GOP Tax Plan Could Destroy Graduate Education; Slams Student Borrowers

BY HANK REICHMAN

There’s much to be troubled by in the Republican tax “reform” proposals under consideration in the House and Senate.  Both plans favor inherited wealth over income earned through labor; favor “red states” over “blue states,” and taken together generally amount to what Paul Krugman calls generational class warfare.  But as a lifelong academic, now retired, I want to focus on the threat to higher education, in particular to students, posed especially by the House bill.

Today the AAUP called on its members and those who support higher education to “Vote No on the Tax Bill” by signing a petition to fifteen key Republican representatives.  The petition notes that

H.R. 1, the Tax Cuts and Jobs Act, if enacted as written, will have a severe negative impact on students and higher education in the US.

The legislation would repeal provisions exempting from taxation tuition waivers for campus employees and graduate students, causing a devastating tax increase for thousands and making it impossible for some to continue their studies.

The legislation would also repeal the current Student Loan Interest Deduction, causing an increased cost of roughly $24 billion to student borrowers over the next decade.

These provisions, if enacted, would discourage participation in postsecondary education, damage the research mission of US universities, and make college more expensive.

If anything, this understates the danger.  With regard to the tuition waivers here’s how Forbes, the well-known “capitalist tool,” describes the proposal in a piece entitled “The GOP Tax Plan Will Destroy Graduate Education“:

Every year, approximately 3.0 million students with undergraduate degrees enroll in school, most of whom are pursuing advanced degrees. In many fields, including the overwhelming majority of STEM fields, tuition waivers are what enable students, many of whom are already deep in debt from their undergraduate days, to afford such a degree. Just for illustration, here are some examples of tuition/fees at public and private colleges:

This is money that, as a student, you never see. It’s paid to the University by the University on your behalf, and you don’t pay taxes on it. So long as you meet the requirements of your assistantship (or fellowship, for example), your tuition is taken care of, and you can attempt to support yourself on your stipend. . . .

Now, imagine if the rules were changed. Imagine that you still earned the same stipend, but were forced to treat your tuition-and-fees as taxable income as well. For our three cases, the amount of taxes you owe to the government on an annual basis would change dramatically:

  • University of Florida (in-state): $1,424/year currently; $4,052/year under the new plan.
  • University of Florida (out-of-state): $1,424/year currently; $7,617/year under the new plan.
  • Princeton University: $2,849/year currently; $13,499/year under the new plan.

Despite earning $23,000/year, you’d pay taxes on $40,520 or $57,914 at a public University, and despite earning $32,500, you’d pay taxes on $81,440 at a private University. For this last figure, this would result in a higher tax rate than anyone else in the nation pays. These numbers  represent increases in taxes of $2,628, $6,193, and $10,650, respectively, on these hypothetical graduate students.

If these changes are enacted it is, quite literally, difficult to imagine how graduate education in the U.S. will survive.  Who would be able to earn a Ph.D other than children of the extremely wealthy?

With respect to undergraduates, the bill would restructure the American Opportunity Tax Credit, eliminating tax benefits for students who take more than five years to graduate, as well as part-time and graduate students. And it would repeal the Lifetime Learning Credit, which is used by grad students, workers who need retraining, and part-time students and nontraditional undergraduates who take more than four years to graduate.

The repeal of student loan interest deductions would add hundreds of dollars to the cost of paying off loans for individuals in certain income brackets. “The more debt you have, the more valuable it is — and you don’t need to itemize deductions to get it,” one expert told Inside Higher Ed. “When we know that 44 percent of adults can’t cover a $400 emergency expense without borrowing money, even the small amount that borrowers in this income bracket can receive from the deduction is meaningful. It can pad savings, reduce debt and contribute to increased financial security. It’s simply a reality that many consumers rely on their tax refunds to feel like they’re getting ahead.”

Ted Mitchell, the president of the American Council on Education, noted that the committee’s own summary of the legislation showed it would increase the cost to students of attending college by $65 billion between 2018 and 2027.  “Taken in its entirety, the House tax reform proposal released today would discourage participation in postsecondary education, make college more expensive for those who do enroll and undermine the financial stability of public and private, two-year and four-year colleges and universities,” Mitchell said.  M. Peter McPherson, president of the Association of Public and Land-Grant Universities, added, “The current tax code helps reduce the cost of college for good reason — not just because a college education benefits individuals, but because it benefits society at large.”

Krugman’s take is simple and clear:

Suppose that a child from a working-class family decides, despite limited financial resources, to attend college, probably taking out a loan to help pay tuition. Well, guess what: Under the House bill, that interest would no longer be deductible, substantially raising the cost of college.

What if you’re working your way through school and your employer contributes toward your education expenses? The House bill would make that contribution taxable income.

What if your parent is a university employee, and you get reduced tuition as a result? That tuition break becomes taxable income. So would tuition breaks for graduate students who work as teaching or research assistants.

So what we’re looking at here are a variety of measures that will close off opportunities for children who weren’t clever enough to choose wealthy parents.

No matter what you may think of other provisions in either the House or the Senate bill, including provisions affecting higher education (for instance, a proposed tax on the income of large college and university endowments), please take a moment to tell 15 key members of Congress to protect students and vote no on the tax bill.

 

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