a hidden student loan tax

This ‘Hidden’ Student Loan Tax Could Cost You Thousands of Dollars.

This 'Hidden' Student Loan Tax Could Cost You Thousands of Dollars.

By Tracy L. Hirsch

Here’s how several Senators are currently working to eliminate an unnecessary fee that’s attached to all federal student loans.

It appears that bipartisanship is turning the tide in the war on questionable student loan legislation. In the past couple of weeks, we’ve seen politicians from different ends of the political spectrum come together to put an end to outdated and cumbersome laws surrounding student loan debt.

Two proposals were recently made — one to allow student loans in bankruptcy petitions, and the other to automatically activate student loan forgiveness for severely disabled veterans who were injured due to military service.

This week, we’re seeing yet another proposal, which is to eradicate a hidden student loan tax that, on average, costs individuals several thousand dollars. While the term ‘tax’ isn’t explicitly used on federal loan applications, there’s something called an “origination fee” which in essence, is a tax on the loans themselves.

This is how it works: When a borrower takes out a federal student loan, the federal government charges the borrower an origination fee. This fee is essentially a “processing fee” set by the lending bank, where they charge to process the loan.

Instead of a flat fee, they charge a percentage of the total amount borrowed, and it’s added to the principal balance. These fees are usually anywhere from 1% to 5%. While that doesn’t sound like a lot, that can add thousands of dollars onto the loan balance for someone who’s borrowing hundreds of thousands of dollars.

For example, if someone has a total of $120,000 in student loans as part of a standard ten-year repayment plan, and they have a 4% origination fee on those loans, that’s an extra $4,800 in “processing fees.” So basically, the more money that’s borrowed, the higher the origination fee.

In 2019, U.S. politicians are finally seeing the true cost of student loans, both financially and emotionally.

Several U.S. Senators have come together create the Student Loan Tax Elimination Act of 2019, with the common goal of reducing the total amount of money that borrowers have to pay back.

Senators Kyrsten Sinema (D), Chris Coons (D), Mike Braun (R), and Rick Scott (R) are proposing that the origination fee on federal student loans be completely eliminated, effective immediately (July 1, 2019). They believe that since the loans themselves, plus the interest that they bear, are already a financial burden to many Americas, it’s unfair to add additional and unnecessary fees onto that debt.

Senator Mike Braun gave a summation of this proposal by saying, “Student loan origination fees are nothing more than a hidden tax that burdens students. This legislation is a step forward, and offers one solution to addressing our broken higher education system that fails to put students first.”

During the past five years, the federal government made $8.3 billion dollars in origination fees alone. Senator Rick Scott is adamant that this is unfair:

“The people that are trying to further their education, they are being taxed. Why would we be doing that? We ought to be saying, ‘How do we make this less expensive?’”

When it comes to federal student loans, it’s easy to see why this is a bipartisan issue. A large percentage of Americans have massive student loan debt, and are struggling to pay it off.

When looking at the statistics, it’s estimated that by 2023, 40% of borrowers will default on their student loans. With steep interest rates and many Americans being underemployed, it’s not a surprising estimate.

While our higher education system is undoubtedly broken, it’s encouraging to see politicians coming together to create change that benefits the student borrowers, and not the lenders. Most people who come into my office to talk about their debt have a significant amount of student loans.

While student loans are currently not dischargeable in bankruptcy, they can be included in a Kentucky Chapter 13 repayment plan to avoid wage garnishment by the Department of Education.

I hope that this year will be a turning point for our education system, where, as Senator Braun stated, the federal government will no longer “fail to put students first.”

All the best,

Tracy L. Hirsch


Louisville, Kentucky

Need a free consultation? Text or call me at (502) 435-2593!

veteran Louisville Kentucky

Automatic Student Loan Forgiveness for Disabled Veterans: Change on the Horizon?

Automatic Student Loan Forgiveness for Disabled Veterans: Change on the Horizon?

By Tracy L. Hirsch

Last week, a proposal was sent to the Education Secretary, urging her to instate a measure that will provide automatic loan forgiveness to veterans who are completely disabled due to military service. Here’s a look inside the proposal, and why I believe that it’s not only necessary, but noble.

