Republican Legislators Introduce SB150: Tax Relief for Students with School Loans When College Goes Under

Press Release posted 5/18/15 – Following the shutdown of several campuses owned by Corinthian Colleges headquartered in California, two Republican Senators introduced a bill to help students with their federal loan debt forgiveness.

Senator Janet Nguyen (R-Garden Grove) and Senate Republican Leader Bob Huff (R-Diamond Bar) jointly authored Senate Bill 150, which would allow students to receive federal loan debt forgiveness without creating a tax liability.  Co-authors of Senate Bill 150 also include Senator Mike Morrell (R-Rancho Cucamonga), Senator Andy Vidak (R-Hanford), and Senator Tom Berryhill (R-Twain Harte).

“Corinthian Colleges also has campuses in Santa Ana which is in my district. It is unimaginable that these students put their trust and money in Corinthian Colleges and now will have to make the tough choice to forgo their credits after years of work. They should not be burdened with a tax debt as well,” said Senator Nguyen.

“It is sad that nearly 16,000 students who were enrolled in the affected schools cannot finish their degrees. These students are placed in unfortunate circumstances by no fault of their own. SB 150 would help them to overcome obstacles while continuing to pursue their degree,” said Senator Huff.

Corinthian Colleges founded in 1995, recently closed all of its remaining 107 campuses including Heald, Everest, WyoTech, along with its online school Everest College Phoenix. State and federal investigations are underway as a result of allegations of aggressive and fraudulent marketing and unfair financial aid practices.

Students whose colleges were shut down have two options under the federal Higher Education Act of 1965. The first option is to give up their college credits and have their federal student loan debt forgiven by the federal government. The second option allows them to keep their credits and transfer them to another college, but students will continue to be responsible for the repayment of those loans.

If students choose option two, under federal and state tax law, the students would still incur a penalty. The discharged debt is considered to be income to the student/taxpayer, thus creating a tax liability. Senate Bill 150 would allow students to seek federal loan debt forgiveness and not burden them with a tax liability.

Just recently, a separate Assembly bill advanced out of committee to help students who attended Corinthian Colleges. Assembly Bill 573 would waive fees at community colleges for affected students and provide money to the colleges to help students transfer and enroll in new programs. AB 573 is now headed to the Senate. 

Senator Janet Nguyen’s district covers parts of Orange County including the cities of Santa Ana, Garden Grove, Huntington Beach, Fountain Valley, Westminster, and Los Alamitos.

Senator Bob Huff serves as the Senate Minority Leader and represents the 29th Senate District covering portions of Los Angeles, Orange and San Bernardino Counties.