House Tax Bill Would Affect Tuition Benefits, Graduate Students

Nov 27, 2017

The U.S. Capitol
Credit AP

On Nov. 16, the U.S. House of Representatives passed the Republican tax plan. It would make changes including counting graduate scholarships and tuition discounts as taxable income. That has raised concerns for some, including the administration at Penn State.

Sheila West, a professor of biobehavioral health and nutrition at Penn State, is also the parent of a college student. Her son is in his first year at Penn State. He wants to become an architect.

As the child of a university employee, he gets a big tuition discount. West said that is a huge draw for faculty and staff.

But under the tax bill passed by the U.S. House, that benefit would essentially shrink. The same goes for the scholarships and fellowships that help graduate students earn their degrees. Those benefits would also become taxable.

West and others worry that could drive some graduate students away.

“If our graduate students are asked to pay taxes on their tuition as income, we’re going to be imposing a pretty large tax burden on people who are not living large,” West said.

Shailendra Gajanan is a professor of economics at the University of Pittsburgh - Bradford. He said a graduate degree can be particularly important in fields including IT, public health and medical care.

“It’s going to be very difficult, very very difficult to push people up the ladder now," he said.

Penn State estimates that employees who get the tuition benefit for themselves or dependents would have to pay another combined $5 million in taxes each year. A graduate student could end up paying $2,000 more a year.

Kevin Reuning, a graduate student in political science at Penn State, said that could put graduate school out of reach for a grad student who makes less than $20,000 a year.

“Suddenly they’re going to owe triple in taxes, maybe even more depending on what their current tax status looks like. It’s going to be devastating for some.”

Reuning calls treating a tuition waiver as income is “ridiculous.”

“At the end of the day, I cannot pay rent with my tuition waiver. I can’t buy groceries with my tuition waiver,” he said.

Penn State President Eric Barron said in a message to the university community that his administration, along with other universities across the country, is “raising red flags” about the possible long-term negative effects of the changes in the House tax bill.

Barron said that by making graduate education more expensive, the bill would discourage students from getting advanced degrees.

He said it could have negative impacts on research and innovation at Penn State and universities, and “ultimately harm U.S. competitiveness, as the pipeline for the nation’s intellectual capital is compromised.”

That’s one of Gajanan’s concerns.

“One of the greatest competitive advantages for the United States is the infrastructure at the higher educational institutions," Gajanan said. "That is what has kept the U.S. on top of the world for all these years, for over 40, 50, 60 years.”

He said the tax on the tuition benefit would hit lower income staff members the hardest.

“How fair is it to tax a department assistant who is making less than $30,000 in the lowest rung of the income profile, to tax her on her child’s tuition credit.”

The Senate bill under consideration does not include the same provisions for tuition reduction or graduate student tuition.

A spokesman for Senator Pat Toomey, who serves on the Senate Finance Committee, didn’t directly address the issue of taxing tuition benefits in the House plan. In a statement, he said the Senate is focused on passing the tax plan that was voted out of the Senate Finance Committee. Senator Toomey, he said, is confident the House and Senate will be able to resolve the differences between the two plans.