eligible debt to warrant an initial two-year, $20,000 loan repayment agreement to participate.  Participants compete for each subsequent two-year loan repayment agreement during every other application period.  After a least one two-year agreement, a participant’s final agreement may be for one year if there is insufficient debt remaining to support a minimum $20,000 two-year contract, but may not be for less than $10,000. 

Initial Two-Year Agreement Amounts:  All initial agreements must be for two years.  Initial two-year agreement amounts are determined by dividing the amount of providers’ eligible debt, up to the $300,000 maximum, by their ten years of eligible program participation and multiplying by two.  Eligible debt will be determined by loan information provided on applicants’ Provider Application, Part B forms. 

Example: For a new participant with $140,000 eligible debt, divide $140,000 by ten years of eligible participation and multiply by two years for a $28,000 initial two-year agreement ($140,000/10 years = $14,000 per year x 2 years = $28,000. 

Odd dollar amounts derived in this manner will be rounded up or down to the nearest $1,000 amount for administrative simplicity.  If an applicant has at least $20,000 of eligible debt and the two-year agreement amount calculated as describe above is less than $20,000, the provider will receive, if awarded, the minimum $20,000 two-year agreement.  Providers and employers must discuss agreement amounts before applying, because employers are required to make contributions to their providers’ agreements.

Agreement Amounts for Those Reapplying to MSLRP: Participants will compete for each subsequent two-year loan repayment agreement during every other application period.  The amount of subsequent two-year agreements will be determined by dividing the lessor of the participant’s remaining Maximum Total Payments or current eligible debt by their remaining years of participation. 

(Lessor of):

Remaining Maximum

Total Payments

    or

Current Eligible Debt/Remaining Years of Participation  X Two Years = New Two-Year Agreement Amount

Example: In the previous example, the same participant reapplies in two years and is awarded.  They received $28,000 under their initial agreement, which reduces their Maximum Total Payments from $300,000 to $272,000 ($300,000 original maximum - $28,000 received during first two-year agreement).  

During those two years, the participant paid down $28,000 of eligible debt and accrued $10,000 additional interest for remaining eligible debt of $112,000 ($140,000 - $28,000 MSLRP payments = $112,000 + $10,000 interest = $122,000). Since remaining eligible debt of $122,000 is less than the $272,000 remaining Maximum Total Payments, the $122,000 remaining debt must be used in the numerator of the calculation.  The $122,000 of remaining eligible debt will be divided by their eight years of remaining participation (ten years – two years) and multiplied by two years to determine their next two-year agreement amount of $30,500, which is rounded up to $31,000 ($122,000/8 years = 15,250 per year X 2 years = 30,500 ~ $31,000).

$122,000 Current Eligible Debt/8 Years Remaining Participation X 2 Years = $30,500 rounded up to $31,000

This process will continue each time an applicant is awarded a new MSLRP loan repayment agreement until they have either completed ten years of participation or have less than $10,000 of remaining eligible debt.

Loan Repayment Agreement-Related Topics:  Before applying to the program, providers must understand the MSLRP service obligation, default provisions, qualifying educational loans, loan repayment documentation, MSLRP payments and their tax treatment. They will also need to carefully read the current MSLRP Opportunity Update, the entire website, and all application forms to compete successfully in the application process.

MSLRP Service Obligation: Healthcare providers awarded MSLRP agreements enter into service obligations that correspond to the start and end dates of their loan repayment agreements. MSLRP service obligations are legal responsibilities that should not be taken lightly.  Healthcare providers should carefully read their MSLRP agreements before signing them and understand that participants who do not complete their service obligations face significant default penalties.  With this in mind, providers not comfortable with their employers should not apply.  They should wait until the following application period to see if issues are resolved or find another employer before submitting an MSLRP application.  

Default Provisions:  Severe federal penalties, mandated by the Health Resource and Services Administration (HRSA), will be imposed on healthcare providers who default on MSLRP agreements. Upon breach of the MSLRP agreement by not completing their service obligations, and in addition to forfeiting the right to any future MSLRP payments, they will owe the Department an amount equal to the sum of the following:

  • The total of the amounts paid by the Department to the participant for loan repayment for any period of obligated service not served; and,
  • An amount equal to the number of months of obligated service not completed, multiplied by $7,500; and,
  • Interest on the amounts described above at the maximum legal prevailing rate as determined by the Michigan Department of Treasury, except that:
  • The amount the Department is entitled to recover shall not be less than $31,000.

Qualifying Educational Loans:  Only loans incurred through professional education (i.e., medical/dental school, graduate school, PA/NP/CNM programs, etc.) and relevant undergraduate training are eligible.  Qualifying educational loans are government and commercial loans for costs related to the undergraduate and graduate education leading to degrees in health professions in which participants will satisfy their MSLRP service obligations.  Undergraduate and professional education loans not related to degrees in which participants will satisfy their MSLRP service obligations are not eligible debts for this program. 

Loan Repayment Documentation Requirement:  When reapplying, applicants must provide Loan Repayment Documentation (LRD) to show they have paid down the loans listed on their Provider Application Part B forms by an amount at least equal to the amount they have received from MSLRP.  For details on LRD, go to the Participant Information and Requirements section of this website. 

MSLRP Payments:  Providers complete six months of their service obligation beginning with the October 1 start date of their MSLRP agreements and then initiate their first six-month payment.  Providers initiate their six-month payment cycles each March 1 and September 1 during their participation in the program by submitting their properly-dated Work Verification Forms (WVFs) to their employers.  Six-month payments are made directly to healthcare providers, not to their lenders, and providers are required to pay down their eligible loans by an amount at least equal to the payments they receive within a reasonable amount of time.

Providers must forward their Work Verification Forms to their employers at the beginning of each March and September. Employers must verify their providers have worked 40 hours per week over the past six months, attach their employer contribution checks, and submit the documents to the Michigan Department of Health and Human Services.  Detailed instructions are included on each Work Verification Form.  The Department must receive signed Work Verification Forms and employer contributions before participants can be paid.  For details on MSLRP payments, go to the Participant Information and Requirements section of this website. 

Tax Treatment of MSLRP Payments/Information for Your Tax Professional: MSLRP funds disbursed on or after January 1, 2004 are exempt from gross income, employment, state, and local taxes.  All MSLRP funds received prior to January 1, 2004 were subject to federal, state, and local taxes according to the tax laws existing at that time. 

On October 22, 2004 President Bush signed Public Law 108-357, which makes all NHSC Loan Repayment Program (LRP) and State Loan Repayment Program funds received on or after January 1, 2004 exempt from Gross Income and employment taxes. The law also excludes these funds from being taken into account as wages in determining benefits under the Social Security Act.  Thus, any NHSC LRP, or MSLRP payments received during or after 2004 are exempt from federal taxation.  Furthermore, the state of Michigan has made MSLRP payments exempt from both state and local taxes.

 

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