Tax reform repeals college tuition benefits for graduate students

On Nov. 16, Republican lawmakers released a proposal for a bill that would make major modifications to the tax code of the United States. Besides tax cuts for corporations and for middle-class families, it includes a series of other changes for taxpayers.

It is estimated that the tax cuts proposed by the House bill will amount to roughly $1.5 trillion. To finance the cuts, the reform is seeking to eliminate individual tax breaks.

The impact on graduate and doctoral students who are currently benefiting from tuition waivers could be severe. For their research work, they are receiving annual stipends. These are oftentimes minimum wage stipends and already deemed taxable income.

Taxes and Academia (PNG).png
Photo credit: Levi Brown

In addition to the annual stipends, doctoral students and teaching assistants are also benefiting from tuition waivers which are exempt from taxation. Under the recently introduced House GOP tax plan, however, these waivers would be considered taxable income. This would significantly increase taxation on students pursuing a master’s or doctoral degree.

As an example, a doctoral student researcher, who is receiving an annual stipend of $30,000 and a tuition waiver of $50,000 is currently getting taxed on $30,000. However, if the tax overhaul comes into effect, the student will be forced to pay taxes on a sum of $80,000 —more than double the previous amount.

Financing the payment of the new taxes with student loans could be difficult since the House bill is also aiming to repeal the Student Loan Interest Deduction. According to the American Council of Education, about 12 million taxpayers profited from SLID in 2014.

Ajit Dayanandan, associate professor of finance at UAA, believes that the bill could have a deterrent effect on some students if it becomes law.

The present proposal to withdraw income tax exemption on tuition benefits and scholarships is sending a wrong message to the low-income students and their ability to study and conduct research,” Dayanandan said.

The declared goal of the substantial reform is to bolster the American middle class and simplify the tax code. Doubts have been expressed that the general tax cuts might not compensate for the repeal of other tax exemptions.

“The [Donald] Trump tax reform plan is seemingly focused on the middle class tax benefit. The present proposals on tax reduction for middle class is small compared to the largesse for the corporate sector,” Dayanandan said. “Secondly, the tax reduction for the middle class is transitory and will expire after a certain number of years. On the other hand, tax reduction for corporate America is substantial and permanent.”

Many of the affected graduate students are conducting research on science, technology, engineering and mathematics areas which play an important role for the national economy.

“STEM research is crucial for maintaining and increasing the competitive advantage of U.S. in the global market place,” Dayanandan said. “Student tuition benefits and scholarships is the incentive mechanism presently in place to undertake such cutting-edge research which has made American companies global leaders in the field of science and technology.”

When taxed, the inducement of these educational benefits will be forfeited.

“If their student tuition benefits or scholarships come under the ambit of income tax, it will adversely impact their motivation and ability to undertake research and innovation in the country.”

With fall graduation approaching soon, many students have to decide whether they want to continue their education. Tevin Gladden, a mathematics and computer sciences major, is considering to pursue a higher academic degree after getting his bachelor’s at UAA.

“Grad school may give me more options for future careers which gives me a better chance at obtaining a job. It could also bring me the chance of meeting more like-minded people that I could partner up with in some way,” Gladden said.

In comparison to other universities, the consequences of the GOP tax plan at UAA could be relatively minor according to Jim Murphy, professor of economics.

Most [UAA] students do not get waivers, so the impact in terms of how many students are affected would be small,” Murphy said. “Tuition at UAA is low, relative to other universities, so even though our [graduate] students could be impacted, it won’t be as bad as at places with higher tuition — especially private universities.”

The reform of the taxation system was one of the promises Trump made during his electoral campaign. Recent public opinion polls show a decline in the popularity of the tax overhaul after the initial release of the draft.

If the tax reform passes through the legislature and is signed by the president, most of the provisions will take effect on Jan. 1, 2018.