Student Loan Servicer May Lose Charity Perks

(CN) - A servicer of student loans that made millions of dollars in profits should not have been granted a charitable tax exemption, the New Hampshire Supreme Court ruled.

As explained by its chief financial officer, Granite State Management & Resources services federal education loans and provides staffing for its nonprofit affiliates.

Though the U.S. government has granted Granite State an income tax exemption, Concord, N.H., determined that it did not qualify as a charitable organization for the purposes of avoiding property taxes.

After Granite State sued, a judge in Merrimack found that the organization deserved a tax exemption for years 2008 and 2009 since its work makes it less expensive for students to obtain loans.

The New Hampshire Supreme Court reversed in part last week, finding that there were issues of material fact as to whether Granite State is administrated for a charitable purpose or whether its income was used for a charitable purpose.

Granite State's assertions that its loan-servicing activity "lowers the levels of defaults and provides access to lower-cost funds for students and parents are general averments," Justice Robert Lynn wrote for the court. "Neither the affidavits nor GSMR's motion for summary judgment reference specific facts evidencing the savings that GSMR purportedly provides."

Granite State also showed that it turned a profit of almost $2 million in 2008 and more than $3 million in 2009, while holding a surplus of between $37 million and $40 million to cover future contractual liability, according to the ruling.

"It is not apparent from the record whether the amount and purported use of GSMR's surplus to protect itself from future contract liability is consistent with its stated charitable purpose of 'supporting the development of higher education and educational opportunities' for students and parents," Lynn wrote, remanding the case to the lower court.

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