Student Loan Repayment Program Issues

carnelli53

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b72treadwell,

I knew there was someone else! I'm sorry to hear of your troubles and trust me, I know where you are coming from.

It is absolutely ridiculous the way these payments are handled. The money is never even in the hands of the servicemember and it is still counted as taxable income - which is fundamentally wrong to begin with. They tried to tax me for months I was in Iraq! Although, after vigorous annoyance to the people in DFAS and over at Alexandria, VA Army Human Resources they provided me a corrected W-2 with a combat zone exemption...which didn't matter much in the end because I still had a liability of several thousand.

All in all, it clearly states in Federal Law and Regulations that the Federal Agency is supposed to withhold and pay the federal taxes on these payments. I imagine the reason this has not gone into the court system is due to the short-life of this program in each person's case (three years at most) so they figure they will just have to eat these taxes for lunch over the next two years (I would say three but they don't tell you about the liability, you just find out when you receive a W-2 with no tax withheld).

Like I said, re-introduction of HR 4555 would alleviate this issue. Perhaps this could be an amendment to the legislation Dragonfly is proposing...
 
Federal Student Loan discharge for permanent and total disability

I hate to be the bringer of bad news but the SLRP is in fact the same as if you had received a bonus upon enlisting. The main difference is you personnally don't receive the money and no tax is withheld from the payment. As you already know the payments get made after each of your first completed years of service. I'm not sure how or if payments are still made if you are disabled and forced to retire.

The issue with a lack of W-2 is an old one. Unfortunately, it falls to the SM to ensure that you receive a W-2 for the SL payments that were made. I, too, had to pay the taxes and late penalties the first year of the payments. DFAS, in their infinite wisdom, supplied the info to the IRS as income but failed to provide me with a W-2 showing the payment. I didn't even realize it wasn't included in my original W-2 until I was notified by the IRS. I had to request the additional W-2 three times before I was given the one for the SLR. They just kept giving me my original W-2!!! The next two years, I at least knew to ask for the additional W-2s.

It should be easier now with myPay. Under the taxes section, they even have a section to click on for SLRP W-2s. It is just a matter of being told that if you enlisted with this option you will need to print off this W-2 in addition to the standard one.:)
 
Federal Student Loan discharge for permanent and total disability

kreny2,

In my case, I am not so quick to accept DFAS and DoD rationale in the case of the SLRP. As you can see in the letter I wrote to the Congressmen below, Federal Law clearly stipulates the following:

"What are the Federal employment tax obligations of an agency that repays a student loan incurred by an agency employee?"The answer being:

  1. Pay the employer's share of social security and Medicare taxes on the loan repayment;
  2. Withhold and pay Federal income tax withholding (and appropriate State and local income tax withholding) on the loan repayment;
  3. Withhold and pay the employee's share of social security and Medicare taxes on the loan repayment; and
  4. Report the loan repayment and taxes withheld and paid as required under Federal law and applicable State and local laws.
The authority is 5 U.S.C. 5379, 5 CFR Part 537, and 5 U.S.C. 2105.

We all know DoD/Armed Service Branches do not follow these guidelines. I see no good reason why they do not (in fact they do quite the opposite). I too, for the time being, am paying these taxes. I received the W-2 in good order via MyPay, so the element of surprise was lost on their end. I will continue fighting this until this payment is tax exempt or at the very least DoD withholds the proper amount of taxes on each payment.

What bothers me the most is that this is a very simple fix. Just withhold the taxes from the payment! I can see where this is an issue because DFAS would be forced to cross-reference how much the servicemember's annual salary was in order to determine their tax bracket/percentage. But still, this is only an issue because it requires more work and one can imply that their refusal to go this extra step is nothing but a lack of motivation or a grandiose amount of laziness.

I do not think SLRP falls under the same standard as an enlistment bonus for several reasons, one of them (and the most important one, IMHO) being the SLRP payment is never actually in the servicemember's possession.

I am going to start a new thread for discussion about this, so Dragonfly's original post is not 'hijacked' any further by our discussion about SLRP...since I am the one who initiated the discussion...sorry!
 
New thread for discussion of SLRP tax issues and any other situations arising out of student loan repayment programs and the military upon being discharged with a service-connected disability.
 
I agree with you that DoD should abide by Federal Regulations regarding the repayment of student loans. But, we both know, that there are many instances where they are allowed or have been allowed to get away with it, or they are the exception to the rule.

I wish you luck trying to resolve this for future participants in the SLRP. I doubt they would be willing to make anything retroactive as that would involve multiple agencies and amendments to tax returns.
 
