[House Report 116-682]
[From the U.S. Government Publishing Office]
116th Congress } { Rept. 116-682
HOUSE OF REPRESENTATIVES
2d Session } { Part 1
======================================================================
PRIVATE LOAN DISABILITY DISCHARGE ACT OF 2019
_______
December 21, 2020.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Ms. Waters, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 4545]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4545) to provide for the discharge of a private
education loan in the case of death or total and permanent
disability of a student obligor, and for other purposes, having
considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 3
Section-by-Section Analysis...................................... 3
Hearings......................................................... 4
Committee Consideration.......................................... 4
Committee Votes.................................................. 4
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 7
Statement of Performance Goals and Objectives.................... 7
New Budget Authority and CBO Cost Estimate....................... 7
Committee Cost Estimate.......................................... 9
Unfunded Mandate Statement....................................... 10
Advisory Committee............................................... 10
Application of Law to the Legislative Branch..................... 10
Earmark Statement................................................ 10
Duplication of Federal Programs.................................. 10
Changes to Existing Law.......................................... 10
Minority Views................................................... 29
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Private Loan Disability Discharge Act
of 2019''.
SEC. 2. PROTECTIONS FOR OBLIGORS AND COSIGNERS IN CASE OF DEATH OR
TOTAL AND PERMANENT DISABILITY.
(a) In General.--Section 140(g) of the Truth in Lending Act (15
U.S.C. 1650(g)) is amended--
(1) in paragraph (2)--
(A) in the heading, by striking ``in case of death of
borrower'';
(B) in subparagraph (A), by inserting after ``of the
death'', the following: ``or total and permanent
disability''; and
(C) in subparagraph (C), by inserting after ``of the
death'', the following: ``or total and permanent
disability''; and
(2) by adding at the end the following:
``(3) Discharge in case of death or total and permanent
disability of borrower.--The holder of a private education loan
shall, when notified of the death or total and permanent
disability of a student obligor, discharge the liability of the
student obligor on the loan and may not, after such
notification--
``(A) attempt to collect on the outstanding liability
of the student obligor; and
``(B) in the case of total and permanent disability,
monitor the disability status of the student obligor at
any point after the date of discharge.
``(4) Total and permanent disability defined.--For the
purposes of this subsection and with respect to an individual,
the term `total and permanent disability' means the individual
is totally and permanently disabled, as such term is defined in
section 685.102(b) of title 34 of the Code of Federal
Regulations.
``(5) Private discharge in cases of certain discharge for
death or disability.--The holder of a private education loan
shall, when notified of the discharge of liability of a student
obligor on a loan described under section 108(f)(5)(A) of the
Internal Revenue Code of 1986, discharge any liability of the
student obligor (and any cosigner) on any private education
loan which the private education loan holder holds and may not,
after such notification--
``(A) attempt to collect on the outstanding liability
of the student obligor; and
``(B) in the case of total and permanent disability,
monitor the disability status of the student obligor at
any point after the date of discharge.''.
(b) Tax Liability.--Section 108(f)(5)(A) of the Internal Revenue Code
of 1986 (26 U.S.C. 108(f)(5)(A)) is amended--
(1) by striking ``, and before January 1, 2026'';
(2) in clause (ii), by striking ``or'';
(3) by redesignating clause (iii) as clause (iv); and
(4) by inserting after clause (ii) the following:
``(iii) pursuant to paragraph (3) or (5) of
section 140(g) of the Truth in Lending Act,
or''.
(c) Rulemaking.--The Director of the Bureau of Consumer Financial
Protection may issue rules to implement the amendments made by
subsection (a) as the Director determines appropriate.
(d) Effective Date.--The amendments made by this section shall take
effect 1 year after the date of the enactment of this Act.
Purpose and Summary
On September 27, 2019, Representative Madeleine Dean
introduced H.R. 4545, the ``Private Loan Disability Discharge
Act of 2019,'' which would amend TILA to include a required
discharge of private student loans in the case of permanent
disability of the borrower. Cosigners will be discharged of
their obligation in the case of the borrower's permanent
disability, which is defined as the same standard set by the
discharge provision of federal student loans.
Background and Need for Legislation
Current law does not require that a private student loan
lender discharge the student debt of a borrower or their
cosigner in the case of permanent disability of the borrower.
The Truth in Lending Act (TILA) does currently require the
discharge of a student loan for the borrower and cosigner in
the case of death of the borrower. Beyond this requirement,
private student lenders are free to make any policy on
discharge of debt in their promissory notes. There is no
standard system for disability cancellations for private loans.
Federal student loans, on the other hand, provide greater
protections. Any loan that is issued by the federal government
can be discharged in the event of permanent total disability of
the borrower or in the event of death. Federal student loans
generally do not have cosigners, so there are no provisions
related to cosigners being discharged.
H.R. 4545 would bring private student loans in line with
federal student loans by amending the Truth in Lending Act
(TILA) to include a required discharge of private student loans
in the case of permanent and total disability of the borrower.
Additionally, H.R. 4545 would allow cosigners to be discharged
in the case of the borrower's permanent disability, and it
would require private lenders who are notified that the federal
government has discharged the federal student loans of a
borrower to discharge the private student loans of that same
borrower. Furthermore, H.R. 4545 would permanently exempt any
tax liability accrued from the discharge, which currently only
runs until January 1, 2026. Finally, H.R. 4545 would authorize
the CFPB to issue rules to implement these changes.
This bill uses the same definition for total and permanent
disability as the standard for discharging federal student
loans, which can occur in two ways. Firstly, a disabled
borrower would be eligible when the individual is unable to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that could
be expected to result in death; has lasted for a continuous
period of 60 months or more; or, can be expected to last for 60
months or more. Secondly, a disabled borrower would be eligible
when the individual has been determined by the Secretary of
Veterans Affairs to be unemployable due to a service-connected
disability.
Section-by-Section Analysis
Section 1. Short title
This section provides that H.R. 4545 may be cited as the
``Private Loan Disability Discharge Act of 2019''.
Section 2. Definition of employee affected by a shutdown
This section amends Section 140(g) of the Truth in Lending
Act (TILA) to include a required discharge of private student
loans in the case of permanent and total disability of the
borrower. It adds the cosigner discharge in the case of the
borrower's permanent disability. It requires private lenders
who are notified that the federal government has discharged the
federal student loans of a borrower to discharge the private
student loans of that same borrower. This section permanently
exempts any tax liability accrued from the discharge, which
currently only runs until January 1, 2026. When a loan is
discharged, it is considered income and could be taxed after
2026. This section also gives the Director of the Consumer
Financial Protection Bureau the power to issue rules to
implement these changes.
This bill uses the same definition for total and permanent
disability as the standard for discharging federal student
loans. Total and permanent disability is defined as the
individual is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment that could be expected to result in death,
has lasted or can be expected to last for a continuous period
of 60 months or more; or, the individual has been determined by
the Secretary of Veterans Affairs to be unemployable due to a
service-connected disability.
