Tell Congress: Pass S.1757 / H.R.3582 to Tackle Workforce and Student Debt Challenges
- PURPOSE: Defines post-graduation scholarship grants (aka student debt payoff) as a charitable activity; excludes post-graduation scholarship grants from the recipient's taxable income; targets relief to areas most in need of workers
- SUPPORTED BY: Forefront, Council on Foundations, Alliance of Illinois Community Foundations
- IMPACT: Will help target gaps in the nonprofit sector's workforce while simultaneously providing student debt relief
Background
When a student receives a traditional charitable scholarship for tuition and expenses while still in school, that charitable scholarship is not included in the student's taxable income. In contrast, once that same student graduates, if they receive a "post-graduation charitable scholarship" that pays off their debt derived from tuition and expenses, the new graduate will have to pay income tax on the loan repayment, even though it is paid directly to the lender. This creates a large one-time tax bill that prevents some workers from participating in such programs, because they cannot afford the large one-time cost in their taxes the following year. Post-graduation scholarships should be excluded from taxable income. Doing so will eliminate a barrier to both recruiting workers to high-need areas and to mitigating student loan debt. A large nonprofit coalition nationwide supports S.1757 / H.R.3582. Here's how it works:
- A donor makes a designated charitable contribution to a community foundation to help repay a local worker's student loans
- The community foundation matches the donation with a local worker that has both a degree that's needed locally and student loans to repay
- The community foundation directly repays the worker's loans, sending the charitable donation to the lender (not the worker)
- Post-graduation scholarship programs would establish eligibility requirements, as well as a process to verify that those requirements continue to be met through the duration of the scholarship award agreement (such as a work-length requirement)
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