Reps. Nolan, Pocan and Wilson Introduce Relief for Underwater Student Borrowers Act
Today U.S. Reps. Rick Nolan (D-MN), Mark Pocan (D-WI) and Frederica Wilson (D-FL) introduced the Relief for Underwater Student Borrowers Act. The bill would allow student loan borrowers who have been granted debt relief as a result of consistent repayment towards their student loan debt an exemption from being taxed on the amount forgiven.
“The heart of our economic success as a nation is education and preparation of our youth,” Rep. Nolan said. “And as a former teacher, I know there is no better investment than in the education of our next generation. Students shouldn’t have to drown in debt just to go to school and get an education. I’m proud to join my colleagues in introducing this legislation to relieve some of this burden.”
“With college debt skyrocketing, Congress should be doing everything it can to help reduce the crushing burden of student debt,” Rep. Pocan said. “Currently, when a student loan borrower has their debt forgiven, the waived loan amount is still subject to individual income taxes. This leaves borrowers on the hook for potentially massive tax bills. The Relief for Underwater Student Borrowers Act would prevent student loan borrowers from being hit with that additional tax burden and gives them the opportunity to get out from under those loans.”
“The Relief for Underwater Student Borrowers Act is a common-sense solution to an all too common problem: paying off the high cost of higher education. The average college student today graduates owing more than $30,000 in student loan debt and many leave school owing a great deal more. That is an enormous burden for a young person struggling to build a future in an uncertain economy that can take more than 20 years to repay,” said Rep. Wilson, Ranking Democrat on the Subcommittee on Workforce Protections. “This legislation would give borrowers who have been granted debt relief as a result of consistent loan repayment a tax exemption on the amount forgiven. It would be wrong to forgive a debt that was already a struggle to repay only to replace it with a new financial encumbrance. I urge all members of Congress to support this bill.”
Over the last 30 years, the cost of college has increased by at least 300 percent, forcing some students to take on overwhelming student loan debt and putting a college degree entirely out of reach for others. Student loan debt is now the highest form of personal debt in the nation, reaching over $1.3 trillion for 38 million student loan borrowers across the country. Students graduating from public universities leave with an average of $28,950 of debt.
Under current law, the balance forgiven under Income Based Repayment (IBR) or Pay as You Earn (PAYE) is treated as taxable income to the borrower, creating a tax liability that most qualifying borrowers would be unable to finance.
President Obama formally widened the pool of eligible participants in the Pay As You Earn Program (PAYE), which will help an estimated additional 5 million people manage their debt. Individuals who participate in this program as well as other loan forgiveness programs are taxed on the balance of their forgiven loan, often leaving borrowers even further in debt. While most of these individuals will pay off their loans long before the 20 year mark, those individuals still struggling to pay their loans by the 20th year should be able to discharge their loan debt without incurring an onerous tax liability.
This legislation has been endorsed by: The Institute for College Access and Success (TICAS), Young Invincibles, the Association of State Colleges and Universities, the Council for Opportunity in Education, U.S. PIRG, Equal Justice Works and the American Council for Education.