Hearings
For the purposes of section 103(i) of H. Res. 6 for the
116th Congress, on September 10, 2019, the Committee on
Financial Services held a hearing to consider a discussion
draft of H.R. 5287 entitled ``A $1.5 Trillion Crisis:
Protecting Student Borrowers and Holding Student Loan Servicers
Accountable'' to consider nine discussion drafts. Witnesses
consisted of Seth Frotman, Executive Director, Student Borrower
Protection Center; Persis Yu, Staff Attorney, National Consumer
Law Center; Ashley Harrington, Senior Policy Counsel, Center
for Responsible Lending; and Hasan Minhaj, Writer, Producer,
and Host; and Jason Delisle, Resident Fellow, American
Enterprise Institute
Committee Consideration
The Committee on Financial Services met in open session on
December 11, 2019, and ordered H.R. 4545 to be reported
favorably to the House without an amendment in the nature of a
substitute by a recorded vote of 32 yeas and 22 neas, a quorum
being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
following roll call votes occurred during the Committee's
consideration of H.R. 4545:
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
Statement of Performance Goals and Objectives
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 4545 are to ensure
that government employees, contractors, and other consumers
affected by a Federal government shutdown.
New Budget Authority and CBO Estimate
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has received the following estimate for
H.R. 4545 from the Director of the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 22, 2020.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4545, the Private
Loan Disability Discharge Act of 2019.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Nathaniel
Frentz.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The bill would
Amend the Truth in Lending Act to require
any private student loan to be discharged if the
student is determined to have a total and permanent
disability
Amend the Internal Revenue Code so that such
a discharge is not treated as income for tax purposes
Impose private-sector mandates by requiring
holders of private student loans to discharge certain
debts and prohibiting loan holders from attempting to
collect on those debts
Estimated budgetary effects would primarily stem from
A decrease in tax revenue from the provision
that would exempt from taxable income certain
discharges of student loan debt
The Congressional Budget Act of 1974, as amended, stipulates that
revenue estimates provided by the staff of the Joint Committee on
Taxation (JCT) will be the official estimates for all tax legislation
considered by Congress. As such, CBO incorporates those estimates into
its cost estimates of the effects of legislation. All of the estimates
for the tax provisions of H.R. 4545 were provided by JCT.
Bill summary: H.R. 4545 would amend the Truth in Lending
Act to require that any private student loan be discharged
(that is, forgiven) if the student is determined to have a
total and permanent disability. The bill also would amend the
Internal Revenue Code so that such a discharge would not be
treated as income for tax purposes.
Estimated Federal cost: The estimated budgetary effect of
H.R. 4545 is shown in Table 1.
TABLE 1.--CBO'S ESTIMATE OF THE STATUTORY PAY-AS-YOU-GO EFFECTS OF H.R. 4545, THE PRIVATE LOAN DISABILITY DISCHARGE ACT OF 2019, AS ORDERED REPORTED BY
THE HOUSE COMMITTEE ON FINANCIAL SERVICES ON DECEMBER 11, 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, millions of dollars--
--------------------------------------------------------------------------------------------
2020- 2020-
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2025 2030
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Increase in the Deficit
Pay-As-You-Go Effect....................................... 0 0 0 0 0 0 1 14 14 15 16 0 60
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Basis of estimate: The Congressional Budget Act of 1974, as
amended, stipulates that revenue estimates provided by the
staff of the Joint Committee on Taxation (JCT) are the official
estimates for all tax legislation considered by the Congress.
CBO therefore incorporates those estimates into its cost
estimates of the effects of legislation. All of the estimates
for the tax provisions of H.R. 4545 were provided by JCT.
Because the bill would not affect federal student loans,
CBO estimates that there would be no effect on federal
spending.
Revenues: JCT estimates that the bill would decrease
revenues by $60 million over the 2020-2030 period.
Uncertainty: The estimates provided here are uncertain
because they rely on underlying projections and other estimates
that are uncertain. Specifically, they are based in part on
CBO's economic projections for the next decade under current
law, and on estimates of changes in taxpayers' behavior in
response to changes in tax rules.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The changes in revenues that are subject to those
pay-as-you-go procedures are shown in Table 1.
Increase in long-term deficits: JCT estimates that enacting
H.R. 4545 would increase on-budget deficits by less than $5
billion in each of the four consecutive 10-year periods
beginning in 2030.
Mandates: The nontax provisions of H.R. 4545 contain
private-sector mandates as defined in the Unfunded Mandates
Reform Act (UMRA) by requiring debt holders to discharge the
debt of a student borrower who has been declared permanently
and totally disabled and prohibiting those debt-holders from
attempting to collect on the discharged debt. CBO estimates
that, given the small number of loans affected, the cost of the
mandate would fall below the annual private-sector threshold of
$168 million in 2020, adjusted annually for inflation.
CBO has determined that the nontax provisions of the bill
would not impose intergovernmental mandates as defined in UMRA.
JCT has determined that the tax provisions of the bill
would not impose intergovernmental or private-sector mandates.
Estimate prepared by: Revenues: Staff of the Joint
Committee on Taxation and Nathaniel Frentz; Mandates: Staff of
the Joint Committee on Taxation and Lilia Ledezma.
Estimate reviewed by: Joshua Shakin, Chief, Revenue
Estimating Unit; John McClelland, Director of Tax Analysis;
Susan Willie, Chief, Public and Private Mandates Unit; Theresa
Gullo, Director of Budget Analysis.
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 4545.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act, which is
attached.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended). The Committee adopts as
its own the estimate of federal mandates regarding H.R. 4545,
as amended, prepared by the Director of the Congressional
Budget Office.
Advisory Committee
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Application of Law to the Legislative Branch
Pursuant to section 102(b)(3) of the Congressional
Accountability Act, Pub. L. No. 104-1 H.R. 4545, as amended,
does not apply to terms and conditions of employment or to
access to public services or accommodations within the
legislative branch.
Earmark Statement
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 4545 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 4545 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, H.R. 4545, as reported, are shown as follows:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
TRUTH IN LENDING ACT
TITLE I--CONSUMER CREDIT COST DISCLOSURE
* * * * * * *
CHAPTER 2--CREDIT TRANSACTIONS
* * * * * * *
Sec. 140. Preventing unfair and deceptive private educational lending
practices and eliminating conflicts of interest
(a) Definitions.--As used in this section--
(1) the term ``cosigner''--
(A) means any individual who is liable for
the obligation of another without compensation,
regardless of how designated in the contract or
instrument with respect to that obligation,
other than an obligation under a private
education loan extended to consolidate a
consumer's pre-existing private education
loans;
(B) includes any person the signature of
which is requested as condition to grant credit
or to forbear on collection; and
(C) does not include a spouse of an
individual described in subparagraph (A), the
signature of whom is needed to perfect the
security interest in a loan.
