BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 150 (Nguyen) - Personal Income Tax Law: exclusion: student
loan debt forgiveness.
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|Version: June 22, 2015 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: Yes |Mandate: No |
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|Hearing Date: July 13, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 150 would exclude from gross income loan amounts
discharged from a for-profit college when the borrower is unable
to complete a program of study.
Fiscal
Impact: The Franchise Tax Board (FTB) estimates that the bill
would result in General Fund revenue losses of $34 million in
2015-16, and $100,000 in both 2016-17 and 2017-18. The bill
would not significantly impact the department's costs.
Background: Debt that is forgiven or cancelled by a lender is generally
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treated as income on a tax return, and consequently is taxable.
With respect to student loan forgiveness, the amount forgiven
generally represents taxable income the year it is cancelled
(with certain exceptions), including loan discharges for closed
schools.
Corinthian Colleges was a large for-profit post-secondary
education company whose subsidiaries offered career-oriented
diploma and degree programs in health care, business, criminal
justice, transportation technology and maintenance, construction
trades, and information technology. Founded in 1995, Corinthian
once included over 100 campuses across the country, enrolling
over 100,000 students. A bachelor's degree from a Corinthian
college could cost as much as $75,000. The school's revenue came
disproportionately from federal student loans; however, federal
loans often did not completely cover tuition, requiring students
to take out private loans as well. Corinthian was a longtime
target for federal and state regulators, with a host of
investigations and lawsuits charging falsified placement rates,
deceptive marketing, and predatory recruiting, targeting the
most vulnerable low-income students.
Since July 2014, the Department of Education has forced the
company to close or sell off its locations over concerns about
its high interest loans and misleading employment statistics. In
February 2015, Corinthian announced that students would get $480
million in loan forgiveness under an agreement with federal
regulators. Under the agreement, Corinthian would sell the
majority of their campuses to the nonprofit ECMC Group, and
students who attended ECMC Group campuses saw an immediate 40
percent reduction in the amount they owed on their private loans
provided by Corinthian. Corinthian did not sell its Heald
College campuses, located mostly in California. Those campuses
remained open until April 25, when they closed with one day's
notice, leaving 16,000 students unable to complete their degree.
Under federal law, students have a right to debt relief if they
were enrolled at the time their college closed, or up to 120
days before the shutdown. The Department of Education extended
that eligibility window for Heald students, allowing them to
have their debts discharged if they withdrew any time after June
2014, when the department and Corinthian agreed to the sell the
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colleges. The Department of Education estimates that about
40,000 Heald students would be eligible for $544 million in debt
relief if every student sought relief. In the past, only 6
percent of students whose colleges closed asked for their debt
to be discharged. The Department of Education also estimates
that if all 350,000 former Corinthian students over the last
five years applied for and received the debt relief, the cost
could reach $3.5 billion.
Proposed Law:
This bill would provide an exclusion from California gross
income for income that would otherwise result from a forgiven
student loan, as defined, of an eligible individual.
An individual would be an eligible individual for a taxable year
if any of the following apply during the taxable year:
1) The individual is granted a discharge pursuant to the
agreement between ECMC Group, Inc., Zenith Education Group,
and the Consumer Financial Protection Bureau concerning the
purchase of certain assets of Corinthian Colleges, Inc.,
dated February 2, 2015;
2) The individual is granted a discharge pursuant to
Paragraph 23 of the William D. Ford Federal Direct Loan
Program Borrower's Rights and Responsibilities Statement
because of either of the following:
a. The individual could not complete a program of
study because the school closed; or
b. The individual successfully asserts that the
school did something wrong or failed to do something
that it should have done; or
3) The individual attended a Corinthian Colleges, Inc.,
school on or before May 1, 2015, is granted a discharge of
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any student loan made in connection with attending that
school, and that discharge is not excludable from gross
income as a result of the reasons listed in 1 or 2, above.
Related
Legislation: AB 1055 (Baker, 2015) would provide an exclusion
from gross income for student loans that are forgiven when the
borrower is blind or disabled. The bill is current in the
Assembly Revenue and Taxation Committee.
Staff Comments: The FTB revenue estimate does not assume
additional closures of colleges beyond what has already
occurred. If there are additional closures of other large
schools that impact state borrowers, the revenue loss from this
bill could increase substantially.
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