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POLICY BRIEF
Research Department
Minnesota House of Representatives
600 State Office Building
St. Paul, MN 55155
Sean Williams, Legislative Analyst, 651-296-5053
Nathan Hopkins, Legislative Analyst, 651-296-5056 Updated: July 2018
Minnesota’s Student Loan Forgiveness and
Repayment Assistance Programs
The state of Minnesota funds six student loan forgiveness or repayment assistance
programs. This publication describes these programs in detail and discusses
policy issues related to their administration and design. It also lists loan
forgiveness programs operating in other states.
Contents
Overview of Student Loan Forgiveness Programs ...................................................... 2
Minnesota’s State-funded Loan Forgiveness and Repayment
Assistance Programs ........................................................................................ 3
Policy Considerations for Student Loan
Forgiveness and
Repayment Assistance Prog
rams ..................................................................... 9
Appendix: State-funded Loan Forgiveness Programs in Other States ....................... 15
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 2
Overview of Student Loan Forgiveness Programs
The state of Minnesota directly funds six programs that offer student loan forgiveness or
repayment assistance to residents working in particular professions or geographic regions. These
programs are as follows:
• The Health Professional Education Loan Forgiveness Program, administered by the
Minnesota Department of Health (MDH)
• The Minnesota State Loan Repayment Program, administered by MDH
• The Large Animal Veterinarian Loan Forgiveness Program, statutorily assigned to
the Office of Higher Education (OHE), but administered by MDH under an interagency
agreement
• The Teacher Shortage Loan Forgiveness Program, administered by OHE
• The Agricultural Education Loan Forgiveness Program, administered by OHE
• The Aviation Degree Loan Forgiveness Program, administered by OHE
In addition to the six programs that receive state funds, the OHE administers one loan repayment
assistance program, the John R. Justice Student Loan Repayment Program, for public
defenders and prosecutors. The federal government provides all of the funding for that program,
1
and its rules are established in federal law.
Other Loan Forgiveness and Repayment Assistance Programs in Minnesota
The National Health Service Corps (NHSC) Loan Repayment Program is a repayment
assistance program for health professionals. Like the Minnesota State Loan Repayment Program,
the NHSC Program is governed by the federal Public Health Service Act. Unlike the State Loan
Repayment Program, the NHSC Repayment Program is fully funded and administered by the
federal government.
2
This publication does not discuss that program in detail.
3
1
In fiscal year 2016, Minnesota received $39,644 in federal funds. U.S. Department of Justice Bureau of
Justice Assistance, “2016 John R. Justice Student Loan Repayment Grant State Award Amounts,”
https://www.bja.gov/Funding/16JRJGuidanceAllocations.pdf.
2
While the program is federally operated, MDH provides technical assistance to sites and providers that apply
to participate in the program.
3
In addition to the program discussed in this section, the Minnesota Department of Education forgives some of
the loans the department issues through the Grants to Prepare Indian Teachers program (Minn. Stat. § 122A.63).
That program is distinct from other loan forgiveness programs because it does not forgive “typical” student loans
issued by the federal government or a private lender—it only forgives loans issued through the program itself.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 3
Table 1: Student Loan Forgiveness and Repayment Assistance Programs in Minnesota
Program Administering Agency Funding
Agricultural Education Loan Forgiveness Program OHE State
Aviation Degree Loan Forgiveness Program OHE State
Health Professional Education Loan Forgiveness
Program
MDH State
John R. Justice Student Loan Repayment Program OHE Federal
Large Animal Veterinarian Loan Forgiveness
Program
MDH, via interagency
agreement with OHE
State
Minnesota State Loan Repayment Program MDH 50% State, 50%
Federal
NHSC Loan Repayment Program Federal government, with
technical assistance from
MDH
Federal
Teacher Shortage Loan Forgiveness Program OHE State
Minnesota’s State-funded Loan Forgiveness and Repayment
Assistance Programs
Agricultural Education Loan Forgiveness Program
4
Program Summary The Agricultural Education Loan Forgiveness Program provides
loan forgiveness to agricultural educators working full-time in
Minnesota. The program was established in the 2017 legislative
session, with the first funds available in fiscal year 2018.
Administering Agency OHE
State Appropriations Fiscal Year 2018: $50,000
Fiscal Year 2019: $50,000
A dedicated account is established in the special revenue fund for
this program.
Eligibility To be eligible for the program, an individual must: (1) be
employed in a nonadministrative position teaching agricultural
education in grades 5 to 12 at a public school district, tribal
contract school, charter school, or private school; and (2) have
completed an undergraduate or graduate program in agricultural
education.
