[Congressional Record Volume 143, Number 157 (Sunday, November 9, 1997)]
[Extensions of Remarks]
[Page E2277]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




THE NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM INCENTIVE ACT OF 
                                  1997

                                 ______
                                 

                         HON. NANCY L. JOHNSON

                             of connecticut

                    in the house of representatives

                       Saturday, November 8, 1997

  Mrs. JOHNSON of Connecticut. Mr. Speaker, for many years our 
Government has supported health care training programs to increase the 
number of health care professionals to serve our Nation's people. One 
of the most successful health training programs we have created is the 
National Health Service Corps Scholarship Program. Enacted more than 20 
years ago, the purpose of this program is not only to encourage the 
training of top quality health care professionals but also to improve 
access to health care for Americans living in medically underserved 
areas.
  This program encourages the training of primary care providers, 
focuses on preventive care, and targets medical manpower shortage 
areas. The graduates of this program work in our migrant health centers 
and in both rural and inner city community health centers, such as the 
community health center in my hometown of New Britain.
  Program recipients are given a scholarship award, covering the costs 
of tuition and fees, together with a monthly stipend covering living 
expenses. In response to this award, the National Health Service Corps 
scholars are obligated upon completion of their training to provide a 
year of full-time primary health care in a designated shortage area for 
each year of scholarship funding. These areas are located in some of 
our Nation's neediest communities which are desperate for primary care 
providers.
  Unfortunately, Mr. Speaker, this successful program is now in 
jeopardy--not from lack of funds, but from the new IRS interpretation 
of section 117(c) of the Internal Revenue Code to treat these 
scholarship amounts as fully taxable income.
  Many scholarship recipients have tuition and fees amounting to more 
than $36,900; income tax withholding at the required 28 percent can eat 
up nearly all, if not all, of the stipend portion of the award. If the 
student has additional income--a part-time job for example--he or she 
could face an additional tax liability on that income, though their 
money available for daily living expenses has not changed.
  I have been contacted by a concerned student regarding this IRS 
interpretation. Jenny, a student at Yale University, is studying to be 
a nurse practitioner. As a recipient of a National Health Service Corps 
Scholarship, her $30,000 a year tuition is paid directly to the school; 
she receives $3,500 toward school fees, equipment, books and supplies, 
and a small stipend for living expenses for which income taxes are 
withheld. She was recently notified by the Department of Health and 
Human Services that income taxes would be withheld on the scholarship 
money as well.
  Jenny will now be taxed at the 28-percent rate because the entire 
scholarship amount will now be included in her income, even though she 
never sees the majority of this money that is sent directly to her 
school for tuition. Jenny is now worried about her living expenses, 
because the new additional withholding will almost eliminate the 
stipend that she relies on for her room and board. Since Jenny already 
has a lot of debt from her undergraduate student loans, this abrupt 
change in policy threatens her ability to afford to stay in school and 
makes it more difficult to fulfill her obligation to work as a nurse 
practitioner in an underserved area, where her wages would likely be 
lower.
  In my view, the IRS position regarding its application of section 
117(c) is simply wrong. First, this money is not disguised future 
compensation. In fact it is the opposite. It is recognition of the 
compensation forgone as a consequence of going to work in an inner city 
or underserved rural area where wages are often low because there are 
not the resources needed to support a health care professional's 
income. Second, there is little difference between the obligations 
required under the National Health Service Corps Scholarship Program 
and the obligations required by the debt forgiveness provisions we 
enacted this summer in the Tax Payer Relief Act of 1997. And there 
should not be a difference in the tax treatment of the school 
scholarship or loan amount in terms of taxable income.
  Through the passage of the Tax Payer Relief Act, we in Congress 
affirmed our support for favorable tax treatment of medical student 
loans forgiven in exchange for future service in medically underserved 
areas. It seems inconsistent and arbitrary to tax a scholarship given 
in exchange for a future commitment of public service in a medically 
needy area, while exempting a student loan forgiven for a similar 
commitment from the tax.
  We need to correct this aberration in tax policy now before this 
successful program is destroyed. We need to take immediate action to 
clarify the Tax Code so that those students who wish to undertake the 
obligations of the program are assured stable, predictable financing of 
their academic program in exchange for a commitment to serve our 
underserved communities. It is also important to ensure that 
communities continue to have access to low-cost, quality health care 
services and that community and rural health centers will continue to 
have health professionals available.
  My bill will reverse the IRS position regarding the taxability of 
these scholarships. It will rectify tax policy inconsistency, and it 
will ensure that a well-run and successful program is not devastated by 
a bureaucrat operating in clear contradiction of the intention of this 
valuable, proven program. In addition, it will let people like Jenny 
continue with her studies and be assured that her scholarship and 
stipend are intact.
  I ask my colleagues to join me in cosponsoring this legislation to 
save the National Health Service Corps Scholarship Program.

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