ACE Asks Senate to Extend Tax Breaks to Some Student Loan
Forgiveness Programs
Nov. 12, 2009
The American Council on Education (ACE) sent a letter to
Senate leaders this week in support of legislation designed to ensure
that federal student loan debt that has been forgiven is not taxed as
income.
ACE and a group of 15 other associations signing the letter also
requested that the bill (H.R. 2492) be incorporated into the Student Aid and
Fiscal Responsibility Act (H.R. 3221), currently awaiting action in the Senate.
The request was sent to Max Baucus (D-MT), chairman of the Committee on
Finance, and Tom Harkin (D-IA), chairman of the Committee on Health,
Education, Labor and Pensions.
In the College Cost Reduction and Access Act of 2007 (P.L. 110-84), Congress sought to increase college
access and affordability by lowering the burden of student loan debt
through a new Income-Based Repayment (IBR) program. Under IBR, students
can lower their monthly loan payments, which are capped at a percentage
of their disposable incomes. The law provides that a student borrower
with debt remaining after 25 years of payments will have the balance of
their federally guaranteed student loan debt canceled.
The federal Direct Loan Program has had a similar loan forgiveness program, Income Contingent
Repayment (ICR) since 1994.
Under current tax law, some forgiveness programs are excluded from
taxable income. However, according to recent Internal Revenue Service
guidance, loan forgiveness under IBR and ICR would be treated as taxable
income for the student borrower. H.R. 2492 would remedy this problem by
expanding the current income tax exclusion to cover amounts forgiven
under the IBR and ICR programs.
By including the provisions of H.R. 2492 in the Student Aid and
Fiscal Responsibility Act, Congress can ensure that the IBR and ICR
programs really do enhance college access and affordability, and thereby
advance the intent of Congress when it originally authorized these
important programs.
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