I have no experience in this area but I assume these waivers come with "job like" research, teaching, and/or administrative support obligations attached, in which case the tax seems appropriate (and, as the author suggests, Universities would likely adapt to a new system, net-neutral to grad students).
If there are no such obligations attached, then how is a tuition waiver different from a merit- or need-based scholarship?
The disconnect here is that while the "job" of a grad student is to do things like research and teaching, it's not the tuition part that is paying for that "job", it's the stipend. The stipend is already taxed.
Put another way, one could reasonably say that an entry level trainee in science is worth about $30K a year pre-tax (roughly the grad stipend at Stanford while I was there). Maybe they're even worth $50K, which is roughly what can be gotten in industry as an undergrad fresh out of college in the biosciences. They are definitely not worth $70-$80K a year (stipend + tuition at a place like Stanford), and even so we would be taxing them on a salary they're not actually seeing.
It's much better to see these waivers as scholarships, which generally aren't taxable. I don't know how the tax plan treats scholarships or financial aid, but I hope they haven't decided that those are taxable too.
If they have decided scholarships still aren't taxable then I suppose universities could call everything a scholarship and use that as a loophole. In which case this part of the tax bill is pointless, incurring a massive administrative change for zero benefit of any sort. Also some universities, particularly public universities may have regulatory issues around limits to number of scholarships they can issue or how they can decide to issue scholarships.
Having seen the system work as a grad student, this would absolutely gut higher education research in the US. No chance would I have attended grad school if I were being taxed on tuition as income. Wired has another thorough write up here:
Likely far fewer people would pursue a PhD, harming every part of the innovation food chain. There are major problems with the higher-ed and grad school system to be sure, but massively increasing taxes on grad students is not a solution. Much better would be to find a way to make non-professor academic positions and other science positions more stable, among other options.
This proposal taxes the front lines of science to finance a corporate tax cut, it's just shameful.
I think that reflects a fundamental misunderstanding of what the private sector does and what PhD programs do.
PhD programs train scientists. I have often compared going to grad school in the sciences to years of getting punched in the face by nature telling you, "sorry try again!" Your mentor (in the best of circumstances) teaches you how to navigate that and sharpens your mind. In the process you learn how to ask the right questions. Doesn't sound like much, but the right question and how to ask it is the core of discovery and so the core of innovation.
You can certainly learn those things in industry, but you'll be working at a different place in the innovation cycle. Almost always you'll be working quite a bit further along than the initial discovery. There will be many challenges, but core, fundamental discoveries remain disproportionately generated by blue sky/harebrained schemes hatched in academia.
This is because the number of failures tolerated in academia is vastly larger than in industry. If you spend 7 years repeatedly failing at everything until one thing works, we just call that a PhD. If you do that in industry, we call that 7 jobs in 7 years (a little reductive, but you get my point). If you injure that part of the innovation ecosystem, there will be fewer wild ideas to build companies off of, and we will all be poorer for it.
You also miss the knock on effect of making it so that only the better-off can afford grad school. Already grad school suffers from that bias, and this would only make it worse. We want the best minds regardless of wealth to get as highly trained as possible to discover nature's secrets.
There is a shortage of grad students in many departments.
Cutting PhD students would require cutting the number of undergrad students educated and classes offered to them. This would prevent science and engineering students from getting their bachelor's on time because of requirements for science sequences. An undergrad 4-year degree becomes 5 years long or aren't completed at all.
The need to expand class offerings to teach undergrads requires TAs to teach labs.
Our department is already over-offering classes compared to the number of grad student TAs.
> this would absolutely gut higher education research in the US
It will also gut undergraduate education.
All of our science labs are taught by graduate students. As it is, we have more classes than PhD students to teach them. For a few semesters, we've been forced to ask one of our undergraduates to lead a lab. If the bill passes, the university will likely cut classes offered.
This will not only disrupt a semester, but entire degrees. Introductory Chemistry, for example, is a requirement for other upper-level classes. If students can't get into a section, they will have a chain reaction of delayed classes and increased time to graduation. I suspect it will increase the dropout rate of undergraduates as well, beyond the PhDs who decide to drop out with a master's.
Further, the publishing of science will be hurt. Work is mostly done by grad students and postdocs. Not all labs have enough funding for a postdoc, but all of them in our department (chem) have grad students. Without workers, the work can't be done.
