Pending Student Loan Legislation

January 3, 2020

Several members of Congress have introduced legislation that would make changes to student loans. The proposed legislation includes:

Discharging Student Loans in Bankruptcy

H.R.3027 permits student loan borrowers to discharge federal and private loans in bankruptcy and reinstates the six-year statute of limitations for certain student loans.

This bill would also do the following:

Protect against wage garnishment, offset of retirement and disability benefits, and offset of income tax refunds
Make the Parent PLUS loan eligible for income-based repayment plans
Prevent defaults on student loans from blocking access transcripts and diplomas
Ban student loan default from affecting professional licenses
Add partial public service loan forgiveness after 60 months (5 years) of payments

H.R.770 and H.R. 885 also propose to discharge student loans in bankruptcy.

Increased Benefits for Employer Student Loan Repayment

S.2347 excludes employer contributions to student loan repayment from income, up to $10,000 per year.

S.1428 allows employer-sponsored retirement plans to make matching contributions for an employee’s student loan payments. Payments are made as if the loan payments were salary reduction contributions to the retirement plan.

H.R.655 allows a tax credit for employers that provide student loan repayment assistance for employees. The tax credit is 10% of the amount that an employer pays.

Student Loan Interest Deduction Changes

H.R.3098 proposes to eliminate the marriage penalty in the student loan interest deduction. It will increase the maximum deduction for interest paid on any qualified education loan to $5,000 ($10,000 for married couples filing a joint tax return). It also repeals the limitation on the deduction based upon modified adjusted gross income.

H.R.1070 increases the limit on the student loan interest deduction to $7,500 ($15,000 for a joint return). It also increases the limitation on modified adjusted gross income to $100,000 ($200,000 for a joint return).

H.R.5359 increases the maximum student loan interest deduction from $2,500 to $5,000 and expands the income phaseout. It also adds employer-paid student loan repayment assistance to the definition of educational assistance and increases the exclusion from $5,250 to $10,000.

H.R.1798 replaces the $2,500 limit and income phaseouts on the student loan interest deduction with a $750,000 aggregate limit on the amount of eligible debt ($1.5 million for joint filers). The bill also excludes the cancellation of federal loans in income-driven repayment from the borrower’s income. The bill doubles the student loan grace period on federal education loans from 6 months to 12 months.

Making Loan Language Easier to Understand

Several bills propose to require federal student loan disclosure forms to be written in plain language with the goal of helping borrowers better understand loan terms, cost of loans and estimated monthly repayments. The disclosure requirements for private student loans do not currently apply to federal student loans. The proposed legislation closes this loophole. These bills include H.R.63, H.R.1161, H.R.4193, S.2405, S.887 and S.2015.

H.R.811 requires the disclosure of the annual percentage rates on federal student loans.

Lowering Student Loan Payments

Senator Warren proposes to allow older federal loans to be refinanced at current interest rates in bill S.768.

H.R.2065 define a new income-driven repayment plan where the monthly payment is 10% of the amount by which AGI exceeds 250% of the poverty line, but phases out the 250% percentage by 5 percentage points for each $1,000 of AGI over $120,000. It also reduces the repayment term from 25 years to 20 years.

H.R. 4670 proposes a new income-driven repayment which would be 10% of discretionary income (defined as AGI – 200% of the poverty line with the poverty line multiple reduced by 5 percentage points for each $1,000 over $80,000 (single filers) or $160,000 (joint filers), but with a marriage penalty (based on joint income even if the borrower files separate returns).

The Student Loan Tax Elimination Act (S.1696) and Eliminating the Hidden Student Loan Tax Act (H.R.3674) eliminate origination fees on federal education loans.

H.R.3257 creates a new income-driven repayment plan called 10/10 repayment (similar to income-based repayment, but with adjustments for differences in regional cost of living and tax-free forgiveness of up to $45,520 after 120 payments), caps interest rates on federal loans at 3.4%, makes primary care physicians eligible for public service loan forgiveness, allows refinancing of private student loans for some borrowers into federal student loans, adds an interest-free unemployment deferment for unsubsidized loans, and excludes forgiveness of federal loans under income-contingent repayment from the borrower’s income.

Interest Rates

H.R.1899 allows for refinancing federal education loans at the 10-year Treasury Note auction rate from the previous month, plus 1.0%, and bases the interest rate on new federal education loans on this rate. The bill adds an interest-free in-school deferment on unsubsidized loans for borrowers with an expected family contribution (EFC) of $10,000 or less. The bill eliminates origination fees on federal direct loans.

H.R.1707 allows refinancing of private student loans into federal student loans.

H.R.3751 sets the interest rate on all federal education loans, including new and existing loans, at zero.

H.R. 4749 allows borrowers the option of reissuing their old federal direct student loans at current interest rates. The loans must have been originally issued up to 20 years before or 10 years after the date of enactment of the legislation.

H.R.2186 is similar, but does not limit eligible direct loans based on when the loans were originated. It limits such interest rate modifications to once per six-month period.

H.R. 4119 increases the interest-free grace period from 6 months to 1 year on all federal student loans. It also sets the interest rate during the in-school and grace periods to zero for new loans.

S.1845 allows borrowers to refinance their federal education loans at the interest rate provided by the Federal Reserve to banks through the discount window. This program will be available to borrowers for two years after enactment of the legislation.

Student Loan Forgiveness

Senator Elizabeth Warren proposes discharging up to $50,000 in student loans for eligible borrowers in the Student Loan Debt Relief Act of 2019 [S.2235].

S.1248 excludes from income the discharge of federal student loans at the end of income-contingent or income-based repayment.

H.R.3887 will discharge up to $50,000 in federal student loans per borrower, phased out for borrowers with an AGI of $100,000 or more ($200,000 for joint filers). The bill also allows borrowers to refinance private student loans into federal student loans and thereby obtain discharge of the student loans. The bill also repeals the exception to bankruptcy discharge on federal student loans.

S.2168 allows for a forgiveness plan for ranchers and farmers.

As an amendment to the Fair Debt Collection Practices Act, H.R. 5287 prohibits debt collectors from collecting on certain federal student loan debt when the borrower is not required to make payments under an income-driven repayment plan.

As an amendment the Fair Credit Reporting Act, H.R. 3621 proposes to remove adverse information for certain defaulted or delinquent private education loan borrowers who demonstrate a history of loan repayment.

As an amendment to the Higher Education Act of 1965, H.R. 3786 proposes to allow a higher education institution to cosign federal student loans made to the student.

H.R.3418 makes graduate and professional students eligible to receive subsidized Stafford Loans under the Federal Direct Loan Program beginning on July 1, 2019.