I’m always looking for new and innovative ways to pay for college or repay student loans (remember how you can partially volunteer your way out of debt?).
For instance, did you know that you can use crowdfunding sites to raise money to pay tuition? I honestly didn’t, but I’m always behind on Internet trends. (Have you seen What Does the Fox Say?)
In all seriousness, crowdfunding an education sounds like a great idea—once you understand some of the potential pitfalls that could go along with it.
The Internet Gives You Free Money!
It sounds too good to be true, but if you have a compelling enough cause, that’s just what can happen. Sites like GoFundMe or CrowdFundEDU allow you to set up campaigns to raise money, and the money doesn’t just have to be for new businesses or families with big medical bills.
In 2011, GoFundMe had 2,298 campaigns raise a total of $211,261 for “education, schools, and learning.” In 2014, the site has had 106,793 campaigns so far raise a total of $13,139,823 for the same causes. That’s a huge jump in 3 years! By raising this money, campaigners may be able to keep their student loan debt as low as can be or bridge the tuition gap between their financial aid and their balance.
What’s the problem with that?
Don’t Forget The Taxman
Right now, it really looks like these crowdfunding donations are a bit of a gray area in the tax code. The IRS has not come out with direct regulations regarding the tax implications of donations through these sorts of sites yet.
It seems that every donation campaign may be treated differently—your college degree isn’t the same as the potato salad. Currently, in cases where students try to raise money for tuition, it appears that the money can be considered as a gift and wouldn’t be taxable to the student, but that could change. I’m not a tax professional, so I would recommend speaking with one before you decide to raise money this way. No one wants to get audited, right?
Future Financial Aid
Before starting a campaign, you might want to see how this “gift” money could affect your financial aid for next year as well. That’s right—question 45j on the 2014-2015 Free Application for Federal Student Aid (FAFSA) asks for you to report “Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form…”
A few students attending Boston-area colleges recently raised from around $5,000 to $7,600 to help pay their tuitions. The problem now is that they need to report this money as untaxed income on their FAFSAs for next year. Untaxed income will drive up the expected family contribution (EFC) that helps determine how much a student will receive in financial aid—and not in a good way.
To understand these implications, you may want to talk with a financial aid counselor at your school to estimate how much the donations will affect your financial aid award for next year.
In no way am I trying to tell you that raising money through a crowdfunding site for your college expenses is a bad idea. Just make sure to cover all of your bases before you raise money that could negatively impact you later. Meanwhile, I’ll be setting up my own campaign for that $3 million I need …
Have you used a crowdfunding site to raise money for your education? Share your story in the comments!
This document was prepared for informational purposes only and is not meant to be tax or legal advice. Please see your tax professional for additional guidance.
(Photo: Caitlin Regan)