Likely, we'll have to rely on more affluent international students to come and suffer through the PhD process. Hopefully they'll stay, but they may leverage their degree into a strong position back home where their family and friends are, and where people speak their language.
American students who have the money to do a PhD probably won't. It's incredibly hard and abstractly rewarding, and academia is not a path to much wealth or power.
Poor kids with a work ethic won't be able to work their ass off through undergrad and get to a PhD program where they only need to worry about work.
The tradeoff of saving for retirement and accruing career momentum will be replaced with students doubling their loan burden to get through the 4 years of undergrad and the 5 years of grad school. Good thing they removed the ability to deduct interest payments.
The American Dream is deep in my heart, and they made the edges razor sharp.
Someone please correct me if I'm wrong, but the waivers in question are aimed at students who receive tuition discounts due to working in a full-time capacity. Like a professor gets a tuition discount for their daughter who attends the school, or the admissions accountant gets a discount to attend the MBA program. [1] This means most students unaffiliated with the school would be protected from any tax on graduate school tuition aid.
Regardless, this is an interesting scenario (I say this as a tax accountant), since the university is a non-profit entity, and therefore doesn't receive any tax benefit for incurring this cost (whereas a for-profit company would deduct this as some sort of employee expense).
But instead of passing a tax onto the employee, it seems like the IRS waived the tax entirely since it could be interpreted as a contribution made by the university, to the university: the Uni pays the employee tuition, and the employee pays tuition back to the university. Since the tuition benefits can't be applied to other schools, it seems like a reasonable waiver.
On the other hand, we have a hefty amount of debt on our hands, and in order to dig ourselves out of it, the funds will have to come from _somewhere_. In an effort to "see randomness", this is what I'm hoping is the reason for the change.[2]
[1] the "145,000" student hyperlink in the article: acenet.edu/Pages/Higher-Education-and-Tax-Reform.aspx#tabContent-6
[2] http://www.paulgraham.com/randomness.html
I think you are just wildly wrong on 1.
These waivers are a part of graduate school support for most if not all Phd programs. I.e. I do research, take classes,and perhaps TA. The university pays me a small stipend, and pays my 'tuition' for whatever courses I take, i.e. paying itself. That implicit part of my compensation WOULD be taxable.
"This means most students unaffiliated with the school would be protected from any tax on graduate school tuition aid."
This clearly not true from the article you cite and the verge article (see the comments by the spokeswoman). Where is this claim coming from?
Most Ph.D. students receive a tuition waiver that's considered part of their compensation.
Example, my Ph.D. was paid for primarily through an NSF grant that my advisor was awarded. An engineering Ph.D. student at my university costs the P.I. a bit more than $100k per year -- $25k stipend for living expenses, $40k for tuition, and the rest goes to travel and university overhead.
I paid federal and state income tax on the $25k (not FICA), and the $40k for tuition was reported as tax-exempt income on my W2. Remove the tax exempt status on that tuition money, and my taxable income more than doubles without any increase in my ability to pay. It looks like the effective tax rate would be ~45% of the stipend, and that's not counting FICA or state tax burden [1].
Who is going to do a Ph.D. in the US if this change is enacted? This would seriously damage the workforce development pipeline.
Edit: I didn't realize the difference in the standard deduction, which isn't accounted for in the ADP estimate. It still works out to about 32% effective tax rate, which is still a significant addition to the opportunity cost of a 5-year Ph.D.
> Someone please correct me if I'm wrong, but the waivers in question are aimed at students who receive tuition discounts due to working in a full-time capacity. Like a professor gets a tuition discount for their daughter who attends the school, or the admissions accountant gets a discount to attend the MBA program.
Yes to the first sentence - I don't think the second sentence follows.
When I was a graduate student, I was a teaching assistant, and I was paid to be a teaching assistant and received a tuition waiver. I was required to either teach a class or do funded research in order to get a tuition waiver, and presumably the money for that comes out of either the teaching salary budget or the research funding. I did also get a small amount of pay (a stipend) on top of the tuition waiver, basically enough to pay for housing and meals. I was employed by the school, I got a W-2 for that money, etc. So I was working full-time for the school. Having been accepted to the graduate program, I then became an employee of the university.