(2) the term ``covered educational institution''--
(A) means any educational institution that
offers a postsecondary educational degree,
certificate, or program of study (including any
institution of higher education); and
(B) includes an agent, officer, or employee
of the educational institution;
(3) the term ``gift''--
(A)(i) means any gratuity, favor, discount,
entertainment, hospitality, loan, or other item
having more than a de minimis monetary value,
including services, transportation, lodging, or
meals, whether provided in kind, by purchase of
a ticket, payment in advance, or reimbursement
after the expense has been incurred; and
(ii) includes an item described in clause (i)
provided to a family member of an officer,
employee, or agent of a covered educational
institution, or to any other individual based
on that individual's relationship with the
officer, employee, or agent, if--
(I) the item is provided with the
knowledge and acquiescence of the
officer, employee, or agent; and
(II) the officer, employee, or agent
has reason to believe the item was
provided because of the official
position of the officer, employee, or
agent; and
(B) does not include--
(i) standard informational material
related to a loan, default aversion,
default prevention, or financial
literacy;
(ii) food, refreshments, training, or
informational material furnished to an
officer, employee, or agent of a
covered educational institution, as an
integral part of a training session or
through participation in an advisory
council that is designed to improve the
service of the private educational
lender to the covered educational
institution, if such training or
participation contributes to the
professional development of the
officer, employee, or agent of the
covered educational institution;
(iii) favorable terms, conditions,
and borrower benefits on a private
education loan provided to a student
employed by the covered educational
institution, if such terms, conditions,
or benefits are not provided because of
the student's employment with the
covered educational institution;
(iv) the provision of financial
literacy counseling or services,
including counseling or services
provided in coordination with a covered
educational institution, to the extent
that such counseling or services are
not undertaken to secure--
(I) applications for private
education loans or private
education loan volume;
(II) applications or loan
volume for any loan made,
insured, or guaranteed under
title IV of the Higher
Education Act of 1965 (20
U.S.C. 1070 et seq.); or
(III) the purchase of a
product or service of a
specific private educational
lender;
(v) philanthropic contributions to a
covered educational institution from a
private educational lender that are
unrelated to private education loans
and are not made in exchange for any
advantage related to private education
loans; or
(vi) State education grants,
scholarships, or financial aid funds
administered by or on behalf of a
State;
(4) the term ``institution of higher education'' has
the same meaning as in section 102 of the Higher
Education Act of 1965 (20 U.S.C. 1002);
(5) the term ``postsecondary educational expenses''
means any of the expenses that are included as part of
the cost of attendance of a student, as defined under
section 472 of the Higher Education Act of 1965 (20
U.S.C. 1087ll);
(6) the term ``preferred lender arrangement'' has the
same meaning as in section 151 of the Higher Education
Act of 1965;
(7) the term ``private educational lender'' means--
(A) a financial institution, as defined in
section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813) that solicits, makes, or
extends private education loans;
(B) a Federal credit union, as defined in
section 101 of the Federal Credit Union Act (12
U.S.C. 1752) that solicits, makes, or extends
private education loans; and
(C) any other person engaged in the business
of soliciting, making, or extending private
education loans;
(8) the term ``private education loan''--
(A) means a loan provided by a private
educational lender that--
(i) is not made, insured, or
guaranteed under of title IV of the
Higher Education Act of 1965 (20 U.S.C.
1070 et seq.); and
(ii) is issued expressly for
postsecondary educational expenses to a
borrower, regardless of whether the
loan is provided through the
educational institution that the
subject student attends or directly to
the borrower from the private
educational lender; and
(B) does not include an extension of credit
under an open end consumer credit plan, a
reverse mortgage transaction, a residential
mortgage transaction, or any other loan that is
secured by real property or a dwelling; and
(9) the term ``revenue sharing'' means an arrangement
between a covered educational institution and a private
educational lender under which--
(A) a private educational lender provides or
issues private education loans with respect to
students attending the covered educational
institution;
(B) the covered educational institution
recommends to students or others the private
educational lender or the private education
loans of the private educational lender; and
(C) the private educational lender pays a fee
or provides other material benefits, including
profit sharing, to the covered educational
institution in connection with the private
education loans provided to students attending
the covered educational institution or a
borrower acting on behalf of a student.
(b) Prohibition on Certain Gifts and Arrangements.--A private
educational lender may not, directly or indirectly--
(1) offer or provide any gift to a covered
educational institution in exchange for any advantage
or consideration provided to such private educational
lender related to its private education loan
activities; or
(2) engage in revenue sharing with a covered
educational institution.
(c) Prohibition on Co-Branding.--A private educational lender
may not use the name, emblem, mascot, or logo of the covered
educational institution, or other words, pictures, or symbols
readily identified with the covered educational institution, in
the marketing of private education loans in any way that
implies that the covered educational institution endorses the
private education loans offered by the private educational
lender.
(d) Advisory Board Compensation.--Any person who is employed
in the financial aid office of a covered educational
institution, or who otherwise has responsibilities with respect
to private education loans or other financial aid of the
institution, and who serves on an advisory board, commission,
or group established by a private educational lender or group
of such lenders shall be prohibited from receiving anything of
value from the private educational lender or group of lenders.
Nothing in this subsection prohibits the reimbursement of
reasonable expenses incurred by an employee of a covered
educational institution as part of their service on an advisory
board, commission, or group described in this subsection.
(e) Prohibition on Prepayment or Repayment Fees or Penalty.--
It shall be unlawful for any private educational lender to
impose a fee or penalty on a borrower for early repayment or
prepayment of any private education loan.
(f) Credit Card Protections for College Students.--
(1) Disclosure required.--An institution of higher
education shall publicly disclose any contract or other
agreement made with a card issuer or creditor for the
purpose of marketing a credit card.
(2) Inducements prohibited.--No card issuer or
creditor may offer to a student at an institution of
higher education any tangible item to induce such
student to apply for or participate in an open end
consumer credit plan offered by such card issuer or
creditor, if such offer is made--
(A) on the campus of an institution of higher
education;
(B) near the campus of an institution of
higher education, as determined by rule of the
Bureau; or
(C) at an event sponsored by or related to an
institution of higher education.
(3) Sense of the congress.--It is the sense of the
Congress that each institution of higher education
should consider adopting the following policies
relating to credit cards:
(A) That any card issuer that markets a
credit card on the campus of such institution
notify the institution of the location at which
such marketing will take place.
(B) That the number of locations on the
campus of such institution at which the
marketing of credit cards takes place be
limited.
(C) That credit card and debt education and
counseling sessions be offered as a regular
part of any orientation program for new
students of such institution.
(g) Additional Protections Relating to Borrower or Cosigner
of a Private Education Loan.--
(1) Prohibition on automatic default in case of death
or bankruptcy of non-student obligor.--With respect to
a private education loan involving a student obligor
and 1 or more cosigners, the creditor shall not declare
a default or accelerate the debt against the student
obligor on the sole basis of a bankruptcy or death of a
cosigner.
(2) Cosigner release [in case of death of
borrower].--
(A) Release of cosigner.--The holder of a
private education loan, when notified of the
death or total and permanent disability of a
student obligor, shall release within a
reasonable timeframe any cosigner from the
obligations of the cosigner under the private
education loan.
