Talk among graduate students at the University of Wisconsin-Madison has been buzzing with speculation about a proposed federal tax bill that could hike their income taxes so high some wonder whether they could complete their degrees.
“A lot of folks are debating whether they would be able to stay in school,” said Adria Brooks, co-present of the Teaching Assistants Association, a labor union representing graduate student workers at UW-Madison. “People are panicked, they’re unsure of what to do,” Brooks said.
The U.S. House approved a tax reform bill Nov. 16 that would eliminate a section of the IRS code that exempts tuition remission for graduate students from taxes, making it taxable income.
Graduate students at public universities who work as teaching or research assistants often receive tuition reductions in addition to stipends for their work.
The House tax bill also would eliminate a tax deduction for student loan interest and impose an excise tax on nonprofit private university endowments.
A tax bill now before the U.S. Senate does not include measures removing exemptions for tuition waivers or the student loan interest deduction, but does include an excise tax on private university endowments. The future of the bill is uncertain, however, because of competing demands of Senators on provisions not targeted at higher education. And it’s unclear which higher education provisions would be included in a compromise bill if a Senate bill is passed.
UW-Madison Chancellor Rebecca Blank outlined her concerns about the House bill to Speaker Paul Ryan.
Making the value of graduate students' discounted tuition taxable would hit those from low-income families particularly hard, she said. "They would be caught in a position where they can't afford the tuition, but can't afford to pay the taxes if they receive tutition remissions either," Blank wrote in the Nov. 10 letter.
"The graduate students who study at research universities are the future leaders of the ongoing innovation revolution that is occurring in science and technology," she said.
At UW-Madison, approximately 5,300 Ph.D. students and 1,900 master's degree students receive the tax benefit.
William Karpus, dean of the Graduate School, said repealing the exemption for graduate student tuition would “lead to a completely unaffordable increase in taxable income and make the pursuit of a graduate degree much more challenging, if not impossible, for a large number of these students.”
Karpus’ office has been working with the UW-Madison Office of Federal Relations to lobby against the measure that would affect more than 145,000 graduate students nationwide.
Brooks noted that the impact of removing the exemption for tuition waivers varies among UW-Madison teaching assistants according to their general tax liability, the particulars of their work appointment, and whether the graduate student is attending classes or is focused on writing a dissertation.
A teaching assistant with a typical nine-month appointment has a take-home pay of about $19,000, Brooks said. Add in tuition of about $25,000, and the income of the TA would more than double, she said.
Individual TAs have calculated the resulting increases in taxes under the House GOP plan at anywhere from $300 to $5,000, Brooks said.
National higher education advocacy groups also are lobbying against tax bill provisions, including the Association of American Universities, Association of Public and Land-grant Universities, American Council on Education, and the Council of Graduate Schools.
AAU president Mary Sue Coleman said the House provisions “undermine the very workforce Congress seeks to support. Pro-growth tax reform should expand these students benefits to expand to foster a more highly-educated and skilled workforce.”
Steven M. Bloom of the ACE said that with the tax provisions affecting colleges and universities, “Congress is sending a clear message that they’d rather use that money for corporate tax breaks.”
Eliminating the exemption for tuition waivers would affect not only graduate students, but other employees and their families who must by law also be eligible for tuition discounts. That includes administrative staff and faculty, but also maintenance and janitorial staff, Karpus noted.
A 2017 survey by the College and University Professional Association for Human Resources found that a majority of employees benefitting from the provision are low and middle income. So, repealing the exemption would be “a disincentive for employees to utilize the benefit and advance their career and life prospects,” Karpus wrote.