Republicans in the U.S. House of Representatives passed a tax bill Thursday 227 to 205 which would majorly overhaul the current tax code and have significant ramifications for higher education. Among other conditions, the bill would consider tuition waivers — tuition breaks graduate students receive in exchange for doing work for the University — part of their taxable income, and also eliminates tax deductibles on interest for student loans and on other expenses for higher education.
Under current law, students attending graduate or professional school can work for the institution — as a teaching or research assistant — in return for a break on their tuition. These tuition waivers — which constitutes income students never see as it is in exchange for their work — were previously not considered part of their taxable income. The House tax bill would eliminate this exemption, greatly increasing the tax burden students financing their education would have to bear.
“One of the main ways to fund graduates’ studies is to provide them tuition remissions,” Phillip Trella, the University’s assistant vice president for Graduate and Doctoral Affairs, said. “In fact, many of our students receive more in their tuition remissions and waivers than they do in their actual salary, and of course, it’s money that they never see or actually touch — it’s money that goes directly to their tuition. So to transform that from non-taxed income to taxable income has a really dramatic impact on our graduate students.”
Trella said there are about 2,000 doctoral students at the University, and the vast majority of them spend at least some of their time serving as a graduate research or teaching assistant.
A typical doctoral student in the Graduate School of Arts and Sciences earns around $24,000 per year in wages and stipends, Trella said. A large majority of those students are out-of-state students, and their tuition and fees amount to around $29,000 each year. The current tax for a student earning $24,000 per year on wages and stipends is $1,574.
That tax does not include a tax on the $29,000 a student receives in tuition remissions — money the student never sees because it covers the cost of attending the University. The House bill would tax that $29,000 in tuition remissions, thereby increasing a graduate student’s tax liability from $1,574 to $4,920.
“That is a tripling of the tax burden, again for no additional benefit that the student will accrue, and that change eats into about 20 percent of the stipend,” Trella said. “All of a sudden you’re living in a scenario where 20 percent of your stipend has disappeared. That 20 percent is a critical 20 percent when you’re currently making $24,000 a year.”
If the House bill were to be passed into law, the monthly budget of a graduate student would be approximately $279 less than it is now.
“I can tell you having been a Ph.D. student myself, you live by the monthly budget and exactly what is going out in terms of rent and food,” Trella said. “That [$279] is groceries for a month, that’s a significant chunk of rent and any other costs that you may be facing.”
Assoc. Law Prof. Andrew Hayashi said in an email to The Cavalier Daily that it is possible the value of tuition waivers would not be considered taxable income, even if the House bill is passed into law. If they are taxed, however, he thinks the immediate effects for students would be disastrous.
“Graduate students enroll with certain expectations about their income and expenses over the course of their programs,” Hayashi said. “Upending these expectations is not only unfair but could also lead to many graduate students abandoning their programs as they recalculate the costs and benefits of pursuing an advanced degree.”
The prospect of students having to leave school for financial reasons could have far-reaching consequences for the University and other institutions of higher education. Many research programs in the natural sciences depend on graduate student work and would be greatly disrupted, and classes in other schools and departments that rely on graduate students to serve as teaching assistants would be impacted as well, Hayashi said.
Law Prof. George Yin, who is a former Chief of Staff to Congress’s Joint Committee on Taxation, said one of the general objectives of the bill is to try to increase the number of people who pay very little in income taxes.
“Part of the idea, on the individual side, is to try to increase the number of people who basically pay nothing in income taxes,” Yin said. “And to slightly reduce the tax rates for people above that low threshold amount and to pay for those changes by removing selected items that only selected people get.”
A tuition waiver for graduate students is considered a selected item because it is a break from which most Americans do not benefit. Yin said the idea of the bill is to rid the tax code of as many of these selective provisions and replace them with broader benefits across the board.
The bill aims to raise the minimum income threshold at which individuals become eligible to pay the income tax and to slightly reduce tax rates for individuals in general. However, individuals would more likely be hurt by specific changes — such as the taxation of tuition waivers — than they would benefit from a general change, Yin said.
Beyond eliminating the tax-exemption of tuition waivers, Yin highlighted other ways the bill will adversely affect higher education overall.
Under the existing tax code, students can deduct interest on student loans up to a certain point. Additionally, students or parents paying tuition can deduct expenses for higher education up to a certain limit. Both of these deductibles have been repealed in the House tax bill.
The U.S. Senate still has to vote on its own tax bill. Although the Senate bill has its own higher education changes, it does not include the changes to higher education the House bill includes.
Leading up to Thursday's vote, student leaders from across the graduate and professional schools at the University worked together to raise awareness of the ramifications of the bill and encourage their representatives to vote against it.
Maggie Gratz, a Batten student and president of Batten Graduate Council, said receiving a tuition waiver in exchange for work allowed her to make the decision to pursue graduate school in the first place. Her work as a teaching assistant has also allowed her and other TAs to foster a community of learning across the University.
“I think it’s not only a benefit to an individual pursuing an education — you also have the opportunity to teach and work with others,” Gratz said. “As a graduate student, being able to interact with undergraduate or my fellow graduate students in a teaching capacity — that not only betters my professional capabilities, but it also allows that community energy.”
Leeza Constantoulakis, a Nursing graduate student and president of the Graduate School of Arts and Sciences Council, worked with Gratz and other graduate student council presidents to compose and send a letter to Fifth District Congressman Tom Garrett (R-Va.), urging him to vote against the bill. They further organized two “days of action” for other graduate students to call their representatives, share their stories and encourage them not to support the bill.
Garrett ultimately voted to pass the bill in Thursday’s vote. Garrett tweeted Thursday afternoon that he supported the bill because it would contribute to economic growth and create “a simpler and fairer tax system that allows hard-working Americans to keep more of their own money.”
Although the House bill has already passed, Constantoulakis is directing her attention to the Senate, which still has to vote on its own tax bill.
“The thing now is to focus on the Senate,” Constantoulakis said. “The beauty of advocacy is people remembering the power of their voice as a constituent in a certain district. So your members listen to you because you vote for them at the end of the day.”
University President Teresa Sullivan sent a letter to U.S. Sen. Mark Warner (D-Va.), a member of the Senate Finance Committee, urging him to oppose the House’s version of the bill. Among other things, she said “the legislation includes several proposals that would negatively impact our students and the institution itself, ultimately making college less affordable, discouraging participation in higher education and decreasing U.S. competitiveness globally.”