The new tax plan introduced by House Republicans could have negative implications for universities, graduate students and those with student loans.
Many grad students — especially in Ph.D. programs — receive tuition waivers in exchange for teaching classes or doing research. Under current law, that money isn’t taxed as income. But the new bill calls for those tuition waivers to be counted as income and subjected to income taxes.
That means graduate students would be paying taxes on money they never receive.
Kelly Balmes is finishing up a master’s degree — on her way to a Ph.D. — in atmosphere and sciences at the University of Washington in Seattle.
Balmes, 24, is from Chicago, so her out-of-state tuition is $30,000 a year. It’s paid for through grants; money she never sees.
The university pays her a yearly stipend of about $30,000 in exchange for her work in research and as a teaching assistant. That’s considered minimum wage in Seattle — about $15 an hour.
In 2016, she paid income taxes on her teaching stipend and ended up owing the government $2,334.
If the tax bill passes, the grant that covers tuition will be viewed as additional income. If the numbers remain the same, Balmes’ total income before deductions becomes $61,398 — nearly double what she filed last year.
She would owe $7,488, about $5,000 more.
“This makes graduate school unattainable for anybody not already very well off,” Balmes says. “It also creates a diversity problem, which graduate STEM programs already have.”
What else will be affected if the bill is passed:
- Endowments: The bill would levy a tax of 1.4 percent on net investment income for well-endowed private colleges. After an outcry from some universities, the language was adjusted so the tax would apply only to well-endowed colleges with $250,000 or more in the bank per full-time student.
- Student loan interest, tuition reductions and education assistance: If you make less than $80,000 and are paying back your student loans, you will no longer be able to deduct up to $2,500. Also, employers who cover some of their employees’ college costs would have that money taxed.
- College tax credit consolidation:Three tax credits — American opportunity tax credit, lifetime learning credit and Hope scholarship credit — would be consolidated into one credit. This would include a $2,000 credit for families spending money on college tuition, books and supplies.
- Coverdell Education Savings Accounts: The bill would phase out Coverdell Education Savings Accounts, which allow families to invest money for college without the funds being taxed.
- Tax bills for death and disability:The House plan would put an end to forgiving student debt because of death or disability.
Of the 145,000 students in graduate programs receiving these tuition waivers, about 60 percent are in STEM programs, according to the Department of Education.
If the House bill passes, Balmes might have to reconsider getting her Ph.D. and stop her education at a master’s, she says. “It’s upsetting because it wouldn’t really be my decision.”
She hopes that the Senate’s tax plan will be passed instead because under that one there are no changes to tax credits or tuition waivers.
Colleges and universities have also raised concerns about the House bill.
Carnegie Mellon University, a private school in Pittsburgh known for programs in science and technology, is one of the many schools — including Boston University — speaking out.
CMU sent faculty an email saying it was monitoring how the bill would impact students and faculty.
“Any provision that would make higher education more costly for students, effectively reducing access, will harm American families and undermine the mission of higher education and CMU,” wrote interim President Farnam Jahanian. “That includes proposals to tax graduate student stipends, eliminate tax deductions for student loans, or reduce incentives for employers to contribute to tuition.”
He said there are long-term benefits to investing in graduate students.
“The education we provide undergraduates and graduate students is one of the most powerful engines for their future success and ability to contribute to society.”