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House GOP bill would tax grad student tuition

Profile image for Tom Benning
Tom Benning, The Dallas Morning News

Plan would tax costs waived for students who teach, research

WASHINGTON — The laboratory. Class. More lab time. Homework. Mentoring several freshman students. More lab work. More homework. Helping run a student government group. More time in the lab.

That's a typical week for University of Texas at Austin graduate student Samantha Fuchs, whose pursuit of a Ph.D. in engineering earns her a $20,000-plus stipend and a waiver of tuition.

But the House GOP tax bill could upset that balancing act by starting to tax the tuition break that Fuchs and tens of thousands of other graduate students receive in exchange for teaching or doing research. Suddenly, money that those students never see would be treated as taxable income.

And for some graduate students — often already struggling to make ends meet — the potential tax hit could be the difference between pursuing an advanced degree or not.

"If I hadn't already started, I would probably reconsider," said Fuchs, a 24-year-old who grew up in a Chicago suburb.

The tweak is one of several college-related changes in the House GOP's $1.5 trillion tax revamp, a sweeping plan that broadly seeks to lower rates in a trade for fewer prized breaks.

Among the other higher-education provisions: a new tax on certain university endowments, the elimination of the tax deduction for student loan interest, a new tax on employer-provided education assistance, and changes to certain education tax credits.

But the tuition piece, which would also affect a perk given to other school employees, has sent students, colleges and higher-education experts scrambling to understand the full ramifications.

There's bafflement, given that graduate students aren't exactly a high-dollar target in the GOP's search for tax pay-fors. There's ongoing lobbying, given that the Senate is so far leaving alone tuition reductions and that a top House lawmaker has pledged to find a "positive solution."

And there's the unknown of what colleges would do to soften the impact if the change happens, given that some experts said schools could be constrained by financial and legal considerations.

"The bottom line here is uncertainty," said Patrick Thomas, a University of Notre Dame tax law expert. "We would have to see how universities respond to it, as well as how the IRS would respond — if at all."

Simple deletion

The tuition change, from a legislative perspective, is a matter of simple deletion.

The bill keeps a provision that makes tax-free the scholarships or fellowships that cover tuition and fees. But it axes a piece that tax-exempts tuition reductions provided to college employees -- including grad students working as teacher or research assistants -- and their spouses or children.

That move would hit some 145,000 grad students and 27,000 undergraduate students who rely on those tuition reductions, according to the American Council on Education. Ditto for school employees — professors, yes, but also custodians and office workers — who've used the break.

And the biggest hurt could be felt by students who face the higher tuition that comes from being an out-of-state student or from attending private universities.

"If I had to pay taxes on my tuition, I wouldn't be getting my Ph.D.," said Samantha Hernandez, a South Texas native who's a doctoral student at Arizona State University, a public school.

Fuchs, the UT-Austin student, noted that her school's tuition for an out-of-state grad student costs upward of $19,000 for a set of fall and spring semesters. So someone receiving a tuition waiver and earning a $20,000 stipend would see their taxable income nearly double.

The burden would be somewhat offset by other parts of the House GOP plan: a bigger standard deduction, a new personal tax credit and lower tax rates. But it's unlikely to account for the whole wallop, resulting in a tax bill that could cost hundreds or thousands of dollars more.

That point was echoed by graduate students at Southern Methodist University.

Patrick Troester, who's pursuing a Ph.D. in history, calculated that the change would've could cost him more than $3,000 in a recent year. And Courtney Lacy pointed out that she's already had to take off time from school to work and save up for her doctorate in religious studies.

"I'm already living really tightly," she said.

What will schools do?

It's likely that colleges and universities would try to blunt the impact of any change in the tax treatment of tuition waivers.

Some experts have suggested it could be as painless as reclassifying the benefit as a scholarship or fellowship. And Cornell University, the Ivy League stalwart, seems to be following that tactic by saying its funded grad students are students, not employees, and thus wouldn't be hurt.

But several higher education and tax experts said it's not that simple.

"They can call it what they'd like," said Thomas, explaining that the IRS might take a different view. "But essentially we're still dealing with the same fundamental economic structure."

Other options could include increasing stipends for those working as teachers or research assistants or lowering tuition for all graduate students. But it might only be wealthier schools like Cornell that are able to provide enough assistance to make affected students whole, experts said.

So the legislative fight continues.

Fuchs, Troester and other graduate students are pressing senators to keep the tuition waiver change out of that chamber's tax bill. And in the House, which passed its bill this month, Ways and Means Committee Chairman Kevin Brady has said the provision could get another look.

"We have a keen interest in this issue," The Woodlands Republican said on the House floor after being pressed by some of his GOP colleagues. "We will work with you toward a positive solution on tuition assistance in conference with the Senate."