Blumenthal Announces Comprehensive Legislation to Ease Student Loan Debt

(Washington, D.C.) – U.S. Senator Richard Blumenthal (D-Conn.) today joined with Democratic colleagues to announce comprehensive legislation designed to make higher education more affordable. The Reducing Educational Debt Act (RED) contains three measures that would make two years of community college free, address the significant loss in value of Pell Grants by adjusting them for inflation, and allow borrowers to refinance their existing student loans at lower rates.

Senator Blumenthal separately introduced two additional measures to reduce student loan debt. The Strengthening Forgiveness for Public Servants Act would expand the existing Public Service Loan Forgiveness (PSLF) program, providing meaningful student debt relief to teachers, police officers, public health workers and others who dedicate their careers to public service. The second bill, The Make Student Grants Truly Tax-Free Act, would eliminate the tax penalty on low-income student borrowers who accept federal grants or scholarships.

“At countless roundtables across Connecticut with students, teachers, professors and parents, I have heard stories about the crippling effects of student loan debt. Too often, young people must mortgage their futures for a chance at a college education,” said Sen. Blumenthal. “Significant steps are necessary to reduce barriers to higher education and bring a college education back within reach for American families. As part of a comprehensive effort to attack this crisis, I not only joined with my colleagues today to announce a broad approach to reduce student loan debt, but I also introduced two separate measures that will make college more affordable. The first bill rewards teachers, police officers and public health officials for choosing careers in public service by providing student debt relief based on the time they spend working in their communities. The second bill allows low-income students to pursue higher education by eliminating the tax penalty on federal grants and scholarships – removing a significant economic hardship.”

The RED Act will make college more affordable by:

• Making two years of community college tuition-free: Under the RED Act, a full-time community college student could save an average of $3,800 in tuition per year, and, if all states participated under this program, an estimated 9 million students throughout the country could benefit. The legislation would also hold colleges accountable by making a condition of the grant that training programs are tied to the skills needed in today’s economy and that credits are transferable to four-year institutions.
• Allowing borrowers to refinance student loans at lower rates: Under the RED Act, student loan borrowers would be given a chance to refinance their debt at the same low rates offered to new borrowers in the student loan program in the 2013-2014 school year.
• Ensure Pell Grants keep pace with rising costs of college: The RED Act ensures that Pell Grants keep up with rising costs by indexing the Pell Grant program to the Consumer Price Index (CPI) beyond 2017 with mandatory funding to protect and sustain its value into the future. Without permanent CPI indexing, the purchasing power of the Pell Grant will erode, making it harder for students and families to afford college.

The Public Service Loan Forgiveness (PSLF) program provides an important incentive for graduates to enter public service occupations by offering relief from student loan debt. Because of the increasing frequency of graduates facing crushing amounts of student loan debt, that incentive is more important than ever.

Unfortunately, the current PSLF program is structured as an all-or-nothing deal; unless you complete ten years of public service, even if you lose your job after nine years and eleven months, you don't receive any relief from your student loan debt. For PSLF participants whose loans continued to accrue interest over those years, losing a public service job could feel like being forced to start repayment efforts from scratch.

Blumenthal also introduced legislation today that would prevent high-need student borrowers from being punished with a tax liability for accepting a federal grant or scholarship. Need-based grant funding from the Department of Education (ED) is the cornerstone of the federal government’s efforts to give all Americans a fair shot at higher education. For young people whose only barrier to higher education is their family’s income level, these programs provide a hopeful path forward. Unfortunately, accepting a grant from these programs can result in an unexpected tax liability. The Internal Revenue Service requires students who use a portion of their grant for room and board expenses to report that amount as taxable income. This policy effectively punishes the highest-need students in this country just because they need a place to live while they pursue higher education. The Make Student Grants Truly Tax-Free Act would ensure that the entirety of need-based scholarship and fellowship grant programs, including room and board expenses, are excluded from taxable income.

###