I agree with you that DoD should abide by Federal Regulations regarding the repayment of student loans. But, we both know, that there are many instances where they are allowed or have been allowed to get away with it, or they are the exception to the rule.
Unfortunately, you are right. The current state of things obviously affirms your statement. For someone in my case (my student loans prior to entering the service were around the cap of 65k) the tax burden is a pain in the ***.

I wish you luck trying to resolve this for future participants in the SLRP. I doubt they would be willing to make anything retroactive as that would involve multiple agencies and amendments to tax returns.
I appreciate your candor. With regard to retroactive resolution to this issue, I tend to agree with you as well. I'm not fighting it as someone who is demanding compensation - but as someone who is demanding fairness. Also, I believe this sets a precedent for similar programs in the future that can go bad places very fast.
 
Hello everyone, I too have encountered problems with the SLRP. In my case, DFAS authorized a lump sum payment of $36,503 that apparently I am liable for. I have done extensive research, and have also contacted my Congressman about this issue. Of course there are no taxes taken out on my SLRP W-2, which makes absolutely no sense at all. After contacting the IRS, they instructed me to get DFAS to adjust my W-2 reflecting the taxes paid on my repayment and refile my tax return for that year. Seems easy enough right? Well, DFAS refuses to adjust my W-2, and now the IRS has filed a federal tax lien against me. In my contract, it specifically states that payments were suppose to be made annually, not a lump sum. Also during y research, I found out that the annual payment cannot exceed $10,000. WTF! is going on. If anyone knows how to fix this, please let me know.
 
DFAS authorized a lump sum payment of $36,503

:eek: Are you in the Army? What is your total student loan debt? The maximum payout for active duty Army is 1/3 of 65k (equals out to about 21500). Each year of service equals 1500 or 33 and 1/3 percent of total debt whatever is greater.

Someone dropped the ball on this one (obviously).

and have also contacted my Congressman about this issue.

Has anything come of this?

ron7, generally speaking, this is a big issue for disabled veterans and veterans alike. It is my contention that DFAS is clearly in violation of 5 U.S.C. 5379, 5 CFR Part 537, and 5 U.S.C. 2105 which govern the payout procedures for Federal Agencies and their specific SLRPs.

This is a DoD specific issue, I too have contacted my Congressman and have heard nothing yet. Fortunately in my case, I am leaving active duty later this week and will have some time on my hands when I first return to my home state. Paying a visit to his office in regard to this issue is on top of my 'to-do' list.

The IRS did not file a lien against me, I should mention that I did file a corrected W-2 (DFAS was kind enough to give me a combat-zone exemption for the months I was in Iraq, after a month of arguing with them that I was not responsible for any taxes incurred while I was pacifing the city of Salman Pak, Iraq). I eat some of the taxes and will most likely owe more once that 8-12 week mark hits (in terms of penalties).

It is absolutely ridiculous and I don't plan on folding like a cheap suit on this issue. I'm considering some kind of petition, but realistically, the people in this thread are the only ones I know of who use the SLRP. PM me if you want specifics in my case.
 
Ron 7,

I am in the same boat with you. They have made 2 payments of 21,000 on mine and the IRS has done the same thing to me. I have been on the phone with DFAS as well and they are just completely ignorant. I have had two people hang up on me because I told them the same thing the IRS told you. They claim it can not be done how they are doing it and when I tell the DFAS that, they just get mad and say that is how they do it so oh well for me. It is quite frustrating and I think is totally ridiculous to do to soldiers, especially if they are completely injured to the point of not being able to work due to service connected injuries. I am writing my senator and governor as well and anyone else I can think of.
 
I am cross posting in both threads to bring more eyeballs to this important issue!

Hi everyone!

I was forwarded this gem of info and I hope to pass it to everyone here struggling with their student loans. I am copying/pasting a discussion I've been having with Andrew Straw, who is also passionate about creating positive changes to the existing rules and regulations. I encourage EVERYONE to please add your comments before August 24th, 2009 as all comments will be closed on that date:

The Department of Education seems to be cleaning up its act with a better website, and Congress has passed major changes in the disability discharge process as a result of the Higher Education Opportunity Act of 2008. As of July 1, 2010, you will be able to get a discharge while still making substantial gainful activity (SGA, a SSDI term). They are taking comments on the new rules now, and given your experience, I would look over the new rules and suggest things that will help people. Please see:

http://www.dl.ed.gov

Regulations.gov


Here are some suggestions you can make, as outlined by Andrew Straw who gives permission to reprint and pass along:

1. Letters to Secretary of Education. Issues to be resolved include making all student loan information linked to the dl.ed.gov site. Also, make all forms web forms and eliminate paper, faxing, etc. E-signatures on web forms should be allowed, both from loan holders and doctors. Put together weekly emails mentioning developments. All laws, regulations, and proposed regulations and official comment opportunities need to be present and prominently featured, with links, on the dl.ed.gov site.