(B) Notification of release.--A holder or
servicer of a private education loan, as
applicable, shall within a reasonable time-
frame notify any cosigners for the private
education loan if a cosigner is released from
the obligations of the cosigner for the private
education loan under this paragraph.
(C) Designation of individual to act on
behalf of the borrower.--Any lender that
extends a private education loan shall provide
the student obligor an option to designate an
individual to have the legal authority to act
on behalf of the student obligor with respect
to the private education loan in the event of
the death or total and permanent disability of
the student obligor.
(3) Discharge in case of death or total and permanent
disability of borrower.--The holder of a private
education loan shall, when notified of the death or
total and permanent disability of a student obligor,
discharge the liability of the student obligor on the
loan and may not, after such notification--
(A) attempt to collect on the outstanding
liability of the student obligor; and
(B) in the case of total and permanent
disability, monitor the disability status of
the student obligor at any point after the date
of discharge.
(4) Total and permanent disability defined.--For the
purposes of this subsection and with respect to an
individual, the term ``total and permanent disability''
means the individual is totally and permanently
disabled, as such term is defined in section 685.102(b)
of title 34 of the Code of Federal Regulations.
(5) Private discharge in cases of certain discharge
for death or disability.--The holder of a private
education loan shall, when notified of the discharge of
liability of a student obligor on a loan described
under section 108(f)(5)(A) of the Internal Revenue Code
of 1986, discharge any liability of the student obligor
(and any cosigner) on any private education loan which
the private education loan holder holds and may not,
after such notification--
(A) attempt to collect on the outstanding
liability of the student obligor; and
(B) in the case of total and permanent
disability, monitor the disability status of
the student obligor at any point after the date
of discharge.
* * * * * * *
----------
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--COMPUTATION OF TAXABLE INCOME
* * * * * * *
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
* * * * * * *
SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.
(a) Exclusion from gross income.--
(1) In general.--Gross income does not include any
amount which (but for this subsection) would be
includible in gross income by reason of the discharge
(in whole or in part) of indebtedness of the taxpayer
if--
(A) the discharge occurs in a title 11 case,
(B) the discharge occurs when the taxpayer is
insolvent,
(C) the indebtedness discharged is qualified
farm indebtedness,
(D) in the case of a taxpayer other than a C
corporation, the indebtedness discharged is
qualified real property business indebtedness,
or
(E) the indebtedness discharged is qualified
principal residence indebtedness which is
discharged--
(i) before January 1, 2018, or
(ii) subject to an arrangement that
is entered into and evidenced in
writing before January 1, 2018.
(2) Coordination of exclusions.--
(A) Title 11 exclusion takes precedence.--
Subparagraphs (B), (C), (D), and (E) of
paragraph (1) shall not apply to a discharge
which occurs in a title 11 case.
(B) Insolvency exclusion takes precedence
over qualified farm exclusion and qualified
real property business exclusion.--
Subparagraphs (C) and (D) of paragraph (1)
shall not apply to a discharge to the extent
the taxpayer is insolvent.
(C) Principal residence exclusion takes
precedence over insolvency exclusion unless
elected otherwise.--Paragraph (1)(B) shall not
apply to a discharge to which paragraph (1)(E)
applies unless the taxpayer elects to apply
paragraph (1)(B) in lieu of paragraph (1)(E).
(3) Insolvency exclusion limited to amount of
insolvency.--In the case of a discharge to which
paragraph (1)(B) applies, the amount excluded under
paragraph (1)(B) shall not exceed the amount by which
the taxpayer is insolvent.
(b) Reduction of tax attributes.--
(1) In general.--The amount excluded from gross
income under subparagraph (A), (B), or (C) of
subsection (a)(1) shall be applied to reduce the tax
attributes of the taxpayer as provided in paragraph
(2).
(2) Tax attributes affected; order of reduction.--
Except as provided in paragraph (5), the reduction
referred to in paragraph (1) shall be made in the
following tax attributes in the following order:
(A) NOL.--Any net operating loss for the
taxable year of the discharge, and any net
operating loss carryover to such taxable year.
(B) General business credit.--Any carryover
to or from the taxable year of a discharge of
an amount for purposes for determining the
amount allowable as a credit under section 38
(relating to general business credit).
(C) Minimum tax credit.--The amount of the
minimum tax credit available under section
53(b) as of the beginning of the taxable year
immediately following the taxable year of the
discharge.
(D) Capital loss carryovers.--Any net capital
loss for the taxable year of the discharge, and
any capital loss carryover to such taxable year
under section 1212.
(E) Basis reduction.--
(i) In general.--The basis of the
property of the taxpayer.
(ii) Cross reference.--For provisions
for making the reduction described in
clause (i), see section 1017.
(F) Passive activity loss and credit
carryovers.--Any passive activity loss or
credit carryover of the taxpayer under section
469(b) from the taxable year of the discharge.
(G) Foreign tax credit carryovers.--Any
carryover to or from the taxable year of the
discharge for purposes of determining the
amount of the credit allowable under section
27.
(3) Amount of reduction.--
(A) In general.--Except as provided in
subparagraph (B), the reductions described in
paragraph (2) shall be one dollar for each
dollar excluded by subsection (a).
(B) Credit carryover reduction.--The
reductions described in subparagraphs (B), (C),
and (G) shall be 331/3 cents for each dollar
excluded by subsection (a). The reduction
described in subparagraph (F) in any passive
activity credit carryover shall be 331/3 cents
for each dollar excluded by subsection (a).
(4) Ordering rules.--
(A) Reductions made after determination of
tax for year.--The reductions described in
paragraph (2) shall be made after the
determination of the tax imposed by this
chapter for the taxable year of the discharge.
(B) Reductions under subparagraph (A) or (D)
of paragraph (2).--The reductions described in
subparagraph (A) or (D) of paragraph (2) (as
the case may be) shall be made first in the
loss for the taxable year of the discharge and
then in the carryovers to such taxable year in
the order of the taxable years from which each
such carryover arose.
(C) Reductions under subparagraphs (B) and
(G) of paragraph (2).--The reductions described
in subparagraphs (B) and (G) of paragraph (2)
shall be made in the order in which carryovers
are taken into account under this chapter for
the taxable year of the discharge.
(5) Election to apply reduction first against
depreciable property.--
(A) In general.--The taxpayer may elect to
apply any portion of the reduction referred to
in paragraph (1) to the reduction under section
1017 of the basis of the depreciable property
of the taxpayer.
(B) Limitation.--The amount to which an
election under subparagraph (A) applies shall
not exceed the aggregate adjusted bases of the
depreciable property held by the taxpayer as of
the beginning of the taxable year following the
taxable year in which the discharge occurs.
(C) Other tax attributes not reduced.--
Paragraph (2) shall not apply to any amount to
which an election under this paragraph applies.
(c) Treatment of discharge of qualified real property
business indebtedness.--
(1) Basis reduction.--
(A) In general.--The amount excluded from
gross income under subparagraph (D) of
subsection (a)(1) shall be applied to reduce
the basis of the depreciable real property of
the taxpayer.
