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Previously reserved for getting small business and creative ideas off the ground, crowdfunding sites like Kickstarter, Indiegogo, and GoFundMe have morphed into online money pools funding everything from legal fees to medical expenses. So, for those toiling under the crushing burden of student loans, it's only natural to wonder whether you can crowdfund your way out of that debt.
But before you go asking strangers to pay back that law school loan, here are a few legal considerations to take into account.
Sure, some people are just generous, giving souls who want nothing for their contribution other than the comfort and peace of mind that comes from knowing one fewer fellow citizen is worried about paying their bills at night. Then again, many other people may want a return on their investment. Make sure your crowdfunding page is not writing checks your body can't cash.
With so many students seeking free money -- GoFundMe.com has over 6,600 student loan related campaigns, and counting -- it may be tempting to set yourself apart with some flashy promises on what you plan to do when you're debt-free. Perhaps keep those limited to paying your debt down as fast as possible and paying your other bills in the meantime.
While it is also tempting to think of crowdfunded money as "free", that's hardly the case. GoFundMe charges a five percent fee on money raised, and many crowdfunding sites work with payment processors that can take up to 30 cents of every transaction and three percent of total funds. Additionally, Piglt, a crowdfunding site where money raised at the end of a campaign is paid directly to loan servicers or schools, charges a five percent fee for successful campaigns and 8 percent if you fall short of your target dollar amount.
One bright note? You might get a break from the IRS. International Business Times reports that since contributions to crowdfunding campaigns are considered gifts for tax purposes, the recipient does not have to pay income tax on the funds. And as long as a donor does not exceed the gift tax exclusion ($15,000 in 2018) they won't owe taxes on the contribution either.
As tempting as it may be to fire up the old internet machine to take care of your student loan debt for you, you may want to talk to a financial attorney before you do.
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.