Senator Braun Leads Bipartisan Bill to Remove Student Loan Tax

Senators Mike Braun, Kyrsten Sinema, Elizabeth Warren, Josh Hawley, Tim Kaine, Chris Coons, and Chris Van Hollen introduced their bipartisan Student Loan Tax Elimination Act to remove an antiquated tax that adds unnecessary debt to student borrowers and worsens our national debt posture. Representative Lloyd Smucker introduced the companion legislation in the House of Representatives. 

“We should do what we can to ease the burden on American students, and removing this unnecessary tax on student borrowers won’t cost a thing. I’m proud to lead this bipartisan bill to eliminate a tax that is not good for borrowers or taxpayers.”—Sen. Braun

“We’re making college more accessible and affordable for Arizona students and their families, who work hard every day to achieve the American Dream.”—Sen. Sinema

“Continuing your education after high school is supposed to be a pathway to economic opportunities, but millions of working people are getting crushed by debt. Eliminating loan origination fees is a common-sense step Congress can take to help alleviate the burden of student debt for American families.”—Sen. Warren

“Too many Americans are already struggling under the burden of student loans – they shouldn’t also face an unnecessary tax on them. Getting rid of this outdated tax is one simple, bipartisan step we can take to ease the burden students face as we work to make college more affordable for everyone.”—Sen. Van Hollen

“Students and parents should fully understand the terms and costs associated with borrowing for their education. Unfortunately, federal loan programs have built in hidden fees and policies which impact students. Loan origination fees are a hidden tax on student loan borrowers which ultimately inflate costs for students. Eliminating this fee would be a step in the direction of lowering the cost of higher education for students across the nation. I appreciate Sen. Braun’s leadership for introducing this legislation in the Senate and I look forward to advancing companion legislation in the House.”—Rep. Lloyd Smucker (PA-11)

Bill text here.

Background

Federal student loans currently contain a hidden tax called an “origination fee.” Origination fees historically existed to offset the costs of private-sector partners that, in the current federal student loan program, no longer originate federal student loans. Before a federal student loan is disbursed, an origination fee is calculated as a tax to the borrower, increasing the overall borrower loan cost. The origination fee is subsequently deducted from the amount actually received by borrower. While a student borrower is given less than their guaranteed loan amount, they are still expected to pay that dollar amount back—with interest. Since private sector partners no longer originate loans, there are not costs to offset, as there were when the fee was established—and this fee is no longer necessary.