Borrower Defense (P.2) A FOLLOW UP FOR PAST AND CURRENT STUDENTS SEEKING DEBT RELIEF OPTIONS

Transcription

1 Borrower Defense (P.2) A FOLLOW UP FOR PAST AND CURRENT STUDENTS SEEKING DEBT RELIEF OPTIONS

2 Background & Outlook I ve received many questions regarding my past presentation. I ve tried to digest and condense them into this guide, which intends to further define the process & answer questions asked. Further defines eligibility and the application process Address potential tax consequences Answer additional questions asked

3 Borrower Defense The Process Who can apply? Everyone. The Borrower Defense to Repayment program excludes no one if you were granted a federal student loan you are eligible. Current Students: Transferring should not affect a current student s Borrower Defense Claim. This WILL likely affect a students Closed School Discharge Claim. More info on that process may be found here: The likelihood of success is undeterminable, but there are steps that will help improve your chances. The Borrower Defense application can be found here: px

4 Borrower Defense Writing the Application Familiarize yourself with the application. Complete this form; This is not the federal application, but it should assist you for Basis arguments Gather supporting documents include your transcript, the DOE Letter, and any other supporting documents

5 Borrower Defense Writing the Application Write your answers. Consider, and appeal to your audience be thorough, but avoid too many legalese. Develop your thoughts. Try to fill each Basis question that is applicable; the more, the better. Remember, you are writing to the Dept. of Ed. use supporting material from its own letter to bolster your answers. While some of the questions may seem repetitive, DO NOT COPY AND PASTE. Try to give them something new to chew on with each answer. Before submitting, wait at least a day. Review your application and ensure it covers everything you d like.

6 Tax Consequences of Debt Forgiveness I am not a tax attorney, and this is not legal tax advice. These are only generalities based of my limited knowledge and experience with tax law, and will not apply to each person s unique tax situation. For further review, consult a tax attorney. Tax consequences may be similar to the housing market collapse; Homeowners were issued debt relief as their mortgages were upside down, i.e. they owed much more than their property was worth That debt relief resulted in issuances of IRS Form 1099s This resulted in the forgiven debt being counted as income for tax purposes

7 Tax Consequences of Debt Forgiveness Example Homeowner s mortgage is $250,000, house appraises for $100,000, Bank reduces mortgage to $100,000. Homeowner is taxed as if he made $150,000 that year. Problem Homeowner did not actually realize $150,000, and likely cannot afford to pay income taxes on $150,000 Result Homeowner shifts from one bad situation to another, now owing the IRS tens-of-thousands of dollars Solution Homeowner works with IRS to try to establish a payment plan over time, rather than owing a lump sum due and payable immediately Better Solution Federal govt. issued a slew of debt relief programs (Making Homes Affordable Act) which allowed the debt to be truly forgiven, i.e. Homeowner does not need to pay taxes on the forgiven amount

8 Tax Consequences of Debt Forgiveness Will student loan debt be forgiven similarly? It s hard to say. The housing market collapse did not collapse alone, rather the housing market collapse was the result of other markets-generally referred to as a whole stock market)-falling before it. Consider; Like student loans, the housing market consisted of both governmentbacked and private loans. Unlike student loans, mortgages are secured debts. The housing market lenders had underwriting issues, namely their standards were lax and they allowed borrowers to obtain mortgages they clearly could not support. Arguably, the government and the ABA committed similar acts here; CSL was not under the appropriate level of scrutiny from either the Federal Government or the ABA, otherwise the current situation would not have occurred.

9 Tax Consequences of Debt Forgiveness There may be tax options to help reduce or eliminate the impact of a 1099 If you end up owing the IRS, you should be able to work with them it is better to be upfront and work out a payment plan rather than to fall into default You should be able to obtain a preliminary tax consultation from a certified CPA or tax attorney for relatively cheap or free of charge

10 FAQ When should I file a Borrower Defense claim? I suggest filing as soon as possible. I have not found any barriers to filing multiple claims, and given the length of the process, should new information arise while your claim is in process you should be able to submit an addendum to your claim with the additional information. I have additional expenses incurred, i.e. moving expenses, rent, pain and suffering. How will this be covered by Borrower Defense? Very likely, it will not. Borrower Defense aims to address the money funded by the government for you to attend school. In so far as you used federal loans for cost of living, that would be covered. However funds used outside federal founding are outside the reach of Borrower Defense. Those expenses would likely only be recovered through a successful lawsuit against the institution.

11 FAQ I am interested in retaining your services? What is your fee schedule? At this time I am seeking options so that I may begin formal representation. I received a flood of s after my last presentation, and would need to establish the proper pool of resources and procedures before formal intake. I do, however, I appreciate the gesture, and will let each of you that ed me to this regard know if I am able to secure the appropriate resources.