January 29, 2020
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Here are two ways to make philanthropic student-debt relief better

Seth Wenig | AP
Seth Wenig | AP
In this May 17, 2018, file photo, new graduates line up before the start of commencement.

Imagine you are one of the almost 200,000 working Mainers with student debt.

You have a great job, a house, a family.

And debt.

Tens of thousands of dollars of student debt.

One day, a business recruiter contacts you about a job in Massachusetts with a higher salary. Would you leave Maine for a higher salary? Would you stay in Maine and get paid less? With tens of thousands of dollars in student loan debt, can you afford to stay in Maine?

This scenario doesn’t require much imagination because it is one that many Maine professionals face every day. And it is one that Maine business owners also face as they compete for talented workers with out-of-state businesses offering higher salaries.

A new philanthropic program — one you may not have heard about — is aimed at helping keep young talented professionals in Maine. The Alfond Leaders Program, which is funded by the Harold Alfond Foundation and managed by the Finance Authority of Maine, pays half of the student debt — up to $60,000 -– for select STEM professionals who live and work in Maine for at least three years.

Along with other Maine initiatives, the program’s mission is to help address two primary economic problems. First, Maine’s workforce is shrinking. Our estimates indicate that by 2030 we will have 25,000 fewer people in the workforce than today. Add to this dynamic that Maine is also critically deficient in its pool of STEM workers, and we have a serious skills shortage.

Second, according to the U.S. Department of Education, college debt for Maine people now totals almost $6 billion. This brings with it myriad negative economic consequences as young, debt-saddled professionals push off home purchases or investments, and, in the worst-case scenario, are compelled to leave Maine for higher-paying jobs in distant cities.

The Alfond Leaders Program addresses both of these challenges by providing a financial incentive for talented professionals to move to or stay in Maine, reducing their debt while at the same time helping Maine’s businesses find the talent they need to grow.

But unfortunately, there’s a fly in the ointment. Actually, there are two flies.

Even though philanthropic debt payments go directly to the lenders holding the student debt, the workers whose debt is relieved have to pay both state taxes (fly number one) and federal taxes (fly number two) as if the debt reduction payments were earned income.

This glitch in the state and federal tax codes offsets the program’s financial incentives that encourage recipients to live and work in Maine. It weakens the program’s ability to attract and retain professionals and jeopardizes the significant economic and fiscal benefits that would otherwise come to the state from the work they do, in the form of business sales, consumer spending activity and taxes.

As a matter of public policy, there is no good reason to tax needed skilled Maine workers for debt payments made by a charitable foundation. These glitches in the tax code should be fixed.

At the state level, policy-makers should exempt philanthropic debt-relief payments from state income taxes. These awards are clearly not earned income. No other philanthropic grant is taxable. And we should not be penalizing the very workers we need to grow our economy.

Exempting debt relief from federal taxes is harder. That will require congressional approval and cannot be done by state policy-makers. However, Maine can provide a state tax credit for the federal taxes that a worker owes arising from debt relief paid by a charitable foundation.

As far as we know, Maine would be the only state to offer such a tax credit. As such, it would give Maine’s businesses a strategic edge in the fight to recruit young talented workers to the state and grow our workforce.

Across Maine, there is bipartisan recognition that student debt is too high and that attracting and keeping young professionals in our state is critical to our future. By fixing these glitches in the tax code that treat philanthropic student-debt relief as earned income, we can turn two major economic challenges into a strategic advantage and help grow our workforce and economy.

Imagine that.

Greg Powell is the chairman of the Harold Alfond Foundation.

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