Regarding tax implications, the IRS and a number of accounting firms have publications available all over the internet informing the reader of the necessity of declaring any employer based repayment of student loan debt as part of compensation or a benefit package in a given year. For the record….if an employer pays for any portion of an employee health plan, the benefit is NOT taxable, however, if an employer contributes to a student loan account for debt repayment, the benefit is considered taxable for the employee.
The bankruptcy issue was sort of secondary in my research for I tackled the topic from a ‘recruitment’ perspective but I learned a good deal about student loan debt in the process….and there is abuse and scamming on both sides of the equation….both private and government backed student loans are protected from discharge through the help of Congress without going through an ‘added’ step to prove how terrible the former student’s life would be without the ability to discharge the student loan debt…and a very high percentage of private student loan debt is secured by a parental (or another adult with means) co-sign….so in order to attempt to discharge the debt, the parents must be filing bankruptcy as well….
It turns out that the average student has no intention of filing bankruptcy when they take out the student loans….and not even 2% of students with any kind of loans have an ‘I can file bankruptcy plan’ ahead of time… however, after speaking with a friend whose two (2) out of three (3) children (and the third considered it) along with one (1) out of one (1) step child filed bankruptcy and were successful in discharging student debt, I really began to feel that there is a need to look at the entire system….
basic, bottom line is that Sallie Mae does not make any money off of student loans unless the loan goes into default…then they are permitted by the US Government to charge a 15% to 25% penalty after a failure to pay the debt on time for three (3) months in a row…there are horror stories on the internet of a $33,000 loan balance at time of graduation or termination of studies to $95,000 if the agreed upon repayment schedule has not been adhered to strictly….one can read, ad infinitum, the stories of the tragic consequences that result when student debt is ignored….
Sallie Mae works closely with all colleges and universities in order to insure that these institutions will have enough students attending to help cover projected costs and that Sallie Mae will help be the bearer of the monies that the students need to pay for the education…that they may or may not complete…and then there are the private loans by banking institutions that have monies available for those students who don’t qualify for the ‘student’ loans that are available through Sallie Mae (when the student has money in the bank/has a substantial income, owns property or have parents that earn a considerable income, etc.) and require a co-signer of sorts in order to ‘secure’ the loan….so, student loan is big business and, in my estimation, a true ‘scam’….for the Government (Sallie Mae….and please don’t state that there is not a connection), the banks and the colleges/universities that are recipients of the monies….
The private student loan is for the student who thought that discharging student loan debt to a private entity in a bankruptcy filing would be easier….and they would have been correct prior to 2005…however, with the change of the bankruptcy laws in 2005, the same applies for the borrower of private loans as the borrow of federal loans….private loans are also for those students who don’t qualify for federal loans…these loans are based on one’s credit worthiness…just like any other unsecured loan….the lender may require a co-signer if the credit history is weak of non-existent.
There is considerable debate as to the change in the bankruptcy laws regarding private student loan debt….please note the private loans have the same nuances as any other unsecured loan and many individuals feel that since there is no guarantee and no limit on interest rates, the private student loan should be discharged in a bankruptcy….
Discharging student loan debt in any bankruptcy is difficult but not impossible…as evidenced by the three (3) family members who were successful at it…the ‘law’ states that undue hardship needs to be shown regarding the student loan debt….since one (1) of these individuals is in their late 30’s or early 40’s and the other two (2) individuals are in their very early 30’s and are all gainfully employed (as I was informed, they always have been), I have no earthly, imaginative idea as to how they could have proven undue hardship….which goes to the root of the reason for this posting….
….We need to take a hard look at and analyze how we pay for higher education….not just college….for I am a firm believer (have said this before) that there are many individuals that should not or should have never gone to college but everyone should be able to contribute to society with a skill….no matter how low the skill level may be….if one has a skill and executes it well, then the contribution to society should be respected….we should try to insure that all individuals have the ability to contribute to society without having a debt burden that is prohibitive and letting others discharge all their debts based on what/who they know or the ability to pay for a bankruptcy…
Fairness all around needs to begin with ALL student loans being treated the same and all individuals having the same opportunities….to obtain the loans, to repay them and to discharge them, if necessary….and that is the key word….’necessary’.
If you have any interest on putting together a program in your organization for repayment of student debt, please contact Rosanne Bennett at 484-798-1236 or at firstname.lastname@example.org.