(B) Cross reference.--For provisions making
the reduction described in subparagraph (A),
see section 1017.
(2) Limitations.--
(A) Indebtedness in excess of value.--The
amount excluded under subparagraph (D) of
subsection (a)(1) with respect to any qualified
real property business indebtedness shall not
exceed the excess (if any) of--
(i) the outstanding principal amount
of such indebtedness (immediately
before the discharge), over
(ii) the fair market value of the
real property described in paragraph
(3)(A) (as of such time), reduced by
the outstanding principal amount of any
other qualified real property business
indebtedness secured by such property
(as of such time).
(B) Overall limitation.--The amount excluded
under subparagraph (D) of subsection (a)(1)
shall not exceed the aggregate adjusted bases
of depreciable real property (determined after
any reductions under subsections (b) and (g))
held by the taxpayer immediately before the
discharge (other than depreciable real property
acquired in contemplation of such discharge).
(3) Qualified real property business indebtedness.--
The term ``qualified real property business
indebtedness'' means indebtedness which--
(A) was incurred or assumed by the taxpayer
in connection with real property used in a
trade or business and is secured by such real
property,
(B) was incurred or assumed before January 1,
1993, or if incurred or assumed on or after
such date, is qualified acquisition
indebtedness, and
(C) with respect to which such taxpayer makes
an election to have this paragraph apply.
Such term shall not include qualified farm
indebtedness. Indebtedness under subparagraph (B) shall
include indebtedness resulting from the refinancing of
indebtedness under subparagraph (B) (or this sentence),
but only to the extent it does not exceed the amount of
the indebtedness being refinanced.
(4) Qualified acquisition indebtedness.--For purposes
of paragraph (3)(B), the term ``qualified acquisition
indebtedness'' means, with respect to any real property
described in paragraph (3)(A), indebtedness incurred or
assumed to acquire, construct, reconstruct, or
substantially improve such property.
(5) Regulations.--The Secretary shall issue such
regulations as are necessary to carry out this
subsection, including regulations preventing the abuse
of this subsection through cross-collateralization or
other means.
(d) Meaning of terms; special rules relating to certain
provisions.--
(1) Indebtedness of taxpayer.--For purposes of this
section, the term ``indebtedness of the taxpayer''
means any indebtedness--
(A) for which the taxpayer is liable, or
(B) subject to which the taxpayer holds
property.
(2) Title 11 case.--For purposes of this section, the
term ``title 11 case'' means a case under title 11 of
the United States Code (relating to bankruptcy), but
only if the taxpayer is under the jurisdiction of the
court in such case and the discharge of indebtedness is
granted by the court or is pursuant to a plan approved
by the court.
(3) Insolvent.--For purposes of this section, the
term ``insolvent'' means the excess of liabilities over
the fair market value of assets. With respect to any
discharge, whether or not the taxpayer is insolvent,
and the amount by which the taxpayer is insolvent,
shall be determined on the basis of the taxpayer's
assets and liabilities immediately before the
discharge.
[(4) Repealed. Pub. L. 99-514, title VIII, Sec.
822(b)(3)(A), Oct. 22, 1986, 100 Stat. 2373].--
(5) Depreciable property.--The term ``depreciable
property'' has the same meaning as when used in section
1017.
(6) Certain provisions to be applied at partner
level.--In the case of a partnership, subsections (a),
(b), (c), and (g) shall be applied at the partner
level.
(7) Special rules for S corporation.--
(A) Certain provisions to be applied at
corporate level.--In the case of an S
corporation, subsections (a), (b), (c), and (g)
shall be applied at the corporate level,
including by not taking into account under
section 1366(a) any amount excluded under
subsection (a) of this section.
(B) Reduction in carryover of disallowed
losses and deductions.--In the case of an S
corporation, for purposes of subparagraph (A)
of subsection (b)(2), any loss or deduction
which is disallowed for the taxable year of the
discharge under section 1366(d)(1) shall be
treated as a net operating loss for such
taxable year. The preceding sentence shall not
apply to any discharge to the extent that
subsection (a)(1)(D) applies to such discharge.
(C) Coordination with basis adjustments under
section 1367(b)(2).--For purposes of subsection
(e)(6), a shareholder's adjusted basis in
indebtedness of an S corporation shall be
determined without regard to any adjustments
made under section 1367(b)(2).
(8) Reductions of tax attributes in title 11 cases of
individuals to be made by estate.--In any case under
chapter 7 or 11 of title 11 of the United States Code
to which section 1398 applies, for purposes of
paragraphs (1) and (5) of subsection (b) the estate
(and not the individual) shall be treated as the
taxpayer. The preceding sentence shall not apply for
purposes of applying section 1017 to property
transferred by the estate to the individual.
(9) Time for making election, etc..--
(A) Time.--An election under paragraph (5) of
subsection (b) or under paragraph (3)(C) of
subsection (c) shall be made on the taxpayer's
return for the taxable year in which the
discharge occurs or at such other time as may
be permitted in regulations prescribed by the
Secretary.
(B) Revocation only with consent.--An
election referred to in subparagraph (A), once
made, may be revoked only with the consent of
the Secretary.
(C) Manner.--An election referred to in
subparagraph (A) shall be made in such manner
as the Secretary may by regulations prescribe.
(10) Cross reference.--For provision that no
reduction is to be made in the basis of exempt property
of an individual debtor, see section 1017(c)(1).
(e) General rules for discharge of indebtedness (including
discharges not in title 11 cases or insolvency).--For purposes
of this title--
(1) No other insolvency exception.--Except as
otherwise provided in this section, there shall be no
insolvency exception from the general rule that gross
income includes income from the discharge of
indebtedness.
(2) Income not realized to extent of lost
deductions.--No income shall be realized from the
discharge of indebtedness to the extent that payment of
the liability would have given rise to a deduction.
(3) Adjustments for unamortized premium and
discount.--The amount taken into account with respect
to any discharge shall be properly adjusted for
unamortized premium and unamortized discount with
respect to the indebtedness discharged.
(4) Acquisition of indebtedness by person related to
debtor.--
(A) Treated as acquisition by debtor.--For
purposes of determining income of the debtor
from discharge of indebtedness, to the extent
provided in regulations prescribed by the
Secretary, the acquisition of outstanding
indebtedness by a person bearing a relationship
to the debtor specified in section 267(b) or
707(b)(1) from a person who does not bear such
a relationship to the debtor shall be treated
as the acquisition of such indebtedness by the
debtor. Such regulations shall provide for such
adjustments in the treatment of any subsequent
transactions involving the indebtedness as may
be appropriate by reason of the application of
the preceding sentence.
(B) Members of family.--For purposes of this
paragraph, sections 267(b) and 707(b)(1) shall
be applied as if section 267(c)(4) provided
that the family of an individual consists of
the individual's spouse, the individual's
children, grandchildren, and parents, and any
spouse of the individual's children or
grandchildren.
