BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 150|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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UNFINISHED BUSINESS
Bill No: SB 150
Author: Nguyen (R) and Huff (R), et al.
Amended: 9/11/15
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 7/1/15
AYES: Hertzberg, Nguyen, Beall, Lara, Moorlach, Pavley
NO VOTE RECORDED: Hernandez
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
SENATE FLOOR: 39-0, 9/1/15
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Moorlach, Morrell, Nguyen, Pan, Pavley, Roth, Runner, Stone,
Vidak, Wieckowski, Wolk
NO VOTE RECORDED: Nielsen
ASSEMBLY FLOOR: Not available
SUBJECT: Personal Income Tax Law: exclusion: student loan
debt forgiveness
SOURCE: Author
DIGEST: This bill excludes from gross income loan amounts
discharged from a for-profit college when the borrower is unable
to complete a program of study.
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Assembly Amendments add a sunset date of January 1, 2020.
ANALYSIS:
Existing law:
1)Provides that "gross income" includes all income from whatever
source derived, including compensation for services, business
income, gains from property, interest, dividends, rents, and
royalties, unless specifically excluded.
2)Provides that debt that is forgiven or cancelled by a lender
is generally treated as income on a tax return, and
consequently is taxable.
3)Provides that in the case of an individual, gross income does
not include any amount which would be included by reason of
discharge of any student debt if such discharge was pursuant
to a provision of such loan under which all or part of the
indebtedness of the individual would be discharged if the
individual worked for a certain period of time in certain
professions for any of a broad class of employers.
4)Excludes loan amounts repaid or canceled by the United States
Secretary of Education from gross income under state law.
This bill:
1)Provides an exclusion from California gross income for income
that would otherwise result from a forgiven student loan, as
defined, of an eligible individual.
2)Provides that the bill shall remain in effect until December
1, 2020.
3)Provides an individual is an eligible individual for a taxable
year if any of the following apply during the taxable year:
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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;
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:
o The individual could not complete a program of study
because the school closed; or
o The individual successfully asserts that the school
did something wrong or failed to do something that it
should have done; or
o The individual attended a Corinthian Colleges, Inc.,
school on or before May 1, 2015, is granted a discharge
of 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.
Background
Founded in 1995, Corinthian's for-profit colleges once included
over 100 campuses across the country, where over 100,000
students were enrolled. A bachelor's degree from a Corinthian
college could cost as much as $75,000. The vast majority of the
school's revenue came from federal student loans, but federal
loans are unable to cover all of the tuition, so students often
had to take out private loans. The Consumer Financial
Protection Bureau alleges that Corinthian kept tuition high in
order to force students to borrow from the college at higher
rates. The Corinthian loans came with origination fees of 6%
and interest rates of around 15%, as of 2011, much higher than
the 3% and 7% interest on federal student loans. 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 last July, the Department of Education has forced the
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company to close or sell off its locations over concerns about
its high interest loans and misleading employment statistics.
In February of this year, 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% reduction in the amount they owed on their private loans
provided by Corinthian. The Department of Education also fined
Corinthian $30 million for 947 representations of placement
rates, findings that Corinthian disputed. Corinthian did not
sell its Heald College campuses, located mostly in California,
and they remained open until April 25, when they closed on a
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
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, that cost
alone could be as much as $3.5 billion.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Assembly Appropriations Committee, the bill
results in:
Insignificant costs to Franchise Tax Board (FTB) to
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administer changes to forms and systems.
Estimated GF revenue decreases of $34 million, $100,000,
and $100,000 in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
SUPPORT: (Verified9/11/15)
Board of Governors of the California Community Colleges
Member of the State Board of Equalization, 1st District
OPPOSITION: (Verified9/11/15)
California Department of Finance
According to the author, "Following the closure of 107
Corinthian College campuses, many former students are now
seeking a partial or full discharge of their student loan debt.
Unfortunately, if their debt is cancelled, discharged, or
forgiven, that debt may be subject to state (and federal) income
tax. To aid these students, Senate Bill 150 removes tax
liability on forgiven federal loan debt for students who choose
to forgo the credits that they earned.
Nearly 13,000 California students are unable to complete their
degrees but are still being held responsible for the student
loan debt they incurred.
These students have devoted time, energy, and resources in an
effort to improve both their education and overall lives.
Already victimized by the closure of the college, they should
not be forced to forgo the credits they earned while also being
subjected to tax debt. SB 150 helps students whose educational
career is in limbo through no fault of their own to continue
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their education without being penalized financially."ARGUMENTS
IN OPPOSITION: The opponent argues this
bill will have a negative impact on state revenues.
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
9/11/15 20:15:03
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