The month of November has been a busy one for those on the Hill. On November 28, 2017, the Senate Budget Committee, voting along party lines, approved new tax legislation. The Senate bill will now need to be reconciled with the House’s controversial tax reform bill, which passed on November 16, 2017. Among the proposed changes, the financial burden on graduate and undergraduate students raises particular concern. Changes to tuition assistance by universities for employees and their children, and changes to philanthropic giving and endowment taxes are some of the other issues that have also been highlighted in recent weeks. The full scope of these proposed changes has generated discussion on the continued accessibility and affordability of U.S. higher education. A full Senate vote may be forthcoming at the end of the week with Republicans hoping to get legislation to President Trump by the end-of-year holidays.
Several provisions would have direct impacts on students and higher educational institutions.
If approved, all undergraduate and graduate students would be affected by a provision to eliminate student loan deductions. Another provision to tax student tuition waivers as income would heavily impact graduate students. The House and Senate plans, however, are split on these issues. The House bill repeals both the Student Loan Interest Deduction (SLID) and the exemption on the tuition waivers for graduate students. The Senate bill retains both. Since mid-November, many colleges and universities have been issuing formal responses to the House tax bill as the Senate tax bill moves through the processes.
President Eric J. Barron of Penn State University, for example, released the following statement making several comments on graduate education: “The House tax bill in its current form would create significant financial burden for Penn State’s 4,000 graduate assistants and 400 graduate fellows — and could fundamentally alter graduate student education throughout the United States — by making it financially impossible for many students to pursue advanced degrees.” Later in that same statement, President Barron elaborated on the impact of the proposed changes to graduate education, “If the House tax bill becomes law, many students will likely not pursue graduate study because they would be forced to take on additional student debt. By making graduate education more expensive, this bill would not only discourage the pursuit of advanced degrees, but could have negative impacts on research, innovation and other integral components of graduate education at Penn State and universities across the nation, and ultimately harm U.S. competitiveness, as the pipeline for the nation’s intellectual capital is compromised.”
Brown University’s President Christina Paxson also wrote a similar letter to the Brown community. The presidents of Ohio State University and the University of Michigan published a joint column that detailed how “provisions in the bill undermine students by ending the tax benefits that are designed to make education more affordable.”
Many of these universities urge students to make their voices heard alongside their own advocacy efforts, directing students to the American Council on Education (ACE), a higher education advocacy group. The ACE website includes summaries of both the House and Senate Bills. ACE’s Action Center also enables individuals to reach out to their Members of Congress specifically regarding the education tax benefits.
As students, educators, and citizens we must call on our legislators and representatives to be more transparent and collaborative in these processes. It is important to remain informed and active in our advocacy efforts.
Reactions to the repeal of student loan deductions and the tuition waiver exemption
Current and former students are making their opinions known.
Anne Weiss, a former graduate student who now an Assistant Professor of Practice at Texas State University said, “the projected repeal of the Student Loan Interest Deduction is the most troubling aspect of the GOP’s tax plan for me personally. The federal government sunsetted the program that funded my graduate research assistantship in September 2013. Without loans, I would have never completed my degree. I now have a hefty chunk of money to pay back (over $90,000), on top of my undergraduate loans. It is bad enough that I have graduate loans due to unforeseen circumstances created by the GOP, but they [are] now threatening to hurt me a second time by removing the small amount of relief that I was set to get with the Student Loan Interest Deduction program.”
Under current law, any individual with income up to $80,000 (or $160,000 on a joint return) who is repaying student loans can currently deduct up to $2,500 in student loan interest paid. This provision would be maintained in the proposed Senate bill.
The House bill’s provision to repeal exemptions on tuition waivers has also worried many. Paying tax on tuition waivers would constitute a major tax increase. Tuition waivers are part of an apprenticeship model of higher education where graduate students teach, grade papers, advise other students, and conduct lab experiments for already controversially low wages. The Senate bill, however, retains the tax exemption on the tuition waivers.
Catherine Lugg, a professor of education at the Rutgers Graduate School of Education said, “This tax plan will inflict great harm on graduate education programs across the disciplines. It’s a disgrace and profoundly anti-intellectual. The depths of corporate greed are shocking.”
While student debt may be viewed as a problem of recent college graduates, the average borrower in their 30s actually owes more than the average borrower in their 20s. According to data from the 2007 National Postsecondary Student Aid Survey, the average graduate student is 32.4 years old, and 20.1% of all graduate students are over the age of 40. Graduate students may hold a disproportionate amount of debt because many were impacted by the great recession and faced elevated unemployment rates that forced many to default on or defer payment of their loans. In order to ride out the recession, many new graduates chose to pursue further education and took on even more debt. In fact, a 2014 study by the Brookings Institute found that since 1989, the average amount borrowed to finance a graduate degree quadrupled, from approximately $10,000 to over $40,000. Many in their 30s are also becoming parents at a time when the costs of raising a child through age 17 (not including the costs of college education) is $233,610.
Endowments and philanthropic contributions
In addition to student concerns, educational leaders are further concerned that both House and Senate versions of the tax reform legislation would impose a new 1.4 percent excise tax on endowments at private colleges and universities with endowments worth at least $250,000 per full-time student. Some believe this is provision reflects shots fired in a culture war over the role and privilege of colleges. Harvard administrators claimed the proposal would have cost the university $43 million last year.
Charitable contributions to institutions, such as colleges and universities may also be at risk because of another provision that doubles standardized deductions. Since taxpayers can only choose to claim standard deductions or to itemize deductions and charitable deduction can only be itemized, contributions to institutions may decline.
Continuing education students
What have received less attention are provisions related to a more general category of learners. Both plans take away exemptions on tuition assistance by employers to employees of up to $5,250 annually. Another provision would eliminate the option for taxpayers who may not be degree-seeking students to claim Lifetime Learning Credit for 20 percent of up to $10,000 of qualified education expenses for postsecondary education each year. Such provisions, however, help individuals improve their skills for the workforce and are a critical tool to help the nation adapt to economic conditions and stay competitive.
The speed with which the House and Senate have moved has stunned and concerned many in Washington. Congressional Republicans, for example, have not waited for analyses by the Joint Committee on Taxation or the Congressional Budget Office to be released before voting. This is in contrast to the bipartisan process used to enact the Tax Reform Act of 1986, which included robust public hearings about different aspects of tax reform and draft legislation. Many important provisions of the current bills also have not been explored in open hearings.
As students, educators, and citizens we must call on our legislators and representatives to be more transparent and collaborative in these processes. It is important to remain informed and active in our advocacy efforts. As these final discrepancies between the House and Senate bills are resolved, the final bill will have a drastic and abiding impact on undergraduate and graduate students, as well as the institutions they attend.
Barbara Hou is a doctoral candidate at the Harvard Graduate School of Education and an Ethics Pedagogy Fellow at the Edmond J. Safra Center for Ethics at Harvard University. She is admitted to practice law in the States of Massachusetts and New York.
Rachel L. Montgomery is a doctoral candidate in the Higher Education program at Penn State. She is currently a Legal & Higher Education Doctoral Fellow with the American Bar Foundation and AccessLex Institute.