4
Minn. Stat. § 136A.1794.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 4
Service Requirement To qualify for loan forgiveness, an applicant for the program must
agree to work full-time as an agricultural educator in Minnesota
for one year. An individual must complete one year of service for
each year the individual receives an award.
Award Amount Program participants receive $3,000 in loan forgiveness per year,
but may not receive more than the balance of their student loans.
Participants may receive an award through the program a
maximum of five times.
Aviation Degree Loan Forgiveness Program
5
Program Summary The Aviation Degree Loan Forgiveness Program provides loan
forgiveness to pilots and aircraft technicians residing in
Minnesota. The program was established in the 2017 legislative
session, with the first funds available in fiscal year 2018.
Administering Agency OHE
State Appropriations Fiscal Year 2018: $25,000
Fiscal Year 2019: $25,000
A dedicated account is established in the special revenue fund for
this program.
Eligibility “Qualified aircraft technicians” and “qualified pilots” residing in
Minnesota with loans used to pay for a professional flight training
degree are eligible for the program.
A qualified aircraft technician is an individual who earned an
associate’s or bachelor’s degree from a postsecondary institution
in Minnesota and who obtained an aviation mechanic’s certificate
from the Federal Aviation Administration.
A qualified pilot is an individual who earned a bachelor’s or
associate’s degree in professional flight training and who is in the
process of obtaining or has obtained an airline transport pilot
certificate.
Service Requirement To qualify for loan forgiveness, an applicant for the program must
commit to work full-time in Minnesota as a qualified pilot or
qualified aircraft technician for one year.
Award Amount A qualified pilot is eligible for $5,000 in loan forgiveness, but may
not receive more than the balance of the participant’s student
loans. A qualified aircraft technician is eligible for $3,000 in loan
forgiveness, but also cannot receive more than the individual’s
loan balance.
5
Minn. Stat. § 136A.1789.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 5
An individual may receive loan forgiveness through the program
up to five times.
Health Professional Education Loan Forgiveness Program
6
Program Summary MDH administers the Health Professional Education Loan
Forgiveness Program, which provides funds to health
professionals working in certain rural or underserved urban
communities. This is the largest loan forgiveness program
operated by the state of Minnesota, with $3,371,000 in annual
funding for fiscal years 2018 and 2019.
Administering Agency MDH
State Appropriations Fiscal Year 2016: $3,371,000
Fiscal Year 2017: $3,371,000
Fiscal Year 2018: $3,371,000
Fiscal Year 2019: $3,371,000
Eligibility To qualify for the program, an individual must have a license and
practice as a health professional or be enrolled in a training or
education program to become a health professional. Health
professionals eligible for the program include physicians, nurses,
nurse practitioners, pharmacists, dentists, and dental therapists.
Service Requirement Each category of health professional must commit to work in a
specific geographic area for a certain number of years in order to
qualify for loan forgiveness. For example, medical residents and
mental health professionals must specialize in pediatric psychiatry
or commit to work for three years in a designated rural area or
underserved urban community. Pharmacists, advanced dental
therapists, and public health nurses must work in designated rural
areas for three years.
The program designates six categories of professions and
geographic areas that are eligible.
7
While most categories of health
professionals must complete a three-year service obligation, the
2015 Legislature reduced the service obligations for nurses from
three to two years.
8
Award Amount Health professionals who participate in the program receive annual
payments equal to 15 percent of the average educational debt load
for graduates in their profession. A loan forgiveness award may
not exceed the participant’s loan balance. Individuals may receive
forgiveness through the program no more than four times.
6
Minn. Stat. § 144.1501.
7
Minn. Stat. § 144.1501, subd. 2.
8
Laws 2015, ch. 71, art. 8, § 14.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 6
Program participants who do not complete their commitment of
service must repay to the state the loan forgiveness they previously
received, with interest.
Large Animal Veterinarian Loan Forgiveness Program
9
Program Summary The legislature created the Large Animal Veterinarian Loan
Forgiveness Program in 2009.
10
The program provides loan
forgiveness awards to large animal veterinarians working in rural
areas in Minnesota.
Administering Agency The program is statutorily assigned to the Office of Higher
Education, but OHE has contracted with MDH to administer the
program through an interagency agreement.
State Appropriations When it created the program, the legislature appropriated
$225,000 in initial onetime funding.
11
The law governing the
program specifies that appropriations to the program do not
cancel, meaning this initial funding was available until expended.
In 2015, the legislature made an additional onetime appropriation
to the program of $250,000; these funds are available until June
30, 2022.
12
The 2017 Legislature appropriated $375,000 for the
program in fiscal years 2018 and 2019; that funding is the first
time the program received an ongoing appropriation.
