WASHINGTON, D.C.– Rep. Jim McDermott (D-WA), a senior member of the House Ways & Means and Budget Committees, was joined today by 34 House members in introducing the Student Loan Tax Debt Relief Act (H.R. 2429), which relieves a potential tax burden that may be imposed on student loan borrowers that use income-based repayment and income-contingent repayment programs.
The income-based repayment plan and the income-contingent plan repayment were designed to make student debt repayments more affordable by tying monthly debt payments to income. Generally, student loan borrowers in good standing after 20-25 years of payments can have the outstanding debt balance forgiven. Under current law, the amount that is forgiven is taxable income, payable immediately. The Student Loan Tax Debt Relief Act would exclude from gross income any student debt forgiven under the income based repayment system, saving student debt holders a large tax bill when their outstanding debt balance is forgiven.
“Every year, students are graduating from colleges across the country with more and more debt,” said Congressman McDermott. “Programs such as the income based repayment program have helped in a small way to ensure that students can continue to pursue their dreams and get on with their lives while they responsibly pay off their student debt. It also makes students the promise that if they hold up their end of the bargain for twenty to twenty-five years they will have their remaining debt forgiven. However, slamming students and families with a massive tax bill after they have played by the rules is just wrong. This bill is yet another step toward leveling the playing field for a generation students being devastated by the growing student loan crisis in this country.”
Since 2013, the number of student loan borrowers using income-based repayment has doubled. Nearly 3 million borrowers now use income-contingent and income-based repayment plans, and the number is expected to grow.