Bill would eliminate income tax requirement for student loan repayments
In an effort to strengthen the recruitment and retention efforts of federal agencies, several lawmakers have reintroduced a bill that would eliminate the tax on money agencies give to employees to pay off student loans.
The Generating Opportunity by Forgiving Educational Debt for Service (GOFEDS) bill would increase the amount of the student loan forgiveness benefit by relieving federal employees of the obligation to pay income tax on the money federal agencies have provided them. The bill was introduced Tuesday by House Government Reform Chairman Tom Davis, R-Va., and Rep. John Tierney, D-Mass. Sens. George Voinovich, R-Ohio, and Blanche Lincoln, D-Ark., introduced a similar bill in the Senate. The GOFEDS legislation was first introduced in the last Congress, but never made it out of committee.
"The idea that they have to pay taxes on this money is unbelievably damaging," said Max Stier, president and CEO of the Partnership for Public Service, a Washington-based advocacy group. "This will stop the government from taxing its own ability to recruit and retain the very best [employees]."
Federal agencies have had the authority to repay employees' student loans since 1990, but authorizing language for implementing it wasn't published until 2001. Agencies 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 and must pay the money back if they are fired or resign.
Student loan forgiveness has increasingly become an attraction for prospective employees as the cost of education rises and more students are forced to take out loans to pay for college. According to the Partnership for Public Service, the average cumulative amount borrowed for undergraduate education in the 1999 academic year was $19,785, and the average cumulative amount borrowed for graduate education was $36,976. During the past year, lawmakers, union leaders and good government advocates have touted the measure as a powerful recruitment and retention tool.
"If nothing is done to improve recruitment and retention in the federal government, service to the American people will suffer," Davis said. "More than half of the federal workforce could be eligible to retire in the next five years, including over 70 percent of senior management. On the other end of the employment pipeline, college graduates' interest in government service has eroded at the time when they are needed most."
Describing the measure as a "win-win," Christine Pelosi, Rep. Tierney's Washington chief of staff, said that GOFEDS will strengthen the ability of agencies to attract students to public service, who may hesitate to do so because of the burden of repaying school loans.
"It's a fundamental commitment to say that if you are going to have salary and benefit packages that attract the best and brightest, let's make sure that one of those benefits is the ability to apply for student loan forgiveness and forgive the tax consequences," Pelosi said.
According to Stier, the State Department offered to repay the student loans of more than 400 employees in 2002. NASA and the Energy Department have all developed plans to put the measure to use and the General Services Administration set aside money for it in fiscal 2002. However some federal managers have complained that there is no money in their budgets to fund the measure.
"There's no one solution to the problem of student debt; we are going to have to see a variety of activities, including agencies prioritizing resources for loan repayment and Congress appropriating money for it," Stier said. "This legislation doesn't solve the problem, but it is a very important step in the right direction. This is one way that we can make sure that the resources that are available are used more effectively."
As more employees and prospective hires express interest in the measure, more agencies will make loan repayment a priority in their budget requests, according to David Marin, spokesman for Davis.
"Agencies will find that funding the program is a lot less expensive than the cost of losing out on top-notch people," Marin said.
For more information about the student loan repayment benefit, employees should check their agency's Web site, talk with their human resources personnel or visit the Office of Personnel Management's Web site for student loan information.