A dedicated account is established in the special revenue fund for
this program.
Eligibility The commissioner may select up to five applicants per year to
participate in the program. In order to qualify, a participant must
apply while on track to complete a degree in veterinary medicine
at the University of Minnesota, within three years of receiving
such a degree.
Service Requirement Participants must commit to work for five years in an underserved
rural area. The participant’s job must be full-time, and in a
practice that is at least 50 percent involved in the care of food
animals. Individuals who fail to fulfill their five-year commitment
must repay with interest the funds they received from the program.
Award Amount Participants may receive up to $15,000 in loan forgiveness each
year that they meet the service requirements of the program, for up
9
Minn. Stat. § 136A.1795.
10
Laws 2009, ch. 95, art. 2, § 23.
11
Laws 2009, ch. 95, art. 1, § 3, subd. 13.
12
Laws 2015, ch. 69, art. 1, § 3, subd. 20.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 7
to five years. The amount of loan forgiveness an individual
receives may not exceed his or her student loan balance.
Minnesota State Loan Repayment Program (SLRP)
Program Summary The SLRP is a joint state/federal program that provides repayment
assistance to health professionals.
13
The federal funding for the
program is provided by the National Health Service Corps. The
SLRP is governed by a section of the federal Public Health
Services Act.
14
Administering Agency MDH
State Appropriations Fiscal Year 2016: $100,000
Fiscal Year 2017: $100,000
Fiscal Year 2018: $100,000
Fiscal Year 2019: $100,000
The program is 50 percent funded by the federal government and
50 percent funded by the state; the total annual budget is
$200,000.
Eligibility The SLRP is open to a wide variety of health professionals,
including physicians, dentists and dental hygienists, physician
assistants, nurse practitioners, clinical social workers, and
psychologists. Participants must work in a primary care setting at a
nonprofit private or public site located in a federally designated
Health Professionals Shortage Area. The site must also comply
with patient cost and access requirements. The clinic site where a
participant will be working must apply for the program along with
the participant.
MDH accepts only one application from each primary care site.
Only health professionals with a permanent and unrestricted
Minnesota license to practice independently and unsupervised may
apply for the program.
Service Requirement Award recipients in Minnesota must commit to complete a two-
year service obligation.
Participants who fail to complete their service obligation must
repay the repayment assistance they received, plus a significant
penalty. The penalty is the greater of $31,000 or $7,500 for each
month of obligated service the participant did not complete. If a
participant does not repay the state within a year of defaulting on
13
The NHSC also administers a separate, federal loan repayment program called the National Health Service
Corps Loan Repayment Program. That program is distinct from the SLRP, which is administered by the Minnesota
Department of Health.
14
42 U.S.C. § 254q-1.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 8
the service obligation, the state will begin to charge interest on the
amount owed. The state may also report the debt to a consumer
credit agency or the participant’s health-related licensing board.
Award Amount Full-time primary care providers at a qualifying site are eligible
for $20,000 per year in loan repayment assistance; half-time
primary care providers are eligible for $10,000 per year. During
their second year in the program, participants may request a third
or fourth year of repayment assistance. MDH approves such
requests depending upon the availability of funds and program
priorities. The state typically distributes five to ten loan repayment
awards per year.
Teacher Shortage Loan Forgiveness Program
15
Program Summary Provides loan forgiveness to individuals teaching in economic
development regions or licensure fields experiencing a teacher
shortage. The program was created by the 2015 Legislature.
16
Administering Agency OHE
State Appropriations Fiscal Year 2016: $200,000
Fiscal Year 2017: $2,200,000
Fiscal Year 2018: $700,000
Fiscal Year 2019: $200,000
Funding for the teacher shortage program has been appropriated in
both the higher education and K-12 education budgets. The 2015
omnibus higher education bill appropriated $200,000 in fiscal
years 2016 and 2017 for the program.
17
The 2016 omnibus
supplemental budget bill appropriated an additional $2,000,000 in
onetime funds for the program,
18
and included a number of
technical changes to the program’s language.
19
The onetime funds
are available until the end of fiscal year 2019.
The 2017 Legislature appropriated $200,000 for the program in
fiscal years 2018 and 2019 in the higher education omnibus bill,
20
as well as $500,000 in onetime funding in the K-12 omnibus bill.
21
The $500,000 appropriation is available until fiscal year 2019.
15
Minn. Stat. § 136A.1791.
16
Laws 2015, ch. 69, art. 3, § 10.
17
Laws 2015, ch. 69, art. 1, § 3, subd. 28.
18
Laws 2016, ch. 189, art. 25., § 43.
19
Laws 2016, ch. 189, art. 1, §§ 12 to 15.