Student loans have been a hot topic on Capitol Hill lately, as many politician are seeking solutions to the burdening debt that so many Americans bear.

While Senator Elizabeth Warren urged Congress last week to allow student loans to be discharged in bankruptcy, a large group of attorneys general (including Kentucky Attorney General, Greg Beshear) have recently come together to propose a change on this issue as well.

51 attorneys general are urging Education Secretary Betsy DeVos to automatically pardon student loan debt for veterans who are currently disabled due to military service.

The Department of Veterans Affairs has been under fire on several occasions over the years for the ways in which disabled veterans are treated, and these attorneys believe that the Department of Education can play a role in changing that.

In a collective letter addressed to Secretary DeVos, the attorneys general requested that she take immediate action to ensure that disabled veterans’ student loans are automatically discharged without having to apply for loan forgiveness. As it stands now, veterans who are permanently disabled, and thus, unemployable, are able to have their student loans discharged upon request.

However, approximately only 20% of disabled veterans go through that application process, which includes a fair amount of paperwork. In order to obtain loan forgiveness, a discharge application must be completed, and documentation proving that the veteran is totally disabled is also required.

As of last year, only 9,000 out of 42,000 eligible disabled veterans applied for student loan forgiveness. As a whole, those 42,000 veterans are carrying 1 billion dollars in student loan debt.

The attorneys general believe that the application process serves as an obstacle to obtain relief from burdensome student loans. As stated in their letter, their plea is for the Department of Education to make these loans automatically dischargeable without the need to apply for loan forgiveness:

“…the Department of Education continues to require eligible veterans to take affirmative steps to secure the loan forgiveness that is their statutory right.

And the requirements imposed by the Department may prove insurmountable obstacles to relief for many eligible veterans due to the severe nature of their disabilities.

Because America’s veterans deserve better, we ask the Department to develop an automatic discharge process to ensure that all eligible veterans can have their student loans forgiven.

Any concerns that some disabled veterans might not want their student loans discharged can be addressed by providing veterans notice and an opportunity to opt out of loan forgiveness or to seek reinstatement of their loans.”

The Department of Education immediately responded to the letter in a statement to Reuters, providing some push back.

While the Department acknowledged the sacrifices that have been made by disabled veterans, they said that they don’t want to automatically discharge these veterans’ student loans without warning them of the “long-term impacts” of this proposal (i.e. automatic loan forgiveness).

The Department warned that there could be “unintended consequences” for these veterans, such as an increase in their tax bills or difficulty in obtaining student loans later on down the road.

In spite of the push back, the attorneys general insisted that this is a bipartisan issue, as many members of Congress and several veteran advocacy groups have joined their plea for reform.

I think that most people agree that disabled veterans deserve better (in many ways), and when it comes to student loans, a permanently disabled veteran shouldn’t have to ask for loan forgiveness.

The physical and mental anguish that accompanies such severe disabilities is already a burden much too heavy to bear, and having to worry about paperwork and applications to keep them from going bankrupt is an unnecessary stressor.

While the decision is still being made as to whether or not loan forgiveness will be an automatic process or not, I believe that it’s important to find ways to serve those who have served us. So in light of how we can better serve our disabled veterans, here’s what we can do in our local community:

> Donate clothing and household items and/or volunteer with the Louisville DAV (Disabled American Veterans organization). Here’s a link to the general DAV website, where you can offer to volunteer or donate, and a representative will get in touch with you about how you can do so in the greater Louisville area. Click here for more information: https://www.dav.org/

> Donate a vehicle to “Vehicles for Veterans.” Click here for information about the donation process in Kentucky: https://www.vehiclesforveterans.org/kentucky/

> Volunteer at the VA Medical Center in Louisville. For more information on the location and how to get started, click here: https://www.louisville.va.gov/giving/index.asp. For more information about the types of volunteer assignments that are available, click here: https://www.louisville.va.gov/giving/assignments.asp.

Do you know of other ways in which we can serve local disabled veterans in our community? Please share it in the comment section on any of our social media posts. Together, we can make a difference!

All the best,

Tracy L. Hirsch

Bankruptcy Attorney

Louisville, Kentucky

Need a free consultation? Text or call me at (502) 435-2593!