Kansas college students and university professionals are watching closely the conference committee debate that will occur in coming days to finalize a tax plan from the House and Senate versions.
Proposed tax changes in the House plan could impact the cost of higher education, but the changes aren’t included in the Senate version, passed in the early-morning hours Saturday. Even with uncertain impacts, students still have reached out to their legislators to express concerns.
Proposals in the House plan that have students concerned include:
• Eliminating the deduction for student loan interest.
• Eliminating the Lifetime Learning tax credit.
• Halving the American Opportunity Tax Credit but extending it from four years to five.
• Taxing tuition waivers, which many graduate students receive in return for their on-campus work teaching classes, as income.
The tuition waiver changes have received the most media attention. Michael Reichenberger, who received his Ph.D. in May in nuclear engineering from Kansas State University, said the effect varies significantly from student to student. Looking back to his paystubs in 2012, he was making $18,000 as a stipend, which was taxed, and on a two-week paycheck that brought him $692, with a net pay of $599. But also on that paycheck it was noted he received $717 in fringe benefits from the tuition waiver.
If that tuition waiver were taxed, his take-home pay would have been $450.
Reichenberger is a first-generation college student from a large family in south-central Kansas. The proposed tax changes “absolutely would have changed my mind” about going to graduate school.
“I wasn’t planning on going to grad school,” he said. “My advisor sort of asked if I wanted to come to grad school and if I had considered it and floated out the offer to pay for tuition and have a living stipend. Quite honestly, even knowing what I know now, I probably would have reconsidered. Things were not easy, by any means, financially. I have colleagues that graduated the same time I did with their bacehlor’s degree and now they’ve got five or six years of experience and they’re making six figures, no problem.”
Reichenberger is leaving grad school with $100,000 in debt.
That kind of debt load isn’t unusual for college students. According to Student Loan Hero, class of 2016 college graduates had an average debt of $37,172. Graduate student debt varied by degree, with the higher loads carried by law students, an average of $140,616 in debt, and medicine and health sciences, $161,772. A student with a master of education degree carries about $50,879.
It’s those numbers that concern Derek Lawson, president of Kansas State Univerity’s Graduate Student Council and a doctoral student in personal financial planning. Lawson is a certified financial planner for Priority Financial Partners.
“The student loan interest deduction was an above-the-line (tax) deduction, so if you paid $2,500 in student loan interest you’re able, under the current rules, to claim up to $2,500,” he said.
As concerning is the proposed elimination of the tax credits, which are dollar-for-dollar reductions in taxes owed, Lawson said. Those tax credits have essentially been a way for grad student to get some of the money they pay on tuition back when they file their taxes.
“It winds up being pretty substantial for a graduate student enrolled full time,” he said, adding that it’s typically $2,000 or $3,000 “tacked on top of your income tax return.”
“When you’re making a stipend of between $10,000 and $20,000, another $2,000 or $3,000 in taxes is between 10 and 20 percent of your income, which is pretty substantial,” Lawson said.
Emily Pascoe, president-elect of K-State’s Graduate Student Council, was extremely discouraged by the House bill.
“This is the first time I’ve had a full scholarship,” she said. “You already make $12,000 a year, and that already makes you want to jump off a cliff, and you’re going to tax me on a (tuition waiver).”
Peter Federman, a doctoral student at the University of Kansas, is doing his PhD research on how policies impact citizens and how the process works, leaving him even more willing than some students to dig into the nitty-gritty details of what’s happening in Washington.
He’s finished his classes and is working on his dissertation, so there’s less personal impact from changes like taxing the tuition waiver. He sees the proposed changes as “absolutely” being a deal-breaker for some students considering graduate school.
“The people it’s going to affect the most — whether it’s people thinking about applying or people already enrolled who are facing tough decisions — are going to be nontraditional students, low-income students, students who it was already a stretch for them to be able to go graduate school,” he said.
Carol Shanklin is dean of the graduate school at K-State. She said concern about the proposed changes is rampant among university administrators and students.
Should the final tax plan contain what’s currently in the House bill, Shanklin said she thinks it would definitely result in the loss of graduate students for the university.
“The cost of education, they’ll have to take more out to cover the cost of tuition, some people will just say ‘I can’t do it,’” she said. “Yes, it’s going to impact our enrollment at the graduate level, both masters and Ph.D.”
Taxing tuition waivers as income may also make it difficult for colleges to get graduate teaching assistants and graduate research assistants on board. That may impact the important research work done at universities nationwide, she said. Professional organizations are raising the warning about such issues.
The American Chemical Society put out a strong statement about how much STEM learning would be impacted by the proposed tax changes.
“The current version of H.R. 1, the Tax Cuts and Jobs Act, would eliminate beneficial tax provisions for graduate education and would disproportionately and negatively impact graduate students in science, technology, engineering and mathematics (STEM) — ultimately harming the very economy it seeks to strengthen,” the organization said. “STEM graduates today represent the next generation helping to propel the U.S. invention and innovation pipeline to create breakthroughs, new jobs and economic growth.”
“I’m hoping they will look at the long-term impact on our competitiveness from a global perspective, but also the ability to train,” Shanklin said.