20
Laws 2017, ch. 89, art. 1, § 2, subd. 31.
21
Laws 2017, 1s
t spec. sess. ch. 5, art. 2, § 57, subd. 36.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 9
A dedicated account is established in the special revenue fund for
this program.
Eligibility To be eligible for an award, a teacher must work in a “teacher
shortage area.” For the purposes of the program, a shortage area is
defined as a licensure field or economic development region that
the Minnesota Department of Education has identified as
experiencing a teacher shortage. The department designates
teacher shortage regions and licensure fields in its teacher supply
and demand report.
The 2017 Legislature expanded the definition of shortage area to
include economic development regions in which there is a
shortage of teachers who reflect the racial or ethnic diversity of the
students in the region.
22
The program is only open to an individual who holds a teacher’s
license. Recipients of loan forgiveness awards may apply the
funds to any government, commercial, or foundation loan used to
pay for tuition and reasonable educational and living expenses
related to a teacher’s preparation or further education.
Service Requirement There is no requirement that a participant in the program make a
commitment to work for a period of time, but an applicant must
sign an affidavit that he or she is working in a teacher shortage
licensure field or region.
Award Amount Eligible teachers can apply to OHE for a maximum of $1,000 in
loan forgiveness per year. As with other state-funded loan
forgiveness programs, awards are distributed directly to program
participants. An individual may receive no more than five awards.
Policy Considerations for Student Loan Forgiveness and
Repayment Assistance Programs
There are several policy questions that may be useful to consider when looking at implementing
loan forgiveness and repayment assistance programs.
Is loan forgiveness the most effective workforce development tool?
Minnesota’s loan forgiveness programs are designed to encourage individuals to work in
particular geographic regions or subfields of their profession. If a policymaker’s goal is to attract
workers to a particular geographic region, it is important to consider whether loan forgiveness is
the most effective recruitment strategy.
22
Laws 2017, 1st spec. sess. ch
.
5, art. 2, §
45.
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Student Loan Forgiveness Programs Page 10
Advantages of Loan Forgiveness Programs
Student loan forgiveness and repayment assistance may have advantages relative to other
workforce recruitment programs. First, student loan forgiveness or repayment assistance may be
exempt from federal and state taxation,
23
meaning that a dollar of loan forgiveness would be
relatively more valuable to a potential worker than a cash subsidy.
24
Second, loan forgiveness or
repayment assistance may be better targeted to younger workers who are more likely to carry
student loan balances than older workers. By reaching workers earlier in their careers, the
program may be effective at recruiting and retaining workers to particular locations or
occupations, because younger workers are less likely to be permanently settled.
Evidence that Loan Forgiveness can be an Effective Recruitment and Retention Tool
Researchers have conducted several evaluations of the effectiveness of loan forgiveness
programs in recruiting and retaining workers. The Minnesota Department of Health evaluated the
state’s loan forgiveness programs for health occupations in 2007.
25
Using data collected through
surveys of program participants and health facilities, the department concluded that the program
was effective in recruiting health care practitioners into high-need locations. The department
additionally reported that a majority of health care practitioners who complete their service
obligation continue to work in similar practice settings.
Academic research using similar methodologies has discovered evidence that loan forgiveness
programs are effective tools for retaining workers in particular geographic regions. A 2004
research paper by Donald Pathman, et al., evaluated a number of different state strategies for
recruiting physicians to work in rural and underserved areas.
26
The researchers identified a group
of “unobligated physicians” who were not participating in a state program and compared the
group with individuals participating in programs offering loan repayment assistance,
scholarships, loans, resident support, and direct financial incentives. They found that loan
repayment programs were the most effective intervention at retaining physicians at their service
sites.
While the two studies described above provide evidence that individuals who participate in loan
forgiveness programs for rural health professionals tend to remain in rural areas, it is impossible
to determine how much of that effect was due to the loan forgiveness program itself. It is
impossible to know how a particular award recipient would have behaved in the absence of the
program. In addition, individuals participating in loan forgiveness programs are not identical to
individuals who do not participate. It is possible—perhaps likely—that individuals who are
23
Taxation of student loan forgiveness is discussed in detail later in this publication.
24
A subsidy would likely be taxable.
25
Minnesota Department of Health, Office of Rural Health and Primary Care, “Bringing Health Care to the
Heartland: An Evaluation of Minnesota’s Loan Forgiveness Programs for Select Occupations,” April 2007.
http://www.health.state.mn.us/divs/orhpc/pubs/loanforgivreport.pdf.
