Senators Introduce Student Tax Relief Act

The legislation would protect defrauded students from being taxed on their forgiven loans

Thursday, May 26, 2016

U.S. Senator Debbie Stabenow (D-MI) today was joined by Senators Jeanne Shaheen (D-NH), Jack Reed (D-RI), Tammy Baldwin (D-WI), Chris Coons (D-DE), Gary Peters (D-MI), Dianne Feinstein (D-CA), and Jeff Merkley (D-OR) in introducing the Student Tax Relief Act, a bill that would protect defrauded student borrowers from being taxed on their forgiven loans. This legislation follows actions by the Department of Education to protect defrauded students at 100 Corinthian Colleges across the country and ensures that borrowers at any schools whose loans were forgiven receive the same tax relief. 

“When students take out loans to attend college, they should get a fair deal and a fair shot,” said Senator Stabenow.  “No student should be the victim of false advertising from a college that promises skills or job placement.  And the last thing they deserve is to be hit with an enormous tax burden on their forgiven loans.”

“Students take on college loans with the assurance that they’re worth the investment in their future,” said Senator Shaheen. “The government should not burden those who have fallen victim to false advertising and scams by colleges who cash in on false promises. Students whose loans have been forgiven deserve the tax on that debt relief to be forgiven too.”

“These defrauded students deserve real relief,” said Senator Reed.  “The federal government shouldn’t collect taxes on loans that were forgiven because these individuals were willfully misled and preyed upon.”

"Higher education should be a path to prosperity, not a path into suffocating debt,” said Senator Baldwin. “Students who have been defrauded by unscrupulous colleges and universities that did not provide the education promised to them should not be further burdened with egregious taxes on loans that have already been forgiven.”

“Figuring out which college to go to and how to pay for it is hard enough without being subjected to false advertising from higher ed institutions,” said Senator Coons. “Forgiving the loans of students who are victims of fraudulent institutions is the right thing to do, but requiring them to pay a hefty tax on that forgiven loan still leaves many of these students struggling to make ends meet and afford continuing their education. We should be doing everything we can to help students afford the college that fits their needs, not making it harder.”

“As the cost of college becomes more and more burdensome, we must do what we can to protect hardworking students seeking higher education,” said Senator Peters. “The Student Tax Relief Act will ensure that defrauded students are not hit with onerous taxes that prevent them from achieving financial security and continued success outside the classroom.”

“California is home to around 10,000 former students of Corinthian Colleges, which has been found guilty of defrauding students across the country,” said Senator Feinstein.  “Students who are defrauded by their college or university deserve a chance to start over and build a future for themselves. It will be much easier for them to do so if they don’t face a significant tax burden from their forgiven loans.”

The Senators joined their colleagues in sending a letter to Department of Education Secretary John King in April and President Obama in March calling on the Administration to provide fair debt relief to victims of unlawful or deceptive practices in higher education through a tough borrower defense rule.  More information on the decision by the Department of Education to discharge loans of defrauded students may be found here and the full list of the schools eligible for a loan discharge may be found here. 

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