Grad students, colleges worry about Republican tax reform

CHARLESTON, W.Va. — A Republican plan to reform the country’s tax code would raise taxes on graduate students, a group that often balances working for little money and finishing a strenuous degree program.

In exchange for their time teaching undergraduate courses, helping with research or doing other work for a school, graduate students can usually get all or part of their tuition waived. This waiver never makes its way to a graduate student’s wallet. It just gets taken off the bill they owe their school. Such waivers aren’t currently taxed.

The Senate’s plan does not tax tuition waivers, so graduate students are now shifting their attention to keep it that way, hoping the Senate’s plan wins out in the end.

Lindsey McNellis is close to finishing a doctorate in medieval English history at WVU. She came back to school in 2012, leaving a job where she took home nearly $60,000 a year. Had she known her tuition waiver would be taxed, she said she probably wouldn’t have gone back to school.

“I’ve talked to other grad students who said they’d have to quit if this goes through,” McNellis said.

Between a stipend from the school and teaching a summer class, McNellis brought in a little more than $20,000 last year. She also took out some student loans to help pay for her living expenses and held a part-time job. Because she’s from Florida and pays higher tuition, her taxable income would more than double under the House’s tax plan. But the money in her pocket wouldn’t change.

“You get a part-time job to make ends meet. From personal experience — I do have a part-time job — that elongates the time you have to be here,” McNellis said. “I could have probably finished my dissertation last year had I not needed to work.”

Under the tax bill passed by the House, an in-state graduate student at WVU could see his or her taxable income go up by nearly $9,500 a year. It would be higher for out-of-state students — as much as $24,500 a year.

WVU has nearly 1,700 graduate assistants this fall who earn full or partial tuition waivers, according to an estimate from Katherine Karraker, an associate provost at the school. The school has an additional 700 students who get a graduate fellowship or some merit-based tuition waiver that would be affected.

At Marshall University, yearly tuition is slightly cheaper for graduate students — $8,100 for in-state students and $19,500 for out-of-state students — so the waivers aren’t quite as large. The Gazette-Mail could not determine how many Marshall students receive tuition waivers in time for this report.

Graduate students also usually receive a stipend, a small pot of money they can use to pay for living expenses. Students already pay taxes on that stipend.

“We think the Senate version will actually be the ultimate version and that the law will remain the same. We’re hopeful about that,” said WVU Provost Joyce McConnell. “Obviously if something were to change in terms of how tuition waivers were taxed, we would then be looking at what we can do to make a difference for our students, so our students can continue graduate education. This wouldn’t be unique to WVU — there would be an all-in movement across higher education, particularly those with graduate programs.”

There’s fear that many graduate students would be priced out of school, and McConnell said she worries even discussing taxing the tuition waivers will discourage future students from enrolling.

The House’s plan would hit more than just graduate students. People who are paying off student loans can currently deduct the money they pay toward interest. That would go away. Students of West Virginia colleges already have the highest rate of defaulting on their loans, federal data released in September shows.

McConnell said WVU also doesn’t like that the House plan would tax private activity bonds. These bonds, she said, are what the WVU hospital system uses for new building projects.

The House’s plan would also make all education assistance an employer provides to an employee taxable income. Currently, up to $5,250 a year is excluded from being taxed.

The plan would also restructure the American Opportunity Tax Credit. Currently, a person can receive up to $2,500 a year, for four years, as a tax credit for the tuition, required fees or course materials needed for class. That would be reduced to $2,000 for the first four years and an additional $1,000 for a fifth year. If a student claims the American Opportunity Tax Credit for all five available years under the House’s plan, he or she would get $1,000 less than during the four years under the current credit.

The Senate’s version of tax reform is largely without criticism from colleges, save for one provision that would target college athletic programs. The Senate’s plan would tax colleges for some unrelated business income, which higher education leaders said would result in paying taxes on the money from licensing their logos and university names.

“Royalties from the use of our registered logos and names is a significant and steadily growing source of income for Marshall,” said Marshall spokeswoman Ginny Painter. “Our royalty income is used to provide scholarships for students, and in the current climate of ongoing cuts to state allocations for higher education, every dollar is needed.”

Both the Senate and the House want to subject investments from private college foundations to a 1.4 percent excise tax. Private colleges with small endowments and public college foundations would be spared from the tax.