26
Donald Pathman, Thomas Konrad, Tonya King, Donald Taylor, and Gary Koch, “Outcomes of States’
Scholarship, Loan Repayment, and Related Programs for Physicians,” Medical Care, vol. 42, no. 6: June 2004.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 11
predisposed to work in rural areas are more likely to participate in a loan forgiveness program.
As a result, it is difficult to measure the precise effects of such programs on worker retention.
Inframarginal Subsidization
The difficulty in evaluating the effectiveness of loan forgiveness as a recruitment tool points to a
potential disadvantage to using loan forgiveness as a workforce development strategy. Some
individuals would choose to work in the targeted geographic region or career field even in the
absence of the loan forgiveness program. If those workers receive loan forgiveness, the program
would be expending funds without actually adding to the number of workers. Economists refer to
such expenditures as an “inframarginal subsidy,” because they represent a subsidy to an
individual who is not “on the margin” of working in a particular place or career field. A loan
forgiveness program with a large degree of inframarginal subsidization would be an inefficient
tool for workforce development.
Administrative Complexity
Another potential disadvantage to a loan forgiveness programs relative to other workforce
development programs is administrative complexity. Most loan forgiveness programs include a
“service requirement,” which requires that an individual commits to work in the field or
geographic region specified by the program. Program participants are usually required to verify
to the program administrator that they have completed the requirement. If they ultimately fail to
complete the requirement, the program administrator must “claw back” the amount of funds that
were previously disbursed.
Because state loan forgiveness programs do not directly forgive student loans, the process of
disbursing funds to program participants presents additional administrative challenges. These
issues are discussed in more detail below.
Does another loan forgiveness program exist to serve the target population?
There are several federal programs that offer student loan forgiveness to broad groups of student
borrowers, as well as several programs targeted towards particular professions.
27
If the state
forgives the loans of a borrower who is participating—or could participate—in a federal loan
forgiveness program, it may be substituting state expenditures for federal expenditures, without
providing an additional benefit to award recipients.
In spite of concerns over substitution, there are policy goals that the state may wish to achieve
that only a state program could accomplish. Many federal programs, such as the Public Service
Loan Forgiveness and Revised Pay As You Earn (REPAYE) programs, require participants to
make payments for many years before receiving forgiveness. A state award could help recipients
make their loan payments early in their careers, at a time when they earn less and repayment
27
Examples of broadly targeted programs are the Public Service Loan Forgiveness, Teacher Loan Forgiveness,
and Revised Pay As You Earn (REPAYE) programs. The REPAYE program in particular is open to most borrowers
with Direct Loans or Direct Consolidation Loans. The federal Teacher Loan Forgiveness program and NHSC are
examples of federal programs targeted towards a particular profession.
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 12
assistance could be particularly helpful. As a result, loan forgiveness could still be an effective
tool to recruit workers to a particular geographic area within Minnesota or to recruit workers to
Minnesota from other states.
Will loan forgiveness through the program be subject to taxation?
Federal Taxation of Loan Forgiveness
The structure of a program affects whether or not the loan forgiveness or repayment assistance is
subject to taxation. In general, discharged debt is subject to federal taxation, because it is
included in the Internal Revenue Code’s definition of gross income. However, awards made
through some student loan forgiveness and repayment assistance programs are excluded from
income and therefore not subject to taxation.
28
Only certain student loans qualify for this
exemption: those issued by the federal government, a state government, certain public benefit
corporations, or certain educational organizations.
There are two provisions of the Internal Revenue Code that exclude certain kinds of student loan
forgiveness from the definition of gross income. The first is a provision excluding from income
discharges of student debt, which were “pursuant to a provision of such loan under which part or
all 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.”
29
The second is a narrower provision that excludes from income most loan forgiveness programs
for health professionals. That provision excludes the following from the definition of gross
income:
• Loan forgiveness provided through the NHSC Scholarship Program or a State Loan
Repayment Program
• Any other state loan forgiveness or repayment program “intended to provide for the
increased availability of health care services in underserved or health professional
shortage areas”
This provision covers loan forgiveness provided through the Minnesota State Loan Repayment
program, the Health Professional Education Loan Forgiveness program, and the Large Animal
Veterinarian Loan Forgiveness program.
The Internal Revenue Service provided the federal Bureau of Justice with an informational letter
on the taxability of loan forgiveness under the John R. Justice Program. That letter indicates that
the forgiveness through the program may be excluded from income provided that the loan is a
Direct Loan, Family Federal Education Loan (FFEL), or Perkins Loan.
30
28
26 U.S.C. § 108 (f).
29
Ibid.
