H.B. NO.














relating to student loan debt.





SECTION 1. Currently, the amount of student loan debt in the United States is one trillion dollars spread out over thirty-seven million borrowers. On average, a student carries over $30,000 in debt upon entering the work force, which burdens young graduates starting careers, families, and post-graduate schooling. Frequently, graduates with heavy student loan debts cannot choose public-interest or public-service careers, because the pay for such jobs is insufficient to repay their student loans.

Student loan debt discourages millions of young Americans from buying cars and homes, making potentially beneficial career moves that involve some risk, saving money for retirement, and marrying and starting families.

For decades, student loan debt in Hawaii has been two-thirds the national average. Two major factors have contributed to the lower-than-average student loan debt in Hawaii:

(1) Strong financial support by the State for the University of Hawaii system kept tuition among the lowest in the nation; and

(2) Local private institutions of higher education were among the most affordable in the nation.

However, in recent years, state support for the University of Hawaii has decreased, and tuition at the University of Hawaii and all major local colleges and universities has increased at many times the inflation rate.

Although the student loan interest deduction under the Internal Revenue Code provides a greater benefit to those with high-interest student loans, this Act assists individuals with low-interest loans but high amounts of debt. Under current law, the student loan interest deduction is capped at $2,500 per year of taxable income.

Allowing for student loan debt to be paid by pre-tax income would help alleviate the financial burden for borrowers and help maintain the average student debt in Hawaii at a lower-than-average amount. Rising educational costs create larger debt for students, but allowing for the payment of student loan debt with pre-tax income will combat those rising costs, assist borrowers in repaying their loans, and benefit creditors by helping them recover the money loaned.

The purpose of this Act is to provide relief for individuals burdened by student loan debt by allowing the payment of student loan debt with pre-tax income.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235-   Payment of student loan debt. (a) There shall be allowed as a deduction from gross income the amount, not to exceed $        , during the taxable year by an individual taxpayer for the repayment of a qualified student loan. A deduction not to exceed $         shall be allowed for a married couple filing a joint return. In the case of a married couple filing separate returns, the sum of the deductions allowable to each of them for the taxable year shall not exceed $        , or $         for a joint return.

(b) The department of taxation shall prepare any forms necessary to effectuate this chapter.

(c) The department of taxation may adopt rules under chapter 91 necessary to effectuate this chapter.

(d) As used in this section:

"Academic period" includes a semester, trimester, quarter, or other period of study, such as a summer school session, as reasonably determined by an educational institution.

"Eligible educational institution" means any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the United States Department of Education during the academic period during which the student loan was incurred. "Eligible educational institution" also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers post-graduate training.

"Eligible student" means a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.

"Enrolled at least half-time" means a student who takes at least half the normal full-time work load for the student's course of study in any academic period; provided that the standard for determining half of the normal full-time work load may not be lower than any of those established by the United States Department of Education under the Higher Education Act of 1965.

"Qualified education expenses" means the total costs of attending an eligible educational institution, including graduate school, such as:

(1) Tuition and fees;

(2) Room and board;

(3) Books, supplies, and equipment; and

(4) Other necessary expenses, such as transportation;

provided that the cost of room and board qualifies only to the extent that it does not exceed the allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance for federal financial aid purposes for a particular academic period and living arrangement of the student, or if the cost of room and board is greater, the actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

"Qualified student loan" means a student loan that:

(1) An individual takes out solely to pay qualified education expenses that were for the individual, the individual's spouse, or a person who was a dependent of the individual at the time that the student loan was taken;

(2) Was paid or incurred within a reasonable period of time before or after the individual took out the loan; and

(3) Was for education provided during an academic period for an eligible student."

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. New statutory material is underscored.
SECTION 6. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2017.








Report Title:

Student Loan Debt; Payment with Pre-tax Income.



Allows individuals to pay student loan debt with pre-tax income.




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