As a society, we place a bet on college students by offering them scholarships and grants due to merit and/or financial need. In most cases, the underlying rationale is: “We think these people have significant potential, and we want to foster their education.”
So, why does this end after they are out of college?
Our solution: Make it possible for student debtors to get tax-free scholarships after college, based on their demonstrated performance or potential and financial need.
The “G.I. Bill” after World War II was landmark legislation that changed a generation. Although not perfect in many ways, it paved the way for veterans of the war to achieve economic prosperity through low-cost mortgages, loans, trade school and college tuition, and other benefits. The G.I. Bill is widely considered to have been a major economic and political success.
We can do the same for today’s Americans who pursued the promise of higher education but have ended up saddled with debt.
The deeper dive…
Right now, there are almost no options for people to get scholarships or grants to help pay their student debt after they have graduated.* The person could’ve earned a perfect grade-point average, started a worthy charity on campus, and led the dance team — doesn’t matter, too late. After graduating, the person could’ve started a successful non-profit that helps children with learning difficulties or discovered a medical cure. Sorry, too bad. No scholarship money for you.
Worse yet, there are many more people who could do great things and have great ideas, but are caught in the vise grip of student-loan payments. As a result, society may never benefit from what they have to offer.
The path we envision has three parts:
- Educate the public on the student-debt crisis and how we can address it for millions of people.
- Motivate key policy-makers to change obstructive laws that limit tax-free scholarships and grants only to students actively enrolled in higher education.
- Activate funding programs through which benefactors can contribute to help people out from under their college debt, effectively offering scholarships and grants to those in need.
Expanding on #2 above, here is the crux of the problem, as quoted from IRS Publication 970:
A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.
So, right now, even if some generous person or organization wanted to pay off your entire student debt, you would have to declare that money as income!
On top of that, that benefactor would get no tax deduction or benefit. This means if you have a typical total college debt of $27,000 and pay an effective tax rate of 25%, you would lose nearly $7,000 of that “scholarship” or “grant” money to federal taxes (not to mention any state and local taxes). Put another way, the benefactor would have to fund more than $36,000 just for you to be left with the $27,000 to pay off your loans.
This has to change.
Continue reading to learn how you can help support our mission.
* Some employers and organizations offer loan-payback perks and assistance. Scholly, for example, has run a lottery for 10 lucky people to win a “year’s worth of student loans paid.” Graduate Hotels has done similar. (Here’s a list of 55 more.) These options are obviously helpful — and great a step forward — but there are too few right now, and they’re very limited. (Tax law also limits the amounts.) Our goal is to fix the problem at the foundation (the IRS tax code) to make student-debt scholarships and grants available to many more people.
Photo by Suzana Sousa on Unsplash