30
Department of Treasury, Internal Revenue Service Office of the Chief Counsel, letter to the Bureau of
Justice Assistance Office of Justice Program’s Office of General Counsel, December 31, 2012,
https://www.bja.gov/Programs/IRS-JRJ-Letter.pdf.
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Student Loan Forgiveness Programs Page 13
There is no provision in federal law that explicitly discusses taxation of awards made through
programs like the Teacher Shortage Loan Forgiveness program, Aviation Degree Loan
Forgiveness program, and Agricultural Education Loan Forgiveness program. Discharges of debt
through those programs may be excluded from the definition of gross income under the broader
exemption discussed above, but it is unclear if such programs are covered by that provision.
State Taxation of Loan Forgiveness
For the purposes of the state income tax, Minnesota’s definition of “taxable income” is based
upon the federal definition. As a result, discharged debt that is taxable on the federal level would
also be taxable on the state level unless the state explicitly exempted the debt from taxation. The
2017 Minnesota Legislature exempted from state taxation any student debt that was discharged
through certain federal loan forgiveness programs, as well as from the Teacher Shortage Loan
Forgiveness program.
31
Should the program include a service requirement?
Four of the loan forgiveness programs administered by the state require applicants to commit to a
“term of service” in a particular profession or geographic area in order to qualify for loan
forgiveness or repayment assistance. The Teacher Shortage Loan Forgiveness Program is the
only state-administered program that does not contain such a service requirement.
Service requirements have at least two potential advantages. First, if one goal of loan forgiveness
programs is to encourage health professionals to work in a particular geographic region, a service
requirement guarantees that award recipients work in the region for a certain number of years.
An award recipient who completes a multiyear service commitment may be more likely to stay
in the region after the commitment ends because the recipient has established deeper roots in the
community.
Second, including a service requirement may make a loan forgiveness award less likely to be
taxable under federal law. For a state loan forgiveness award to be nontaxable, it must either be
targeted to health professionals or require a recipient to work “for a certain period of time in
certain professions for any of a broad class of employers.”
32
There are also disadvantages to service requirements. First, a policymaker may wish to provide
student debt relief to a broad population rather than recruit workers for a particular profession or
geographic region. Including a service requirement could limit the number of workers eligible
for an award and deter those who are unwilling to make a commitment from benefitting from the
program.
Second, service requirements add a layer of administrative complexity to loan forgiveness
programs. They require the program administrator to verify that a participant is working in a
31
The federal programs excluded from state taxation are the income-based repayment plan, the income
contingent repayment plan, the Pay As You Earn (PAYE) plan, and the Revised Pay As You Earn (REPAYE) plan.
Laws
2017, 1st spec. sess. ch. 1, art. 1, § 8.
32
26 U.S.C. § 108 (f).
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 14
qualifying position prior to disbursing an award. If an award recipient fails to complete his or her
service requirement, the program administrator may need to collect from the recipient the awards
that were previously disbursed.
How will the program disburse awards to recipients?
Because most student loans are issued by the federal government or private lenders, the state
does not directly “forgive” student loans. In the six programs funded by the state, the program
administrator disburses a cash award directly to recipients. The recipients must subsequently
prove that they applied the full cash award they received towards their student loans.
In contrast to the state-funded programs, the OHE disburses awards under the John R. Justice
Program directly to student loan servicers. Requiring loan forgiveness to be disbursed directly to
a loan servicer may cause administrative problems for the state agency administering the
program. It is not uncommon that an individual’s loan servicer changes, meaning payments may
be sent to the wrong servicer.
In addition, many student loan servicers have no mechanism in place to receive multiple
payments on different accounts at the same time, meaning that OHE must send multiples checks
to each loan servicer and verify that the payments were applied to the correct accounts. In the
case of the Justice Program, some lenders have applied award checks from OHE toward a
student’s monthly payments, which causes difficulties for individuals who are participating in
programs like the federal Public Service Loan Forgiveness Program.
33
Disbursing awards directly to program participants has its own administrative complexities
because it requires participants to prove to program administrators that their award was applied
to their student loans. Administrators may find it difficult to recover awards if a student fails to
prove that the award was applied to his or her loans.
For more information about higher education, visit the higher education area of our website,
www.house.mn/hrd/.
33
That program requires participants to make 120 monthly payments while working for a public service
organization to qualify for loan forgiveness.
