Senator Janet Nguyen's Legislation Eliminating Tax Liability on Forgiven Corinthian College Student Loan Debt Moves Forward

Wednesday, September 2, 2015

In an effort to aid more than 13,000 California students, Senator Janet Nguyen is proud to announce that the California State Senate has unanimously passed Senate Bill 150 (SB 150). The bill seeks to eliminate state income tax liability on forgiven student loans for former Corinthian College students.

Since the abrupt closure of Corinthian Colleges in May 2015, many former students have been seeking either partial or full discharge of their student loans through a variety of federal, state, and private programs. However, cancelled, discharged, or forgiven debt may be subject to state and federal income tax. Therefore, students who receive a closed-school loan discharge must pay both federal and state income taxes.

The passage of Senate Bill 150 would eliminate the tax liability for Corinthian College students who choose to forgo their credits and have their loans forgiven.

“I am pleased that the California Legislature is now one step closer to assisting more than 13,000 California students who were affected by the unexpected closure of Corinthian Colleges. These students made a personal and financial investment to improve their lives and now find themselves unable to finalize their studies,” said Senator Janet Nguyen.

Under the Federal Higher Education Act of 1965, students in this situation have two options: they can give up the college credits they earned and have their federal student loan debt forgiven by the federal government; or, they can keep their credits and transfer them to another college that accepts them but would remain responsible for the repayment of those loans. At this time, unless federal action is taken, students may continue to be liable for federal income tax. However, SB 150 would provide a statewide solution to this issue.

“As an advocate for education, I hope that SB 150 will receive support from my colleagues in the California State Assembly, so that former Corinthian College students can have a second chance to receive a higher education without being penalized financially,” said Senator Janet Nguyen.

SB 150 is jointly authored by Senator Janet Nguyen and Senator Bob Huff, and co-authored by Senators Bates, Fuller, Berryhill, Morrell and Vidak.