Bipartisan Bill Would Eliminate Federal Student Loan Tax

The bill eliminates the origination fee in federal student loans, leading to more money in students' pockets.
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Published on April 4, 2023
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  • The federal government currently charges a 1% origination fee on federal student loans.
  • Legislators called it an "outdated tax" that should be eliminated.
  • Student Loan Tax Elimination Act co-sponsors include four Democrats, two Republicans, and one Independent.

Lawmakers may soon eliminate an "outdated" fee that skims 1% off the top of all federal student loans.

A bipartisan group of U.S. senators introduced the Student Loan Tax Elimination Act on Tuesday. The bill would do away with the 1% "origination fee" applied to federal student loans the moment the government disburses each loan to students.

In short, this act would mean students get the full loan total deposited into their accounts, rather than 99% of the figure.

Students who take out a $100 federal student loan currently would only see $99 hit their bank accounts when disbursed due to the 1% origination fee. However, when they check how much they owe on the loan, they'll still see a $100 balance due, even though they didn't receive the full amount.

Students would instead get the total $100 if the Student Loan Tax Elimination Act passes.

The fee dates back to before the federal government began originating its own student loans and relied on private-sector partners.

The bill would impact loans disbursed on or after March 27, 2022, according to the bill's text.

It's been difficult to find higher education issues with bipartisan support recently, but the Student Loan Tax Elimination Act is a rare example of legislators working across the aisle for a student loan issue. The bill's Senate co-sponsors include four Democrats, two Republicans, and one Independent.

The bill's sponsors include:

  • Democrat Chris Van Hollen of Maryland
  • Republican Mike Braun of Indiana
  • Independent Kyrsten Sinema
  • Democrat Elizabeth Warren of Massachusetts
  • Republican Josh Hawley of Missouri
  • Democrat Tim Kaine of Virginia
  • Democrat Chris Coons of Delaware

"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 Getting rid of this outdated tax is one simple, bipartisan step we can take to ease the burden students face as we work to make college more affordable for everyone," Van Hollen said in a statement.

"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," Braun added. "I'm proud to lead this bipartisan bill to eliminate a tax that is not good for borrowers or taxpayers."

The National Association of Student Financial Aid Administrators (NASFAA) voiced support for the proposal.

"Student loan origination fees are a relic of bank-based lending and have created a complex and unnecessary financial burden for students," NASFAA President and CEO Justin Draeger said in a statement. "Eliminating them will not only decrease the cost of college for students, but will also help students and families better understand the student loan program."