
Grad School Tuition Wavers to Be Taxed as Income in Congress's Tax Plan - flaque
https://www.theverge.com/2017/11/7/16619246/tax-bill-trump-gop-cuts-and-jobs-act-graduate-students-tuition-waiver-reductions
======
trentlott
Just for fun, my real take-home pay is 21k.

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.

------
entee
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:

[https://www.wired.com/story/grad-students-are-freaking-
out-a...](https://www.wired.com/story/grad-students-are-freaking-out-about-
the-gops-tax-plan-they-should-be/)

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.

~~~
pnw_hazor
There is no shortage of PhDs. Encouraging people to skip the Phd and enter the
private sector would be better for the innovation food chain.

~~~
entee
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.

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s0rin
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](http://www.paulgraham.com/randomness.html)

~~~
rsfern
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.

[0]: [https://www.insidehighered.com/news/2017/11/07/grad-
students...](https://www.insidehighered.com/news/2017/11/07/grad-students-and-
policy-experts-say-taxing-graduate-students-tuition-waivers-would)

[1]: [https://www.adp.com/tools-and-resources/calculators-and-
tool...](https://www.adp.com/tools-and-resources/calculators-and-
tools/payroll-calculators/salary-paycheck-calculator.aspx)

------
oldprogrammer2
This seemed so bizarre, I had to research it. Best I can tell, it originates
on Page 97 of the proposed bill:
[https://waysandmeansforms.house.gov/uploadedfiles/bill_text....](https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf).

 _(2) Section 132(j)(8) is amended by striking "which are not excludable from
gross income under section 127"._

I looked up the mentioned sections:

Section 132:
[https://www.law.cornell.edu/uscode/text/26/132](https://www.law.cornell.edu/uscode/text/26/132)

Section 127:
[https://www.law.cornell.edu/uscode/text/26/127](https://www.law.cornell.edu/uscode/text/26/127)

This does seem to be true.

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.

~~~
oldprogrammer2
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._

I'm not sure where this is in the tax bill.

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nugget
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?

~~~
entee
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.

------
milesvp
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.

------
davidfarmer
Previous discussions:

GOP tax bill would tax tuition waivers for grad students (chronicle.com)

[https://news.ycombinator.com/item?id=15622544](https://news.ycombinator.com/item?id=15622544)
(122 comments)

The GOP Tax Plan Will Destroy Graduate Education (forbes.com)

[https://news.ycombinator.com/item?id=15646571](https://news.ycombinator.com/item?id=15646571)
(97 comments)

------
tomohawk
So, $5K tax on $25K income? With the new standard deduction of $12K for
individual or $24K for married? Would like to see the math.

------
trisimix
How tf can you not live on 20k a year...

~~~
trentlott
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.

