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The GOP tax bill could be a disaster for Ph.D. students

Vox.com logo Vox.com 11/7/2017 Jen Kirby

Add graduate students to the list of potential “losers” in the House Republicans’ tax overhaul plan. 

The bill, in its current form, eliminates or consolidates tax credits used by both graduate and undergraduate students — but those pursuing master’s degrees and PhDs will get hit the hardest by the proposed changes.

One of the most glaring: the possible end of nontaxable tuition waivers for grad students who work as teaching or research assistants. Approximately 145,000 graduate students could be affected by this change, about 60 percent of them from STEM (science, technology, engineering, and math) fields, according a 2011 to 2012 survey by the Department of Education, the most recent data available. It’s hard to say precisely the tax hike for each person, and tuition varies per institution, but, experts suggest students could owe around an additional $2,000 per year or more — which could add up for grad and PhD students who usually take multiple years to complete their studies.

What are tuition waivers exactly?

If you’re a PhD student right now who works in your university’s lab, you’ll get paid a stipend for that job — but not much. The average annual salary for graduate research assistant, for example, is less than $30,000, according to Glassdoor. There’s also tuition to pay to the institution where you’re getting that PhD.

But since you’re cleaning petri dishes, the university waives that tuition. And based on the qualified-tuition-reduction provision in the tax code, the waived tuition isn’t currently taxed as income.

But the new GOP plan would change that, Steven Bloom of the American Council on Education explained. That tuition, as he put it, “would be taxable income to the graduate student.”

So on top of being taxed on the $30,000 a student earns in the lab, he’ll have to pay taxes on between approximately $20,000 and $30,000 in tuition that the school is covering — effectively taxing an individual on a total of $50,000 to $60,000 annually. For example, that might push an unmarried PhD student who receives a $30,000 stipend and gets $30,000 tuition waiver from the 12 percent tax rate for lowest earners up to the 25 percent tax bracket —even after the increased standard deduction -- in the GOP’s current plan.

That’s a dramatic example: The most recent data from the Department of Education (also from 2011 to 2012) lists the average grad tuition at public and private institutions at about $16,000 per year. But tuition costs can spike into the $30,000 range. For example, UCLA charges, on average $16,000 for in-state students and more than $31,000 for out-of-state students, according to its website. Cornell, a private university in New York, charges approximately $29,000.

Claus Wilke, the department chair of integrative biology at the University of Texas Austin, also dove into the consequences of this new tax on Twitter:

So grad students would likely face a far heftier tax bill. And as Wilke raises, that could have serious ripple effects within higher education itself.

“It would really upend the entire American PhD system,” Wilke said of taxing tuition waivers. “Currently the rule of thumb is the recommendation that you give to prospective PhD students: If they have to pay tuition and they’re not being paid a living stipend, they should not enter the PhD program.”

Tens of thousands of students take advantage of tuition waivers

This qualified-tuition provision isn’t explicitly for graduate students. Bloom, of the American Council on Education, explained that the specific provision allows private and postsecondary institutions to waive or reduce tuition for any university employee, and that won’t count toward taxable income.

This applies to a PhD who’s a poli-sci TA, or to the university’s janitor, who could maybe take classes for free or have his or her kids potentially enroll at a college for a reduced price — a benefit that’s offered at about 90 percent of universities, according to the College and University Professional Association for Human Resources.

Which means tens of thousands of students will be affected if the GOP nixes this provision. According to Department of Education statistics from 2011 to 2012 (the most recent available), about 145,000 graduate students depended on these nontaxable tuition waivers, and about 172,000 higher ed students do altogether.

a screenshot of a cell phone © Provided by Vox.com American Council on Education

What are the potential consequences for higher education?

Graduate students disproportionately depend on these tuition waivers, and as Wilke pointed out, getting rid of this benefit would add an extra financial burden for many graduate and PhD students. It’s less clear if that will eventually lead to fewer PhD students, or possibly more student loan debt.

Bloom said it’s possible that getting rid of this provision could lead to fewer people trying for their master’s or doctoral degrees.

“I’m not sure there’s a way to thread this needle without this provision,” he said. “It is likely to lead to fewer people pursuing graduate education and a PhD because they can’t afford it, or they’re going to take more loans — and at a time when everyone is rightly worried about student loan debt.”

Bloom noted that the GOP’s tax plan will also eliminate the student loan interest deduction that currently allows students to deduct up to $2,500 of interest payments on such loans — which could also hit graduate students hard.

Robert Kelchen, an assistant professor for higher education at Seton Hall University, pointed to changes to higher education tax credits as dealing a blow to students earning advanced degrees. Buthe doesn’t think that these policies — particularly taxing tuition waivers — will broadly deter people from enrolling in a PhD program.

“I don't think it will be as substantial given the lifetime benefits to getting a graduate degree,” he said. “Paying an additional $2,000 to $3,000 wouldn’t deter that many people — even though it would lower people's standard of living while they’re in graduate school.”

Research has shown that people aren’t motivated to pursue higher ed because of tax credits, Kelchen said, so it follows that a lack of credits wouldn’t stop people from getting a doctorate. He added that in the bill’s current form, the increase in the standard deduction might also help offset some — if not all — of the cost of taxing tuition waivers.

The tuition waivers would also hit the STEM fields particularly hard, something Wilke noted in his thread. He said he got some pushback from other subject areas — and it’s true that students in non-STEM fields will also get walloped by this change.

But according to Education Department data, about 60 percent of graduate students who take advantage of tuition waivers are in STEM fields:

© Provided by Vox.com CUPA-HR: College and University Professional Association for Human Resources

Lawmakers in both parties have echoed the calls of educators and the science and tech community to elevate and improve access to STEM education — something Republicans themselves have said bolsters America’s economic competitiveness.

“If we really want to advance access to higher education at the undergraduate and graduate level and prepare these young people to help make our economy vibrant and innovative,” Bloom said, “then you want to create incentives to do that, and you want to restructure these things, or enhance them in ways that are going to do that now and in the future.”

“That’s not what they’ve done,” he added. “What they’ve done is essentially taken money out of higher education from students and families and allocated it toward tax cuts for corporations.”

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