Grad students could face a tax burden increase by at least $10,000 annually, while parents with tax dependent college kids could lose out on up to $2,500.
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Chock full of breaks for corporate industry and some serious cuts to long-time tax benefits utilized by the middle class, the House GOP tax bill is on its way to the Senate for consideration on November 29. If the bill moves forward (which House Republicans hope to see happen at lightning speed) the nation could see its first major tax overhaul in decades.
And it's not just the House Democrats who have been left shaking in their boots as the bill gains momentum. The tax overhaul has been heralded as a “Republican War on College,” and features some major cuts to write-offs and benefits that make higher education attainable to thousands of Americans. And while the GOP says that other benefits introduced in the bill will balance out these cuts, the American Council of Education estimate the House’s cuts could increase costs for college students by $65 billion over the next 10 years.
Here’s what past, present, and future students have to look out for in the GOP’s proposed overhaul.
Say ‘so long’ to writing off your student loan interest during tax season.
The House bill take an axe to the student loan interest tax deduction, which is used by more than 30 percent of the 40 million-plus Americans shouldering student debt. The deduction lets taxpayers making less than $80,000 write off up to $2,500 in student loan interest payments, saving you up to $625 per year.
The write off cost the federal government $2 billion in foregone revenue in 2016, more than double the federal burden of the write off just nine years earlier. This makes it a major target as the GOP looks to shave the federal government’s tax burden to pay for other cuts, like reducing the corporate tax rate to 20 percent.
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Graduate students would be taxed on tuition they’ve never even paid.
The financial viability of grad school and PhD candidacy largely hinges on teaching and research work exchanges, which cover full tuition at major universities across the country. But this system is looking at a major shakeup under the proposed House overhaul, repealing section 117(d)(5) of the tax code, which exempts graduate students from paying taxes on tuition waivers.
This means that graduate students would be expected to pay taxes on a tuition they never paid for to begin with. M.I.T. grad student Erin Roussau broke down the repeal impact in an article for the New York Times. As an M.I.T. grad student with tuition waiver valued at about $50,000, Roussau and her peers would see their tax burden increase by at least $10,000 annually.
Graduate students at universities across the country have planned a nationwide walkout to protest the bill.
College janitors and university provosts alike would have to pay taxes on tuition benefits.
Section 117(d) of the tax code has allowed employees of nonprofit universities and colleges to benefit from tuition reductions and exchanges offered by their employers on a tax-free basis. It’s a long-standing benefit of working in higher ed, and has allowed nonprofit institutions to recruit competitive employees while offering a lower salary than may otherwise be expected.
Under the proposed tax bill, higher ed employees, regardless of their salary, would be required to pay taxes on waived or reduced tuition benefits. And while the benefit is often associated with tenured professors and administrators, it also applies to employees on the lower end of the pay scale, including clerical and custodial staff who could seriously feel the financial burden of this tax increase.
Slashes in write offs for parents of college students.
Parents with tax dependent children enrolled in college could lose out on up to $2,500 available through the American Opportunity Tax Credit. The credit, which would be decreased and reformatted under the proposed House bill, currently applies to single parent households making up to $80,000 per year, or for married couples making up to $160,000.
The bill also puts the breaks on contributions to Coverdell Savings Accounts, and converts the accounts into 529 plans. Coverdell Savings Accounts allow for tax-free withdrawals for education expenses and can be used for not only college, but also private elementary and secondary schooling. In contrast, 529 plans are limited to post-secondary education only.
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