For the last two months as the Republican-controlled Congress worked on tax reform, many showed alarm at the number of proposals that affected higher education. Among these reforms were a tax of large university endowments, a repeal of student loan interest deductions, a raising of the deduction for charitable giving, and a proposal to treat graduate student tuition waivers as taxable income.
“[The endowment tax] is an unprecedented government intrusion and taxation of tax-exempt universities that will result in fewer resources for student financial aid.” – Chancellor Nicholas Zeppos
Vanderbilt University showed dramatic concern towards these tax reforms, especially their potential effect on financial aid and graduate research. The proposed 1.4% excise tax would have cost an estimated $7 million every year, or the equivalent of 104 cost-of-attendance scholarships. For Vanderbilt graduate students, a tuition waiver in exchange for teaching assistance or research would be treated as taxable income. If, for example, a married Owen School of Management student were making $20,000 a year, he or she would have paid taxes on their income plus the cost of the tuition the university waived. In this case, where tuition costs $54,000, the graduate student would pay taxes on $74,000 despite earning an income just above the poverty line. According to Vanderbilt, the proposed reform would have affected the ability of universities to attract and teach graduate students while curbing innovation. Chancellor Zeppos openly penned a letter to Tennessee members of Congress in protest of these reforms, declaring them collectively as a “fundamentally bad public policy.”
Fortunately, Congress passed a final bill on Friday that did not eliminate the exemption of tuition waivers from taxation or the deduction for student loan interest in the current tax code. Although an endowment tax was left in, it will only tax universities with over 500 students and more than $500,000 in assets per full-time student. Vanderbilt’s endowment totals just over $328,000 per student, therefore sparing it from the tax and a devastating effect on financial aid. Schools with larger endowments are set to lose millions, however. Harvard will be forced to pay 43 million dollars every year. Chancellor Zeppos called the endowment tax a “an unprecedented government intrusion and taxation.”
One provision in the final bill is still expected to affect Vanderbilt: A doubling of the standard tax deduction. The standard tax deduction is a flat amount the government allows one to deduct from their taxes as opposed to itemizing their deductions. The final tax plan has effectively doubled this amount from $12,700 to $24,000 for married couples filing jointly. Thus, there is a decreased incentive for Americans to donate to nonprofit entities such as Vanderbilt as they can claim larger tax benefits through the standard deduction. According to Chancellor Zeppos’s letter, the tax will affect education and research support and potentially lead to tuition increases.
The tax bill is expected to reach President Donald Trump’s desk by Christmas for approval.
