Bill would ease debt and tax bills for student borrowers

HARRISBURG, July 2 – As Pennsylvania lawmakers work to finalize the state budget and tuition bills are hitting mailboxes for the fall semester, two state lawmakers are looking to provide needed financial relief to student borrowers. 

State Reps. Jennifer O’Mara, D-Delaware, and Morgan Cephas, D-Phila., have introduced legislation (H.B. 2476) that would exempt tuition reimbursement from the personal income tax, as well as codify that student loan forgiveness is not taxable income.

According to the lawmakers, current and former college students in the U.S. have taken out approximately $1.75 trillion in student loans. Pennsylvania borrowers have an average of $39,375 in debt, making the state the third-highest average for student loan debt. The cost of both public and private four-year colleges has tripled since 1980, even when accounting for inflation, contributing to the need for students to take out more loans.

“Pennsylvania is a state where borrowers struggle with student loans more than most,” O’Mara said. “It’s even more disheartening when they are handed a tax bill for what relief they do get from their employers in the form of tuition reimbursement. Students are constantly evaluating their career and financial paths to include ways to make college more affordable. When they find an employer who wants to help with those costs in exchange for getting a great employee, they shouldn’t be penalized.” 

O'Mara said tuition reimbursement is considered taxable income in Pennsylvania, which cuts into this benefit.

Cephas said another affordability avenue impacting borrowers is student loan forgiveness. For those who qualify under various federal programs, Pennsylvania law does not specifically exempt student loan forgiveness from the personal income tax.

“Right now, only administrative efforts by Governor Josh Shapiro and former Governor Tom Wolf have prevented student loan forgiveness from being subject to the personal income tax,” Cephas said. “Student borrowers who are filling critical roles in our commonwealth, like teachers and healthcare providers, should not be faced with uncertainty by the whims of future administrations. The legislature can and should put it into law so that we can provide students every avenue possible for the financial relief they need from crippling student debt.”

O’Mara agreed, noting the timing of the legislation and budget negotiations.

“Budgets are a set of priorities, and students entering Pennsylvania’s workforce after years of taking out loans to further their career prospects should be high on our priority list,” O’Mara said. “It benefits the state and our students to keep our workforce vibrant.”

Cephas also has introduced legislation (H.B. 2270) that would benefit Pennsylvania businesses that pay off their employees’ student loan debts by offering them a tax credit for their help.