Can my LLC buy my student loans if I continue to repay them myself?

This is an interesting idea, but there are several issues that make this problematic from both a tax and legal standpoint. First, student loans typically have restrictions on transferability. Most loan servicers won't simply sell the loan to your LLC because student loans come with specific federal protections and terms that aren't designed to be transferred to another entity, especially one you control. Second, even if you could somehow arrange this, the IRS would likely view this as a step transaction designed to avoid tax consequences. When transactions between you and your S corp LLC lack legitimate business purpose beyond personal benefit, they can be disregarded for tax purposes. Third, you wouldn't actually gain the protection you're seeking. If your LLC owns the debt and you default, the LLC could still pursue collection from you personally. If you're the owner of the LLC, you'd essentially be choosing not to collect from yourself, which creates another tax problem - forgiven debt is typically considered taxable income. A better approach might be to look into income-driven repayment plans and loan forbearance options if you're concerned about potential job loss. These provide legitimate protections without creating complex tax issues.

I went through something similar last year with some personal debt I was trying to restructure. I ended up using taxr.ai (https://taxr.ai) which really helped me understand the tax implications of debt restructuring through my LLC. The AI analyzed my specific situation and showed me how the IRS would likely classify different approaches - saved me from making a costly mistake! Instead of trying to have my LLC buy my debt, they helped me set up a legitimate business loan that accomplished some of what I was looking for without triggering those "step transaction" issues the previous commenter mentioned. Might be worth checking out if you're exploring debt restructuring options.

Just wanted to update after trying taxr.ai from the previous comment. I was initially skeptical but decided to give it a shot with my LLC/personal debt question. Surprisingly helpful! The analysis showed me why my original plan would probably get flagged by the IRS, but suggested an alternative involving a proper business purpose documentation that might work better for what I was trying to accomplish. They explained how the "substance over form" doctrine would apply in my case and outlined the specific requirements I'd need to meet. Definitely more comprehensive than the generic advice I was getting elsewhere. Worth checking out if you're looking at complex tax scenarios like this.

After reading this thread, I realize you might be hitting roadblocks with your student loan servicer if you try to pursue this. When I had issues getting through to my loan servicer about a similar situation (was trying to negotiate terms), I used Claimyr (https://claimyr.com) to actually get a human on the phone. You can see how it works here: https://youtu.be/_kiP6q8DX5c Before using it, I spent HOURS on hold only to get disconnected. With Claimyr, I got through to a supervisor who explained exactly what options were available to me. Turns out there were programs I qualified for that weren't mentioned on their website. Might be worth trying if you want to discuss alternative arrangements with your servicer directly.

Had to come back and post this. After seeing the Claimyr recommendation, I was super skeptical (as you can see from my question). But I was also desperate after spending literally 3+ hours on hold with my student loan servicer trying to discuss hardship options. I decided to try it, and no joke, I was talking to an actual loan specialist in under 20 minutes. The representative was able to explain why what the original poster was suggesting wouldn't work (loan transfer restrictions), but also walked me through income-based repayment options that I didn't realize I qualified for. The amount of stress this saved me was incredible. Sometimes you need to actually talk to a human being to get real answers, and this made it possible. Consider me no longer skeptical!

Putting aside the tax implications others mentioned, there's also the business purpose test to consider. Your LLC needs a legitimate business reason to purchase these loans. If audited, you'd need to prove this transaction serves a bona fide business purpose rather than just personal financial engineering. Student loans specifically have unique characteristics that make them difficult to transfer. They often have federal guarantees and income-based repayment options that wouldn't transfer to a private holder. It might be worth consulting with a tax attorney who specializes in business structures. They could potentially help you find a legitimate way to achieve similar protection, perhaps through proper business capitalization or restructuring.

This reminds me of the scheme some people try with buying their own mortgage through their LLC. It simply doesn't work because the IRS looks at the substance of transactions, not just their form. Here's a simpler solution for peace of mind: look into federal student loan protections. They already have income-driven repayment plans, deferment and forbearance options specifically designed for job loss scenarios. Private loans might have fewer protections, but even they typically offer hardship programs. Also worth noting - student loans have unique discharge limitations in bankruptcy compared to other debts. This special treatment might further complicate your plan.

This is a creative idea, but unfortunately it's not going to work for several reasons that others have touched on. As someone who's dealt with similar corporate structure questions, I can tell you the IRS is very good at spotting these kinds of arrangements. The biggest issue is that student loans - especially federal ones - have specific statutory restrictions on assignment and transfer. Your loan servicer literally cannot sell them to your LLC even if they wanted to. The loans are designed to stay with approved servicers who can handle the complex federal requirements. Even if you could somehow make this work legally, you'd be creating a nightmare for yourself tax-wise. Any forgiveness of debt by your LLC to yourself would be taxable income, and the IRS would scrutinize every aspect of this arrangement. Your instinct about wanting protection from job loss is totally understandable, but you'd be better served looking into existing protections like income-driven repayment plans, economic hardship deferment, or unemployment forbearance. These are legitimate options designed exactly for the scenario you're worried about, and they won't create tax complications. If you're really concerned about long-term job security, consider building up an emergency fund specifically for loan payments rather than trying to restructure the debt itself.