Graduate students would pay a price under GOP tax plan
Thousands of graduate students in Massachusetts and across the country fear that their tax bills will climb dramatically if a proposal to end exemptions for tuition benefits makes it into the tax overhaul legislation that Republicans hope to send to President Trump by Christmas.
Budding anthropologists, historians, scientists, and engineers who receive tuition waivers for working as teachers or research assistants could soon see those benefits counted as income. If that happens, earning an advanced degree could become significantly more expensive, students and universities warn.
“It’s not livable,” said Heather Brinn, 24, who is in the second year of earning her doctoral degree in African-American history at the University of Massachusetts Amherst. Brinn, who is originally from Florida and also works as a teaching assistant, said the university’s tuition waiver makes graduate school financially feasible, “without having to take out loans and having to beg my grandparents for help.”
If the tuition waiver is counted as income, she said, she could have to pay an additional $3,600 a year in taxes, even though the money she actually takes home from her campus job is less than $20,000 annually. That would cut into her already tight budget for medical bills, groceries, and car insurance, Brinn said.
Area universities said thousands of students could be affected by the elimination of the tax exemption, and they argue it could stifle scientific research and thwart academic scholarship in the United States.
The proposed legislation hits at the core of how most universities operate their doctoral programs and provide workers for their research labs.
Most campuses attract PhD candidates with both a modest stipend of about $30,000 annually for living expenses, such as rent and groceries, if they work on campus, and waivers on a significant portion of their tuition, which can range from under $15,000 annually for a state school to more than $50,000, depending on the program.
Currently, only the stipend is taxed.
The University of Massachusetts system estimates that 5,000 of its students receive tuition waivers. At Northeastern University, 1,200 of the 1,300 doctoral students receive the tuition benefit. The same is true at other institutions such as Boston University and Massachusetts Institute of Technology, where nearly 2,200 and 7,000 graduate students, respectively, receive a tuition remission.
But the tax bill approved by the Republican-led House of Representatives, which aims at cutting taxes and simplifying the tax code, calls for ending the exemption on those tuition waivers. Under the plan, those discounts would be considered income for tax purposes, even though students never see that money in their bank accounts.
The Senate, which approved its tax reform package early Saturday morning, did not touch the graduate tuition exemption. The House and Senate will now negotiate the final legislation.
A spokeswoman for the House Committee on Ways and Means said the tax overhaul plan will help graduates by spurring the economy, helping them find better-paying jobs and simplifying tax rates, so they don’t have to navigate a maze of deductions.
Ways and Means Committee chairman Kevin Brady recently described the current exemption for graduate tuition waivers as controversial. While doctoral students who work on campus don’t currently pay taxes on their tuition waivers, those who opt to work at a private company so they can pay their tuition are taxed on their income, Brady said during a discussion sponsored by the American Enterprise Institute, a conservative think tank.
“Is that fair?” said Brady, a Republican from Texas. The “same type of people pursuing the same great degrees, working equally hard, one tax free, one not.”
Still, Brady said Congress is listening to the concerns of colleges and graduate students and the issue will be taken up as legislators confer.
Universities are battling the Republican-controlled Congress on another front as well: The Senate and House want to tax the rich endowments that many elite colleges have amassed as part of the tax deal.
Meanwhile, universities and students are trying their best to sway lawmakers.
Graduate students have held rallies on campuses across the country and have called congressional leaders urging them to nix the House proposal. They have submitted editorials to their hometown papers opposing the bill. And school presidents and their lobbyists have contacted legislators, pushing them to fight the graduate tuition tax.
The tax plan “threatens the financial stability of universities and specifically and unfairly targets college students, particularly graduate students,” UMass president Martin Meehan and chancellors of the system’s five campuses wrote last week in a letter to the state’s congressional delegation.
The proposal has left many doctoral students who would otherwise be teaching classes, toiling in campus laboratories, and writing their own papers, delving into their IRS returns.
“I’ve never spent time trying to figure this out until the last three weeks; now I’ve been thinking about it all the time,” said Joe Cronin, 26, a student organizer who is earning his doctoral degree at Harvard in anthropology.
Many students have sent frantic e-mails to university deans questioning whether they could be affected and whether there are other options.
University officials themselves said they are trying to decipher the potential financial impact of the proposal and whether there are alternative ways to provide students the same benefits without a tax penalty.
Critics argue that universities could lower their tuitions, since many of them provide students with waivers anyway. Or universities could convert the tuition waivers into scholarships, which aren’t taxed.
“My hope is that a lot of universities would pivot to qualified scholarships,” said Emily Roberts, a Seattle-based finance expert who advises graduate students and runs a blog, Personal Finance for PhDs. “It pains me to see graduate students threatening to drop out or fearing they will have to drop out. I hope the universities would be more clear with students about what they will do.”
Universities may be reluctant, however, to tinker with their tuition benefits plans, said Patrick Thomas, a professor at Notre Dame Law School and a director of its tax clinic.
Federal grants that universities rely on for their research often require matching funding, and the tuition reductions can be considered an expense without requiring the institution to set aside cash, Thomas said.
If universities reduced tuitions, it could also ultimately mean less in matching federal funds, Thomas said.
Many schools, including Harvard, are also fighting efforts by graduate students to form unions, arguing that they are on campus for educational purposes and not as university employees.