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Student Loan Forgiveness Programs Page 15
Appendix: State-funded Loan Forgiveness Programs in
Other States
Programs Not Tied to Particular Occupations
State Program Legal Reference
Kansas Rural Opportunity Zones Kan. Stat. § 74-50, 222-223
New York NYS Get on Your Feet Loan Forgiveness Program N.Y. Educ. Law § 1-14, part 2,
sub-part 4, section 679-G
Programs for Agricultural and Veterinary Workers
State Program Legal Reference
Arkansas Out-of-State Veterinary Medical Education Loan
Repayment
A.C.A. § 6-81-1106
Kentucky Kentucky Large/Food Animal Veterinary Incentive
Program
Maine Maine Veterinary Medicine Loan Program Me. Stat. tit. 20-A, § 12121-12122
Missouri Dr. Merrill Townley Large Animal Veterinary Student
Loan Program
Mo. Rev. Stat. § 340.381-340.396
Nebraska Food Supply Animal Veterinary Incentive Program Neb. Rev. Stat. § 54-501
New York New York State Young Farmers Loan Forgiveness
Incentive Program
N.Y. Educ. Law § 679-F
North Dakota North Dakota Veterinary Loan Repayment Program N.D. Cent. Code § 43-29.1
Pennsylvania Urban and Rural Teacher Loan Forgiveness Program 22 Pa. Code § 121.301
Vermont Vermont Food Animal Veterinary Education Loan
Repayment Program
6 V.S.A. § 20
Wyoming Wyoming Veterinary Loan Repayment Program Wyo. Stat. § 11-18-119
Programs for Dentists
State Program Legal Reference
Arizona Primary Care Provider Loan Repayment Program
(PCPLRP)
Ariz. Rev. Stat. § 36-2172
Georgia Dentists for Rural Areas Assistance Program (DRAA) O.C.G.A. § 49-10-3 (Lexis), Ga.
Comp. R. & Regs. 195-14-.01
Maine Maine Dental Education Loan Program Me. Stat. Tit. 20-A § 12301-12302
North Dakota Dentists' Loan Repayment Program N.D. Cent. Code § 43-28.1
Ohio Ohio Dentist Loan Repayment Program Ohio Rev. Code § 3702.85
Oklahoma Oklahoma Dental Loan Repayment Program (ODLRP) Okla. Stat. tit. 310 § 526-3-1
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 16
State Program Legal Reference
Texas Dental Education Loan Repayment Program Texas Educ. Code. § 61.901
Programs for Health Professionals
State Program Legal Reference
Alabama Board of Medical Scholarship Awards Ala. Code § 16-47-126
Alaska SHARP-II Alaska Stat. § 18.29
Arizona Rural Private Primary Care Provider Loan Repayment
Program (RPPCPLRP)
Ariz. Rev. Stat. § 36-2174
California The Steven M. Thompson Physician Corps Loan
Repayment Program
Cal. HSC. § 128560-128585
Colorado Colorado Health Service Corps Colo. Rev. Stat. § 25-1.5-501
Florida Nursing Student Loan Forgiveness Program Fla. Stat. § 1009.66
Georgia Physicians for Rural Areas Assistance Program (PRAA) O.C.G.A. § 195-12
Georgia Physician Assistant Loan Repayment Program (PALRP) O.C.G.A. § 195-15
Georgia Advanced Practice Registered Nurse Loan Repayment
Program (APRNLRP)
O.C.G.A. § 195-16
Idaho Rural Health Care Access and Physician Incentive
Program (RHCAP/RPIP)
I.C. § 39-5901-5913
Illinois Nurse Educator Loan Repayment Program 23 Il. Admin. Code. pt. 2758
Illinois Veterans' Home Medical Providers' Loan Repayment
Program
23 Il. Admin. Code. pt. 2757
Illinois Podiatric Scholarship and Residency Act. 110 Ill. Comp. Stat. § 978/5-
Iowa Iowa Registered Nurse and Nurse Educator Loan
Forgiveness Program
Iowa Code § 261.23
Iowa Rural Iowa Primary Loan Repayment Program Iowa Code § 261.113
Iowa Rural Iowa Advanced RN Practitioner and PA Loan
Repayment Program
Iowa Code § 261.114
Missouri Primary Care Resource Initiative for Missouri (PRIMO) Authorized by Mo. Rev. Stat §
191.411
Montana Montana Institutional Nursing Incentive Program Mont. Code § 20-26-1511
Montana Montana Rural Physician Incentive Program (MRPIP) Mont. Code Ann. § 20-26-1501
Nebraska Nebraska Loan Repayment Program Neb. Rev. Stat. § 71-5668
New Jersey Nursing Faculty Loan Redemption Program N.J. Rev. Stat. § 18A:71C-50
New Jersey Primary Care Physician and Dentist Loan Redemption
Program
N.J. Rev. Stat. § 18A:71C-32
New York NYS Nursing Faculty Loan Forgiveness (NFLF)