I didn't complete my degree, and I've thought about going back to finish it off, but unless I commit to spending a full semester there and apply for and receive a teaching or research assistantship, I'm paying sticker price for the degree program, no financial aid, nothing. That's a huge amount of money, even for someone who's now making a nice big-city tech salary. (And for the particular degree program, there's a limit on how many semesters an individual can be a funded teaching assistant or research assistant, and I only have one semester of that left.)
> On the other hand, we have a hefty amount of debt on our hands, and in order to dig ourselves out of it, the funds will have to come from _somewhere_. In an effort to "see randomness", this is what I'm hoping is the reason for the change.
I think it's basically that but a bit simpler - it's a regulation that's phrased in the way of being a tax waiver for people doing a thing, and the folks trying to do tax reform are just trying to lower the number of those regulations.
With this tax increase, I'll lose a paycheck and a half.
I live in the Southeast, so my cost of living is pretty low- but salaries are mostly the same no matter what. I won't be destitute with this cut, but I will have very little wiggle room. I don't know what students in more expensive cities will do.
My partner and I are the pride of our families for getting PhDs. We both come from poor families, so we don't have anybody to turn to for help aside from one another. She sends home a few hundred bucks a month to support her parents, and I feed her so she can afford to.
Grad school is hard for a whole lot of reasons. It's hard to get American students interested in doing it. For a party that claims America First, they're doing a lot of things to ensure that our citizens have very few incentives to choose it as a career. It takes half a decade to get a degree. You get no raises, almost no vacation, constant work, few free weekends, ambiguous goals, and (for academics) a post-grad career path that seems like 2-4 years of the same thing.
I don't know if I have a point. I'm just 5 years in and kind of tired of departmental politics (and now with national politics). I love my work and have pretty good prospects, but I know I got lucky with the group I joined. I'd advise most students to make grad school their 2nd or 3rd option, if med/osteopath schools don't take them or they can't find an entry-level industry opening. Even a master's in something middling might be useful and much shorter.
As a grad student, I currently do. Losing two paychecks, though, would make my life really unbearable.
Why am I deferring the ability to save money for retirement?
I'm not taking lecture classes, but my research still requires tuition.
I work in lab at least 6 days a week. I teach labs for 150 students a semester for my department, and stay up until midnight writing/reviewing papers or grading. I get two weeks of vacation year, which I take over Christmas, but never the whole period because I need to get work done before teaching starts up again.
Nobody would take out students loans to do this. Our take-home is typically enough to escape financial worry, but not much beyond it. If the bill passes, you'll see a lot of students drop out with masters, and schools will be left unable to offer science courses to most students.
But to be fair to the intent, these sections of the tax code are aimed at educational benefits provided by corporations, and there is not a specific clause in the proposed bill that is targeting graduate education. It seems like an oversight that PhD students are affected by this, or possibly there's a deeper nuance in the tax code that makes this irrelevant to educational institutions. Hopefully all of the attention this has received will result in clarification and amendment before approval.
On second look, I think I am incorrect. Altering Section 132(j)(8) doesn't yield a substantial change.
Before:
Amounts paid or expenses incurred by the employer for education or training provided to the employee which are not excludable from gross income under section 127 shall be excluded from gross income under this section if (and only if) such amounts or expenses are a working condition fringe.
After:
Amounts paid or expenses incurred by the employer for education or training provided to the employee shall be excluded from gross income under this section if (and only if) such amounts or expenses are a working condition fringe.
What makes this the most retarded is that the plan is to tax something that doesn't exactly exist. It'd be like trying to apply sales tax in the MSRP, and not on the actual money changing hands. Which might be ok, except the MSRP is a myth, and is actually used as a price anchor more and more.
My suspicion is that this will cause universities to start charging different amounts for different degrees, or, when that may be illegal (state schools?), they'll lower tuitions across the board and find ways to tack on fees for students who wouldn't otherwise recieve waivers.
Either way it's a really bad precedent, it's bad enough that I can claim someone owes me money, then send the IRS a form saying I've forgiven said loan. Now you've got to convince the IRS that the loan never took place.
If there are no such obligations attached, then how is a tuition waiver different from a merit- or need-based scholarship?
reply