Graduate students at colleges and universities across the country are keeping a watchful eye on federal tax reform, and in particular, whether changes will make tuition waivers taxable.
Indiana State University would be affected, if the provision becomes part of the nation’s tax code. It is in the House bill, but not in the Senate bill.
“Every university with graduate programs is concerned about the implications of taxing tuition waivers,” said Mike Licari, Indiana State University provost. “It would take money out of their pockets, and their tax liability would go up overnight,” even though their earnings had not increased.
Across the nation, graduate students have staged campus walk-outs and lobbied Congress to keep the tuition waivers tax-free.
According to Licari, a tuition waiver is a recruiting incentive “for universities to get students to come to the university. We might waive all or some of your tuition.”
While the waiver is something the university has to balance on its books, “This is not showing up as income in the student’s bank account. It certainly is a benefit, but it is not income,” he said.
It is a tool to attract high-performing graduate students, he said, and at ISU, “a substantial proportion” of graduate students receive them; some receive a full waiver, while many have part of their tuition waived.
Graduate education tuition at ISU is “pretty close” to undergraduate tuition, he said. “Often, that is not the case. Many universities have graduate tuition that is far in excess of what they charge undergraduates.”
The more expensive the university tuition is, “the more valuable these waivers are and therefore the higher amount of tax you would be liable for,” he said. “It has some very real implications for pushing students in tax brackets that are unaffordable.”
Some graduate students do receive graduate assistant stipends, in which they are paid for work they do on campus, and that is taxable income, Licari said.
The House and Senate “just started reconciliation meetings Monday. We have to wait and see how this will shake out. There’s no guarantee this provision will even survive,” Licari said. “It’s too early to panic.”
Among those concerned is Rusty Gonser, ISU biology professor and director of the Center for Genomic Advocacy.
“I think it has the potential to hurt graduate education across the country,” Gonser said. “The ultimate result will be making it harder for students to earn graduate degrees to improve their employment and career opportunities.”
Most tuition waivers are based on academic performance and they are competitive, and are therefore viewed as scholarships, Gonser said.
Higher education leaders also have concerns that proposed changes could reduce financial incentives to donate money to colleges, Licari said.
Also, because the tax bill will greatly increase the federal deficit, “That money has to be found somewhere, and the concern is that higher education spending by the federal government might be one source for closing that budget gap.”
Ted Mitchell, president of the American Council on Education, said in a statement that the change to the standard deduction “would result in reduced charitable deductions, which could easily undermine all nonprofit institutions, including colleges and universities, through a loss of charitable gifts.”
Officials at Rose-Hulman Institute of Technology are also tracking tax reform legislation.
But Chris Aimone, Rose-Hulman executive director of development and senior director of planned giving for the Office of Institutional Advancement, said tax implications are just one consideration for donors to the college.
“What we tend to see here is people being passionate about the impact of their gift and helping to change the life of a science, engineering and mathematics student,” he said. “When you begin with that passion, you are talking about a gift made from the heart.”
Those donors want to have an impact on society at large and on students’ lives, often through scholarship support, Aimone said.