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Congressman Mark Pocan

Representing the 2nd District of Wisconsin

Pocan and Wilson Introduce Relief for Underwater Student Borrowers Act

Jul 29, 2014
Press Release

Washington, D.C. — U.S. Rep. Mark Pocan (WI-02) and U.S. Rep. Frederica Wilson (FL-24), both members of the House Education and Workforce Committee, today introduced the Relief for Underwater Student Borrowers Act, H.R. 5239. This 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.

“Student loan debt is weighing down our economy and holding back a generation of Americans as total student loan debt has grown to more than $1.2 trillion – more than total U.S. credit card debt,” said Rep. Mark Pocan. “This legislation closes a major gap in our tax code which penalizes some borrowers who have been granted debt relief after at least 20 years of consistent repayment towards their student loan debt.”

“As a member of the Subcommittee on Higher Education and Workforce Training, college affordability is one of my top priorities. Today, student debt is at a record high, with individual debt forcing many people to put off major purchases such as buying a home or automobile,” said Congresswoman Wilson. “This bill prevents student loan borrowers from being hit with an additional tax burden for debt that has been forgiven after 20 years of consistent repayment, and in the event of suffering a total permanent disability or death, this bill prevents the debt forgiven from being considered taxable income. The Relief for Underwater Student Borrowers Act helps individual borrowers and their families, as well as strengthens the economy.”


Under current law, the student loan balance forgiven as part of the Income Based Repayment (IBR) or Pay as You Earn (PAYE) programs, is treated as taxable income to the borrower, creating a tax liability that most qualifying borrowers would be unable to afford. Student loans forgiven under other programs, including Public Service Loan Forgiveness and TEACH Grants, are not treated as taxable income.

Earlier this year, 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. Borrowers who have demonstrated a good faith effort at repaying their loans and are currently underwater deserve a fair shot.

Today, the average student graduates with around $29,400 in loans. At private nonprofit colleges, average student debt is around $32,300. Nationally, student debt tops $1.2 trillion.  Given the extent of the student debt crisis, it is essential to give borrowers who have been crushed by student debt for two decades the opportunity to get out from under those loans and further contribute productively to our economy.

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.

Key Facts:

·   There are 1.4 million people enrolled in the Income Based Repayment (IBR) program.

·   There are 190,000 people enrolled in Pay as You Earn (PAYE) program which was expanded by Pres. Obama this year.

·   Of the $1.2 trillion in student debt, over $1 trillion is owned by the Federal Government.

·   Fifty-eight percent of all student debt is held by families in the bottom 25% of household incomes. Additionally, outstanding student loan debt is a 25% share of the same bottom-fifth's income, compared to 12% of the middle-fifth and only 2% of the richest 10% of families.

·   Currently, 791,000 borrowers in Wisconsin have outstanding federal loans.

·   Currently, 2,238,000 borrowers in Florida have outstanding federal loans.