(C) Entities under common control treated as
related.--For purposes of this paragraph, two
entities which are treated as a single employer
under subsection (b) or (c) of section 414
shall be treated as bearing a relationship to
each other which is described in section
267(b).
(5) Purchase-money debt reduction for solvent debtor
treated as price reduction.--If--
(A) the debt of a purchaser of property to
the seller of such property which arose out of
the purchase of such property is reduced,
(B) such reduction does not occur--
(i) in a title 11 case, or
(ii) when the purchaser is insolvent,
and
(C) but for this paragraph, such reduction
would be treated as income to the purchaser
from the discharge of indebtedness,
then such reduction shall be treated as a purchase
price adjustment.
(6) Indebtedness contributed to capital.--Except as
provided in regulations, for purposes of determining
income of the debtor from discharge of indebtedness, if
a debtor corporation acquires its indebtedness from a
shareholder as a contribution to capital--
(A) section 118 shall not apply, but
(B) such corporation shall be treated as
having satisfied the indebtedness with an
amount of money equal to the shareholder's
adjusted basis in the indebtedness.
(7) Recapture of gain on subsequent sale of stock.--
(A) In general.--If a creditor acquires stock
of a debtor corporation in satisfaction of such
corporation's indebtedness, for purposes of
section 1245--
(i) such stock (and any other
property the basis of which is
determined in whole or in part by
reference to the adjusted basis of such
stock) shall be treated as section 1245
property,
(ii) the aggregate amount allowed to
the creditor--
(I) as deductions under
subsection (a) or (b) of
section 166 (by reason of the
worthlessness or partial
worthlessness of the
indebtedness), or
(II) as an ordinary loss on
the exchange,
shall be treated as an amount allowed as a
deduction for depreciation, and
(iii) an exchange of such stock
qualifying under section 354(a),
355(a), or 356(a) shall be treated as
an exchange to which section 1245(b)(3)
applies.
The amount determined under clause (ii) shall
be reduced by the amount (if any) included in
the creditor's gross income on the exchange.
(B) Special rule for cash basis taxpayers.--
In the case of any creditor who computes his
taxable income under the cash receipts and
disbursements method, proper adjustment shall
be made in the amount taken into account under
clause (ii) of subparagraph (A) for any amount
which was not included in the creditor's gross
income but which would have been included in
such gross income if such indebtedness had been
satisfied in full.
(C) Stock of parent corporation.--For
purposes of this paragraph, stock of a
corporation in control (within the meaning of
section 368(c)) of the debtor corporation shall
be treated as stock of the debtor corporation.
(D) Treatment of successor corporation.--For
purposes of this paragraph, the term ``debtor
corporation'' includes a successor corporation.
(E) Partnership rule.--Under regulations
prescribed by the Secretary, rules similar to
the rules of the foregoing subparagraphs of
this paragraph shall apply with respect to the
indebtedness of a partnership.
(8) Indebtedness satisfied by corporate stock or
partnership interest.--For purposes of determining
income of a debtor from discharge of indebtedness, if--
(A) a debtor corporation transfers stock, or
(B) a debtor partnership transfers a capital
or profits interest in such partnership,
to a creditor in satisfaction of its recourse or
nonrecourse indebtedness, such corporation or
partnership shall be treated as having satisfied the
indebtedness with an amount of money equal to the fair
market value of the stock or interest. In the case of
any partnership, any discharge of indebtedness income
recognized under this paragraph shall be included in
the distributive shares of taxpayers which were the
partners in the partnership immediately before such
discharge.
(9) Discharge of indebtedness income not taken into
account in determining whether entity meets REIT
qualifications.--Any amount included in gross income by
reason of the discharge of indebtedness shall not be
taken into account for purposes of paragraphs (2) and
(3) of section 856(c).
(10) Indebtedness satisfied by issuance of debt
instrument.--
(A) In general.--For purposes of determining
income of a debtor from discharge of
indebtedness, if a debtor issues a debt
instrument in satisfaction of indebtedness,
such debtor shall be treated as having
satisfied the indebtedness with an amount of
money equal to the issue price of such debt
instrument.
(B) Issue price.--For purposes of
subparagraph (A), the issue price of any debt
instrument shall be determined under sections
1273 and 1274. For purposes of the preceding
sentence, section 1273(b)(4) shall be applied
by reducing the stated redemption price of any
instrument by the portion of such stated
redemption price which is treated as interest
for purposes of this chapter.
(f) Student loans.--
(1) In general.--In the case of an individual, gross
income does not include any amount which (but for this
subsection) would be includible in gross income by
reason of the discharge (in whole or in part) of any
student loan if such discharge was pursuant to a
provision of such loan under which all or part of the
indebtedness of the individual would be discharged if
the individual worked for a certain period of time in
certain professions for any of a broad class of
employers.
(2) Student loan.--For purposes of this subsection,
the term ``student loan'' means any loan to an
individual to assist the individual in attending an
educational organization described in section
170(b)(1)(A)(ii) made by--
(A) the United States, or an instrumentality
or agency thereof,
(B) a State, territory, or possession of the
United States, or the District of Columbia, or
any political subdivision thereof,
(C) a public benefit corporation--
(i) which is exempt from taxation
under section 501(c)(3),
(ii) which has assumed control over a
State, county, or municipal hospital,
and
(iii) whose employees have been
deemed to be public employees under
State law, or
(D) any educational organization described in
section 170(b)(1)(A)(ii) if such loan is made--
(i) pursuant to an agreement with any
entity described in subparagraph (A),
(B), or (C) under which the funds from
which the loan was made were provided
to such educational organization, or
(ii) pursuant to a program of such
educational organization which is
designed to encourage its students to
serve in occupations with unmet needs
or in areas with unmet needs and under
which the services provided by the
students (or former students) are for
or under the direction of a
governmental unit or an organization
described in section 501(c)(3) and
exempt from tax under section 501(a).
The term ``student loan'' includes any loan made by an
educational organization described in section
170(b)(1)(A)(ii) or by an organization exempt from tax
under section 501(a) to refinance a loan to an
individual to assist the individual in attending any
such educational organization but only if the
refinancing loan is pursuant to a program of the
refinancing organization which is designed as described
in subparagraph (D)(ii).
(3) Exception for discharges on account of services
performed for certain lenders.--Paragraph (1) shall not
apply to the discharge of a loan made by an
organization described in paragraph (2)(D) if the
discharge is on account of services performed for
either such organization.
(4) Payments under national health service corps loan
repayment program and certain state loan repayment
programs.--In the case of an individual, gross income
shall not include any amount received under section
338B(g) of the Public Health Service Act, under a State
program described in section 338I of such Act, or under
any other State loan repayment or loan forgiveness
program that is intended to provide for the increased
availability of health care services in underserved or
health professional shortage areas (as determined by
such State).