2. ED needs to have a 24-hour online chat service on the dl.ed.gov site. It is cheaper to use the Internet than accept 1-800 calls. ED workers who do this in the odd hours should be allowed to work from home, pursuant to telework.gov policies. ED should recruit US citizens from around the world to provide this service during daytime hours. There are 6.6 million Americans living overseas.

3. loan discharges for disability need to be excluded from income for income tax purposes. By making people pay a percentage of the loan back in taxes, essentially the government is forcing disabled people to actually pay that part of the loan in full and up front. Also, making discharges into income is against the policy of helping disabled people in the first place. You can only get the discharge if you make less than substantial gainful activity, and after getting the discharge you can't make more the the poverty line for years. Why should people on such low incomes be forced to pay tax when they obviously cannot afford it?

1&2 can be achieved by working on ED. 3. is a separate topic that will require lobbying for a change in the tax code. The congresscritters in charge of taxation can be found here:

Joint Committee on Taxation

While you're at it, you might as well drop a quick note to Charlie Rangel, chair of the Joint Committee on Taxation.

Contact Me | Congressman Charles B. Rangel: Serving New York's 15th District

Let him know that disabled people who get loan discharges from Education must be below the poverty line. Forcing them to declare this as income could result in a tax bill that is 50% or more of their annual income. This is shocking, and against the policy of providing the loan forgiveness in the first place. The provision to change is 26 USC 108(f)
U.S. Code

Ideally, disability discharges would be exempt from income, but allowing one to spread out income over 5 or 7 years would make a HUGE difference.



Contact Me | Congressman Charles B. Rangel: Serving New York's 15th District
Source: rangel.house.gov

Proposed new language for 20 USC 108(f)(1):

(1) In general.--In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of any student loan if such discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers, or if the discharge was granted for total and permanent disability under U.S. Department of Education regulations.U.S. Code

Here is what Andrew Straw is sending in his letter:

Hello, Rep. Rangel,

I am writing to ask you to consider some tax reform for disabled student loan holders. Disabled people who get loan discharges from the Department of Education must be below the poverty line for years after they get their discharge under ED rules. Forcing them to declare their discharges as income could result in a tax bill that is 50% or more of their annual income. This is shocking, and against the policy of providing the loan forgiveness in the first place. This has adverse effects on disabled veterans as well.

The provision to change is
26 USC 108(f)
U.S. Code

Ideally, disability discharges would be excluded from income; this would make a HUGE difference.

I thank you for your consideration, and hope you will be able to help those disabled people with student loans.
 
b72treadwell,

It is absolutely ridiculous the way these payments are handled. The money is never even in the hands of the servicemember and it is still counted as taxable income - which is fundamentally wrong to begin with. They tried to tax me for months I was in Iraq! Although, after vigorous annoyance to the people in DFAS and over at Alexandria, VA Army Human Resources they provided me a corrected W-2 with a combat zone exemption...which didn't matter much in the end because I still had a liability of several thousand.

Hello ! I tried to send a pm but the system wouldn't allow me. I know its been a while since you posted this, but I'm dealing with a similar issue and haven't been able to get it resolved - In 2008 they made payment #2 and #3 on my loans, and one of them was while I was deployed. Currently this has inflated my tax debt for 2008 to more than 50% of my income. Can you post contact info on the DFAS / HRC folks you spoke with to get the corrected W2 ??
 
Student Loan Woes,

The email for the DFAS team that handles corrected W-2s is [email protected] - you need to supply name, social, branch of service, all your contact info, and attach an electronic copy of the SLRP W-2 to the email. Explain for what months of the year you were deployed (these months should be exempted from SLRP tax liability) and they should supply you with a corrected W-2.

This is an ongoing issue that I've been fighting on and off for a year now. Currently, I'm in touch with a member of Senator Lieberman's staff on this issue.

Good luck figuring this out on your end. It is a shame that this program leaves such a heavy tax burden on servicemembers (while the exact same private sector program is tax exempt). If you have any more questions don't hesitate to ask.
 
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