Bill would make student loan repayments tax-free

Federal employees who participate in the government's student loan repayment program would not have to pay income tax on the loans under a bill introduced Thursday in the House.

The Generating Opportunity by Forgiving Educational Debt for Service (GOFEDS) Act, aims to attract recent college and professional school graduates to the government by forgiving the tax on school loans. Now, when agencies pay off an employee's student loans, that employee must pay taxes on the forgiven debt. Student loans paid off by educational institutions and nonprofit groups to encourage public service are not subject to taxation.

"Government should not tax its own ability to be a better recruiter," said Max Stier, president of the Partnership for Public Service, a nonprofit group dedicated to improving the government's recruitment and retention rate. "This is inexpensive, common-sense legislation that could go a long way toward heading off the dire challenges facing the federal workforce."

But the bill, which would amend the portion of the 1986 tax code relating to student loans, is only one part of the solution to improving the government's recruitment and retention rates, Stier acknowledged. "These are multi-tiered problems that need multi-tiered solutions," he said. "Making loan forgiveness tax-free is only part of the answer, not all of it."

The typical college debt burden is between $14,000 and $16,000 for undergraduates and more than $20,000 for graduate students. According to a recent survey commissioned by the Partnership for Public Service, only one in six college graduates expressed significant interest in federal employment.

In 1990, Congress authorized agencies to use their discretion in paying off their employees' student loans. But there was no authorizing language that agencies could use to implement it until last April. While agencies are not required to offer to pay back employees' student loans, if they do, they can pay up to $6,000 a year in student loan payments for each employee, but the total amount per employee cannot exceed $40,000. Employees who participate in the program must remain with the agency for at least three years.

A handful of agencies, including NASA, the General Services Administration and the Energy Department, have completed their plans for offering student loan repayments, but many are still unsure whether or not they will offer the benefit and which employees would be eligible. By law, agencies must submit annual reports to the Office of Personnel Management on their use of the benefit.

Stier hopes the reporting requirement will put pressure on agencies to start thinking about how to use the student loan repayment authority as an effective recruitment tool. Agencies are supposed to submit their reports on the student loan repayment authority to OPM by the end of this month.

House Government Reform Committee Chairman Dan Burton, R-Ind., and ranking member Henry Waxman, D-Calif., sponsored the GOFEDS Act. Sens. George Voinovich, R-Ohio and Fred Thompson, R-Tenn. introduced similar legislation (S. 1817) in December.

Employees should check their agency's Web site or ask their human resources personnel for more information on the student loan repayment benefit.

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