(5) Discharges on account of death or disability.--
(A) In general.--In the case of an
individual, gross income does not include any
amount which (but for this subsection) would be
includible in gross income for such taxable
year by reasons of the discharge (in whole or
in part) of any loan described in subparagraph
(B) after December 31, 2017[, and before
January 1, 2026], if such discharge was--
(i) pursuant to subsection (a) or (d)
of section 437 of the Higher Education
Act of 1965 or the parallel benefit
under part D of title IV of such Act
(relating to the repayment of loan
liability),
(ii) pursuant to section 464(c)(1)(F)
of such Act, [or]
(iii) pursuant to paragraph (3) or
(5) of section 140(g) of the Truth in
Lending Act, or
[(iii)] (iv) otherwise discharged on
account of the death or total and
permanent disability of the student.
(B) Loans described.--A loan is described in
this subparagraph if such loan is--
(i) a student loan (as defined in
paragraph (2)), or
(ii) a private education loan (as
defined in section 140(7) of the
Consumer Credit Protection Act (15
U.S.C. 1650(7))).
(g) Special rules for discharge of qualified farm
indebtedness.--
(1) Discharge must be by qualified person.--
(A) In general.--Subparagraph (C) of
subsection (a)(1) shall apply only if the
discharge is by a qualified person.
(B) Qualified person.--For purposes of
subparagraph (A), the term ``qualified person''
has the meaning given to such term by section
49(a)(1)(D)(iv); except that such term shall
include any Federal, State, or local government
or agency or instrumentality thereof.
(2) Qualified farm indebtedness.--For purposes of
this section, indebtedness of a taxpayer shall be
treated as qualified farm indebtedness if--
(A) such indebtedness was incurred directly
in connection with the operation by the
taxpayer of the trade or business of farming,
and
(B) 50 percent or more of the aggregate gross
receipts of the taxpayer for the 3 taxable
years preceding the taxable year in which the
discharge of such indebtedness occurs is
attributable to the trade or business of
farming.
(3) Amount excluded cannot exceed sum of tax
attributes and business and investment assets.--
(A) In general.--The amount excluded under
subparagraph (C) of subsection (a)(1) shall not
exceed the sum of--
(i) the adjusted tax attributes of
the taxpayer, and
(ii) the aggregate adjusted bases of
qualified property held by the taxpayer
as of the beginning of the taxable year
following the taxable year in which the
discharge occurs.
(B) Adjusted tax attributes.--For purposes of
subparagraph (A), the term ``adjusted tax
attributes'' means the sum of the tax
attributes described in subparagraphs (A), (B),
(C), (D), (F), and (G) of subsection (b)(2)
determined by taking into account $3 for each
$1 of the attributes described in subparagraphs
(B), (C), and (G) of subsection (b)(2) and the
attribute described in subparagraph (F) of
subsection (b)(2) to the extent attributable to
any passive activity credit carryover.
(C) Qualified property.--For purposes of this
paragraph, the term ``qualified property''
means any property which is used or is held for
use in a trade or business or for the
production of income.
(D) Coordination with insolvency exclusion.--
For purposes of this paragraph, the adjusted
basis of any qualified property and the amount
of the adjusted tax attributes shall be
determined after any reduction under subsection
(b) by reason of amounts excluded from gross
income under subsection (a)(1)(B).
(h) Special rules relating to qualified principal residence
indebtedness.--
(1) Basis reduction.--The amount excluded from gross
income by reason of subsection (a)(1)(E) shall be
applied to reduce (but not below zero) the basis of the
principal residence of the taxpayer.
(2) Qualified principal residence indebtedness.--For
purposes of this section, the term ``qualified
principal residence indebtedness'' means acquisition
indebtedness (within the meaning of section
163(h)(3)(B), applied by substituting ``$2,000,000
($1,000,000'' for ``$1,000,000 ($500,000'' in clause
(ii) thereof) with respect to the principal residence
of the taxpayer.
(3) Exception for certain discharges not related to
taxpayer's financial condition.--Subsection (a)(1)(E)
shall not apply to the discharge of a loan if the
discharge is on account of services performed for the
lender or any other factor not directly related to a
decline in the value of the residence or to the
financial condition of the taxpayer.
(4) Ordering rule.--If any loan is discharged, in
whole or in part, and only a portion of such loan is
qualified principal residence indebtedness, subsection
(a)(1)(E) shall apply only to so much of the amount
discharged as exceeds the amount of the loan (as
determined immediately before such discharge) which is
not qualified principal residence indebtedness.
(5) Principal residence.--For purposes of this
subsection, the term ``principal residence'' has the
same meaning as when used in section 121.
(i) Deferral and ratable inclusion of income arising from
business indebtedness discharged by the reacquisition of a debt
instrument.--
(1) In general.--At the election of the taxpayer,
income from the discharge of indebtedness in connection
with the reacquisition after December 31, 2008, and
before January 1, 2011, of an applicable debt
instrument shall be includible in gross income ratably
over the 5-taxable-year period beginning with--
(A) in the case of a reacquisition occurring
in 2009, the fifth taxable year following the
taxable year in which the reacquisition occurs,
and
(B) in the case of a reacquisition occurring
in 2010, the fourth taxable year following the
taxable year in which the reacquisition occurs.
(2) Deferral of deduction for original issue discount
in debt for debt exchanges.--
(A) In general.--If, as part of a
reacquisition to which paragraph (1) applies,
any debt instrument is issued for the
applicable debt instrument being reacquired (or
is treated as so issued under subsection (e)(4)
and the regulations thereunder) and there is
any original issue discount determined under
subpart A of part V of subchapter P of this
chapter with respect to the debt instrument so
issued--
(i) except as provided in clause
(ii), no deduction otherwise allowable
under this chapter shall be allowed to
the issuer of such debt instrument with
respect to the portion of such original
issue discount which--
(I) accrues before the 1st
taxable year in the 5-taxable-
year period in which income
from the discharge of
indebtedness attributable to
the reacquisition of the debt
instrument is includible under
paragraph (1), and
(II) does not exceed the
income from the discharge of
indebtedness with respect to
the debt instrument being
reacquired, and
(ii) the aggregate amount of
deductions disallowed under clause (i)
shall be allowed as a deduction ratably
over the 5-taxable-year period
described in clause (i)(I).
If the amount of the original issue discount
accruing before such 1st taxable year exceeds
the income from the discharge of indebtedness
with respect to the applicable debt instrument
being reacquired, the deductions shall be
disallowed in the order in which the original
issue discount is accrued.
(B) Deemed debt for debt exchanges.--For
purposes of subparagraph (A), if any debt
instrument is issued by an issuer and the
proceeds of such debt instrument are used
directly or indirectly by the issuer to
reacquire an applicable debt instrument of the
issuer, the debt instrument so issued shall be
treated as issued for the debt instrument being
reacquired. If only a portion of the proceeds
from a debt instrument are so used, the rules
of subparagraph (A) shall apply to the portion
of any original issue discount on the newly
issued debt instrument which is equal to the
portion of the proceeds from such instrument
used to reacquire the outstanding instrument.
(3) Applicable debt instrument.--For purposes of this
subsection--
(A) Applicable debt instrument.--The term
``applicable debt instrument'' means any debt
instrument which was issued by--
(i) a C corporation, or
(ii) any other person in connection
with the conduct of a trade or business
by such person.
