A provision tucked into the tax bill approved by the House of Representatives last week has graduate students and research universities fearing a major financial hit.
The provision would treat tuition waivers – essential to the finances of many graduate students, especially in the sciences – as income. With higher taxable income, those students would pay more in taxes, despite having actual cash flow that's only a fraction of their reported income.
At the University at Albany, that would mean an additional $11,000 of taxable income for in-state doctoral students, while an out-of-state UAlbany graduate student would be taxed on an additional $22,000 or so per year.
At a major private research university like Rensselaer Polytechnic Institute, the change would mean more than $50,000 in new taxable income for some graduate students, boosting their tax bills by as much $10,000.
“We are really concerned; grad students are really concerned,” said Kevin Williams, dean of graduate studies at UAlbany. “This could have devastating consequences on graduate education.”
The provision, passed last week as part of a tax reform package put forth by House Republicans, has not been included in a different version that's under consideration in the Senate. But students and college officials are still worried it could make its way into a final bill passed out of Congress.
“There is still a lot of horse trading to go on between the House and the Senate,” said Debbie Altenburg, who works out of RPI’s Washington office.
Graduate students, especially doctoral students in science and engineering programs, earn stipends for working part-time as research and teaching assistants – often 20-hour-per-week jobs. At UAlbany, graduate stipends range from about $16,000 to $19,000 a year. That money goes to rent and food and other living expenses, as graduate students work on degrees that can take five or six years to earn.
On top of the stipend, many graduate students also receive waivers so they don’t have to pay tuition. Without those waivers, students said, the financial burden of graduate school would change significantly.
“That’s the big part of the deal,” said Spencer Scott, a nuclear engineering doctoral candidate at RPI and president of the school’s graduate student council. “That’s why this tax bill would create a very untenable situation for graduate students.”
Scott is set to finish his degree next month, but he said other students are talking about setting their sights on a master's degree instead of a doctorate, or gaming out how much they would need to borrow to finish a degree if the tax change becomes law. Roughly 80 percent of RPI’s more than 1,000 graduate students count on some kind of tuition break, from scholarships to full waivers.
“This tax plan really shifts the calculation a lot of students are making as they consider graduate schools,” Scott said of the House bill.
Graduate students at RPI and at UAlbany have pressed their case with local lawmakers, reaching out to congressional offices to urge them to oppose the tuition provision. College officials and the organizations that lobby on their behalf have highlighted a handful of other provisions they argue would also hurt colleges and students: a new tax on the wealthiest private college endowments; elimination of the tax deduction for student loan interest; and changes to scholarship programs and the ways colleges finance building projects.
Treating tuition breaks as income would have the most dramatic impact on students at high-cost private colleges, but students at public universities could also feel the pinch. If the tax provision went into effect, Williams, the UAlbany graduate dean, estimated a typical graduate student’s taxes would more than double – from around $800 a year to over $2,000. An increase in the standard deduction would help offset some of that tax increase.
Dylan Card, president of Ualbany’s graduate student association, said graduate students were already hard-pressed to make their finances work, essentially living off a $20,000 stipend and working as teachers, students and researchers. And it’s not like the tuition waivers can be used to pay the rent or buy dinner.
“That’s a large percentage of money we never see that we would be taxed on,” Card said. “We are all here to go to school to learn and become more educated members of society, and it seems like they are trying to punish us.”
Legislative tweaks may save colleges
If federal lawmakers adopt a new tax on private college endowment, local schools may be spared after a Senate proposal raised the threshold for what schools would be hit by the tax.
An original proposal in the House of Representatives targeted private colleges with endowments worth more than $100,000 per students with a 1.4 percent tax on annual investment income. But a Senate version raised the threshold to $250,000 per student.
That difference would save Union, Skidmore and Rennselaer Polytechnic Institute hundreds of thousands of dollars as they skirt under the higher threshold.
Union’s endowment of around $360 million, as of June 2016, represented about $170,000 per student; Skidmore’s endowment last year of $330 million represented about $125,000 per student.
The endowment tax could have cost the colleges well into the six figures. In 2014, for example, Union reported over $62 million in investment income from its endowment, according to financial statements. Taxed at 1.4 percent, the school could have owed the federal government over $800,000 that year.
But even if the endowment tax threshold is set high enough to save the Capital Region’s private colleges, school officials are still working with their counterparts across the country to fight back the effort to tax endowment gains.
“In general, we think this sets a bad precedent,” said Debbie Altenburg, RPI’s director of federal relations.
— Zachary Matson