Bill could eliminate hidden tax on student loan debt


Bill could eliminate hidden tax on student loan debt

4:17 p.m. PDT July 21, 2016

The Student Loan Tax Relief Act was introduced in Washington, D.C., last week by Senator Rob Wyden and fellow sponsors. Should it pass, it would eliminate hidden tax on forgiven student loan debt.

“Congress has to do more to help families and students get a good education without also facing debilitating student loan debt,” Wyden said in a statement.  “Most don’t even realize that if they are in a position to have their student loans forgiven, the tax code looks at this as phantom income and throws a hefty tax bill their way.

“This bill aims to end this nasty unexpected tax, better positioning students to save for retirement or buy their first home after school.”

The bill amends the Internal Revenue Code of 1986 to exempt student loans discharged for any reason from being taxed as income, including through participation in the federal income-based repayment (IBR) and income-contingent repayment (ICR) loan forgiveness programs; through death or disability of the recipient; or due to fraud by an institution of higher education, known as “borrower defense to repayment,” according to the bill.

The IRS currently taxes federal student loan amounts that are forgiven through such means.

“With outstanding student debt in the United States eclipsing $1.2 trillion and slowing the economy, taxing forgiven loans defeats the purpose of alleviating the burden and further exacerbates the nation’s student debt crisis,” according to a recent press release.

The amendments made by the bill would apply to discharges of loans after December 31, 2016.

Contact Natalie Pate at, 503-399-6745 or follow on Twitter @Nataliempate or

Published by Natalie Pate

Natalie Pate is a freelance journalist and author based in Salem, Oregon. She wrote about education for more than seven years at the Statesman Journal and now covers education and other topics throughout the Pacific Northwest. She is originally from Colorado and earned her B.A. in Politics and French from Willamette University.

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