Incentive Program
N.Y. Educ. Law § 670-D
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 17
State Program Legal Reference
North Dakota Health Care Professional Student Loan Repayment
Program
N.D. Cent. Code § 43-12.3
Oregon Oregon Medicaid Primary Care Loan Repayment
Program (MPCLRP)
Or. Rev. Stat. § 413.233
Pennsylvania Pennsylvania Primary Health Care Loan Repayment
Program
Rhode Island Health Professionals Loan Repayment Program 23 R.I. Gen. Laws § 14.1
South Dakota Rural Healthcare Facility Recruitment Assistance
Program
S.D. Codified Laws § 44:71
Texas Border County Doctoral Faculty Education Loan
Repayment Program
Authorized by Tex. Educ. Code §
61.701, implemented in 19 Texas
Admin. Code § 23.155
Texas Nursing Faculty Loan Repayment Assistance Program Tex. Educ. Code § 61.9821
Texas Physician Education Loan Repayment Program Tex. Educ. Code § 61.531
Utah Rural Physician Loan Repayment Program (RPLRP) Utah Code § 26-46a
Washington Health Professional Loan Repayment Program (HPLRP) Wash. Rev. Code § 28B.115.030
West Virginia Medical Student Loan Program (includes a forgiveness
program)
W. Va. Code § 18C-3-1
Wisconsin Health Professions Loan Assistance Program Wis. Stat. § 36.61
Wisconsin Rural Physician Loan Assistance Program Wis. Stat. § 36.60
Programs for Lawyers
State Program Legal Reference
Illinois Public Interest Attorney Law Repayment Assistance
Program
30 ILCS 105/5.737
Maryland Janet L. Hoffman Loan Assistance Repayment Program
(LARP)
Md. Code, Education Art. § 18-
1502
Nebraska Legal Education for Public Service and Rural Practice
Loan Repayment Assistance Program
Neb. Rev. Stat. § 7-201
New Mexico Public Service Law Loan Repayment Program N.M. Stat. § 21-22F-1
New York NYS District Attorney and Indigent Legal Services
Attorney Loan Forgiveness (DALF) Program
N.Y. Educ. § 679-e
House Research Department Updated: July 2018
Student Loan Forgiveness Programs Page 18
Programs for Mental Health Professionals and Social Workers
State Program Legal Reference
Indiana Indiana Mental Health and Addiction Professionals
Loan Repayment Assistance
Ind. Code § 21-44-6-6
New York NYS Licensed Social Worker Loan Forgiveness
(LSWLF) Program
N.Y. Edu. § 679-a
Texas Loan Repayment Program for Mental Health
Professionals
Tex. Educ. Code § 61.601
Programs for Science, Technology and Engineering (STEM) Workers
State Program Legal Reference
Maine Maine Engineers Recruitment and Retention Program Me. Rev. Stat. tit. 20-A § 12522
Maine Future for Youth in Maine Loan Repayment Program Me. Rev. Stat. tit. 20-A § 12532
North Dakota STEM Occupations Student Loan Program N.D. Cent. Code § 15-10-37
Texas Math and Science Scholars Loan Repayment Program 19 Tex. Admin. Code § 23.286
North
Carolina
Forgivable Education Loans for Service N.C. Gen. Stat. § 116-209.45
Programs for Teachers
State Program Legal Reference
Arizona Math, Science and Special Education Teacher Loan
Forgiveness Program
Ariz. Rev. Stat. § 15-1782
Arkansas State Teacher Education Program (STEP) Ark. Code § 6-81-1606
Illinois Illinois Teachers Loan Repayment Program 110 Ill. Comp. Stat. § 947/65.56
Indiana Teacher Loan Repayment Program and Fund Ind. Code § 21-13-10
Iowa Iowa Teacher Loan Forgiveness Program Iowa Code § 261.112
Maine Educators for Maine Program Me. Stat. tit. 20, § 12502
Mississippi Mississippi Teacher Loan Repayment Program (MTLR) Miss. Code Ann. § 37-106-55
Montana Quality Educator Loan Assistance Program Mont. Code Ann. § 20-4-5
North
Carolina
Forgivable Education Loans for Service N.C. Gen. Stat. § 116-209.45
North Dakota Teacher Shortage Loan Forgiveness Program N.D. Cent. Code § 15-10-38
Pennsylvania Urban and Rural Teacher Loan Forgiveness Program 24 Pa. Stat. § 5194
Pennsylvania Early Education Professional Loan Repayment Program 24 Pa. Stat. § 7103
Texas Loan Repayment Program for Speech-Language
Pathologists and Audiologists
Tex. Educ. Code § 61.9811
Texas Teach for Texas Loan Repayment Assistance Program Tex. Educ. Code § 56.351
