SB 676 & HR 4038: Workforce Development through Post-Graduate Scholarship Act

Understanding Come Home Funds

Come Home Funds originated from a group of community foundations in Michigan when they noticed their communities facing difficulties in retaining and attracting a skilled and educated workforce. This problem is common in many areas across the nation as populations leave their communities and invest their skills and education elsewhere -- often referred to as “brain-drain.”

Loan-burdened graduates often weigh their options for where to build their careers and livelihoods based on financial incentives. Anecdotally, a student who graduated with a medical degree may consider moving to a large metropolitan area, which traditionally pays more than rural areas. This fear of lost opportunity cost may inhibit students’ decisions to bring their talents and resources back to their communities. This fear perpetuates the region’s cycle of lost resources and lower economic growth and causes communities to remain under-resourced and economically unattractive.

To address this problem, community foundations have pioneered innovative ideas for talent retention. For example, in 2016, the St. Clair Community Foundation, in partnership with Huron and Sanilac County community foundations, launched the Come Home Funds initiative to attract and retain their communities’ skilled and educated workforce. The Come Home Funds provides loan forgiveness scholarship grants to individuals who return to and work in their communities. Criteria for grantees may include qualifying types of graduate degrees, length of stay in the region, and funds' uses, among other requirements.

While community foundations in the Midwest have largely led on this issue, California’s state government has launched initiatives to increasing investments and intellectual capital in inland regions. For example, the Governors’ Office of Business and Economic Development launched Regions Rise Together, focusing a building cross-sector collaborations in California’s inland areas. To reflect this focus, the Governor proposed $140 million for Inland communities. Census tracts in Kern County and San Bernardino County are counties in the SCG region that experience net-out migration. Consequently, such communities would benefit from talent retention in the healthcare field, among others.

Post-Graduation Scholarships Tax Requirements

Come Home awards function as a loan repayment program for educational expenses through a scholarship to the individual. However, the federal government considers post-graduation scholarships as taxable income. Currently, the IRS views only pre-graduation scholarship grants as tax-exempt. This tax may deter a person’s decision to accept the Come Home Funds. 

Proposed Changes

SB 676 and its companion bill in the House of Representatives, HR 4038, would amend the IRS Code of 1986 to include post-graduate scholarship grants as a qualified, tax-exempt scholarship.

The concurrent bills, “Workforce Development through Post-Graduation Scholarship Acts,” establish a definition of a post-graduation scholarship grant in the IRS code. The legislation also includes requirements for qualifying communities. Under this legislation, a post-graduation scholarship grant is defined as:

• A grant established by a tax-exempt organization in which they will repay any portion of the recipient’s student loans incurred while pursuing higher education.

• Includes requirements that the grantee must work and reside in a community designated by IRS Section 45D(e) that meet various conditions, such as poverty levels, net-out migration rates, and bachelor’s degree attainment rates.

Both bills were in their policy committees last year, and no further action has been taken.  

Support

Spearheading this initiative, the three community foundations in Michigan have provided other community foundations across the nation with a blueprint for establishing Come Home Funds in their regions. The Community Foundation for Crawford County in Ohio became the fourth community foundation to replicate this program.

The Council of Michigan Foundations, Philanthropy Ohio, and Philanthropy West Virginia have long been supporters of this initiative and the related legislation. They have been working with the United Philanthropy Forum, of which SCG is a member, on educating their members, congressional representatives and coordinating advocacy efforts. The Council on Foundations has also expressed their support for the bills calling the legislation “long overdue.” 

Opposition

Based on current research, there is no known opposition to this program or the two related bills in Congress. 

Impact on Philanthropic Sector 

Community foundations that establish Come Home Funds seek to relieve the financial burdens taken on by students willing to return to their home communities. As a sector, Philanthropy is flexible and innovative by nature and is well-positioned to serve under-resourced communities by incentivizing a return of a talented and educated workforce to areas with less economic development. However, under current law, requiring recipients to report their grant awards as a part of their gross income negates the donor intent under which the award was initially given. Qualifying Come Home grants as tax-exempt scholarships strengthen philanthropy’s ability to help communities attract and retain a robust workforce and stimulate economic growth.

Staff notes that California’s public foundations have not launched similar “Come Home” awards, and the bill’s immediate impact on our state remains limited. However, given the Governor’s focus on Inland regions, staff views support of this legislation as an opportunity to further engage the Governor’s Office on philanthropy and remove a potential barrier to public foundations in California that may be interested. Staff also notes that because the bills are active in the Senate and the House, this would be a valuable opportunity to include this education policy initiative as a part of Foundations on the Hill.