(B) Debt instrument.--The term ``debt
instrument'' means a bond, debenture, note,
certificate, or any other instrument or
contractual arrangement constituting
indebtedness (within the meaning of section
1275(a)(1)).
(4) Reacquisition.--For purposes of this subsection--
(A) In general.--The term ``reacquisition''
means, with respect to any applicable debt
instrument, any acquisition of the debt
instrument by--
(i) the debtor which issued (or is
otherwise the obligor under) the debt
instrument, or
(ii) a related person to such debtor.
(B) Acquisition.--The term ``acquisition''
shall, with respect to any applicable debt
instrument, include an acquisition of the debt
instrument for cash, the exchange of the debt
instrument for another debt instrument
(including an exchange resulting from a
modification of the debt instrument), the
exchange of the debt instrument for corporate
stock or a partnership interest, and the
contribution of the debt instrument to capital.
Such term shall also include the complete
forgiveness of the indebtedness by the holder
of the debt instrument.
(5) Other definitions and rules.--For purposes of
this subsection--
(A) Related person.--The determination of
whether a person is related to another person
shall be made in the same manner as under
subsection (e)(4).
(B) Election.--
(i) In general.--An election under
this subsection with respect to any
applicable debt instrument shall be
made by including with the return of
tax imposed by chapter 1 for the
taxable year in which the reacquisition
of the debt instrument occurs a
statement which--
(I) clearly identifies such
instrument, and
(II) includes the amount of
income to which paragraph (1)
applies and such other
information as the Secretary
may prescribe.
(ii) Election irrevocable.--Such
election, once made, is irrevocable.
(iii) Pass-thru entities.--In the
case of a partnership, S corporation,
or other pass-thru entity, the election
under this subsection shall be made by
the partnership, the S corporation, or
other entity involved.
(C) Coordination with other exclusions.--If a
taxpayer elects to have this subsection apply
to an applicable debt instrument, subparagraphs
(A), (B), (C), and (D) of subsection (a)(1)
shall not apply to the income from the
discharge of such indebtedness for the taxable
year of the election or any subsequent taxable
year.
(D) Acceleration of deferred items.--
(i) In general.--In the case of the
death of the taxpayer, the liquidation
or sale of substantially all the assets
of the taxpayer (including in a title
11 or similar case), the cessation of
business by the taxpayer, or similar
circumstances, any item of income or
deduction which is deferred under this
subsection (and has not previously been
taken into account) shall be taken into
account in the taxable year in which
such event occurs (or in the case of a
title 11 or similar case, the day
before the petition is filed).
(ii) Special rule for pass-thru
entities.--The rule of clause (i) shall
also apply in the case of the sale or
exchange or redemption of an interest
in a partnership, S corporation, or
other pass-thru entity by a partner,
shareholder, or other person holding an
ownership interest in such entity.
(6) Special rule for partnerships.--In the case of a
partnership, any income deferred under this subsection
shall be allocated to the partners in the partnership
immediately before the discharge in the manner such
amounts would have been included in the distributive
shares of such partners under section 704 if such
income were recognized at such time. Any decrease in a
partner's share of partnership liabilities as a result
of such discharge shall not be taken into account for
purposes of section 752 at the time of the discharge to
the extent it would cause the partner to recognize gain
under section 731. Any decrease in partnership
liabilities deferred under the preceding sentence shall
be taken into account by such partner at the same time,
and to the extent remaining in the same amount, as
income deferred under this subsection is recognized.
(7) Secretarial authority.--The Secretary may
prescribe such regulations, rules, or other guidance as
may be necessary or appropriate for purposes of
applying this subsection, including--
(A) extending the application of the rules of
paragraph (5)(D) to other circumstances where
appropriate,
(B) requiring reporting of the election (and
such other information as the Secretary may
require) on returns of tax for subsequent
taxable years, and
(C) rules for the application of this
subsection to partnerships, S corporations, and
other pass-thru entities, including for the
allocation of deferred deductions.
* * * * * * *
MINORITY VIEWS
H.R. 4545 attempts to finish what the Democrats didn't get
done in 2010 when they nationalized the student loan program.
This bill is another effort to do away with the private student
loan market. It targets the terms and conditions of contracts
negotiated by private student lenders and borrowers and throws
them out the window--substituting Congress' wisdom for that of
private parties.
H.R. 4545, the Private Loan Disability Discharge Act of
2019, would rewrite existing contracts regardless of the terms
and conditions negotiated by the parties. H.R. 4545 would
automatically require lenders to discharge student loan debt in
the event borrowers become totally and permanently disabled.
In 2010, the Democrats nationalized the student loan
program. Since then, Democrats have been focused on crowding
out the few remaining private student lenders. The current
practice in the private loan industry already allows a student
borrower who becomes totally and permanently disabled to seek
discharge of a student loan debt if a physician certifies the
disability.
Furthermore, in a competitive market, student loan
borrowers are free to choose between lenders who observe
similar practices and those who do not. Private lenders and
borrowers are best positioned to weigh the trade-offs of their
decisions. If enacted, H.R. 4545 will increase compliance costs
for lenders, diminish the market value of existing loans, and
have the downstream effect of making credit more expensive for
student borrowers.
Democrats are unhappy that the private student loan
industry is thriving. The private student loan industry
experiences a lower rate of default than the federal loan
system at 2.4 percent compared to 18 percent respectively.
Rep. Ann Wagner (R-MO) offered an amendment to H.R. 4545
that preserves the ability of private student loan lenders to
offer competitive terms and conditions that would not disrupt
existing agreements. Specifically, the amendment would allow
the estate of a deceased or permanently disabled student loan
borrower to request a discharge of the student loan debt, as
opposed to requiring that all contracts include such a term.
Democrats rejected the amendment on a party line vote of 32-25.
H.R. 4545 will not make the cost of student borrowing
cheaper. It does not address the underlying student loan debt
crisis. It will not make a college education cheaper to pursue.
Rather this bill is another deliberate effort to limit the
availability of private sector lending. It is another targeted
effort by Democrats to substitute the wisdom of the private
sector with that of Congress. Finally, it is another deliberate
effort to increase the cost of lending in the private student
loan industry program. This bill is an overt political attempt
to fix a problem that doesn't exist.
For these reasons, Committee Republicans oppose H.R. 4545.
Patrick T. McHenry.
Bill Posey.
Bill Huizenga.
Ann Wagner.
Scott R. Tipton.
J. French Hill.
Lee M. Zeldin.
Alexander X. Mooney.
Ted Budd.
Trey Hollingsworth.
John W. Rose.
Lance Gooden.
William R. Timmons IV.
Frank D. Lucas.
Blaine Luetkemeyer.
Steve Stivers.
Andy Barr.
Roger Williams.
Tom Emmer.
Barry Loudermilk.
Warren Davidson.
David Kustoff.
Anthony Gonzalez.
Bryan Steil.
Denver Riggleman.
Van Taylor.
[all]