University leaders call for protections for students, higher education in tax reform process

USC leaders are joining officials at other top research universities throughout the nation to express strong concerns that tax reform proposals being considered by Congress could negatively affect students and institutions of higher learning.

Under the current legislation being debated, relied-upon incentives such as tuition-related tax benefits for graduate students, deductions for student loan interest and tax savings from charitable giving could be altered or eliminated.

Our greatest asset as a university and a nation — our promising and deserving students — would be very negatively impacted if these proposals become law.

C. L. Max Nikias

“Our greatest asset as a university and a nation — our promising and deserving students — would be very negatively impacted if these proposals become law,” said USC President C. L. Max Nikias. “Taxing tuition benefits would make it much harder for low-income and middle-class students to access a tertiary education and significantly undercut American innovation at a time when we should be encouraging more students — not fewer — to pursue advanced degrees.”

Current proposals that could affect USC and other leading research universities include the following:

• Eliminating deductions for graduate student tuition assistance.
• Repealing the student loan interest deduction.
• Repealing deductions for educational assistance programs for university employees and their families.
• Eliminating the lifetime learning credit.
• Doubling the standard deduction, potentially reducing charitable contributions.
• Creating a new excise tax on endowments at private institutions.

The Association of American Universities (AAU), composed of 62 distinguished institutions in the United States and Canada, including USC, issued a statement calling on the nation’s legislative leaders to protect tax policies that promote postsecondary education, make college more affordable and strengthen the financial stability of universities.

“Graduate student tuition remission, the student loan interest deduction, and employer-provided educational assistance are all critical to keeping higher education accessible and affordable,” AAU President Mary Sue Coleman said in a statement.

Ted Mitchell, president of the American Council on Education (ACE), also expressed serious concerns with the Tax Cuts and Jobs Act recently passed by the House of Representatives. In an ACE statement, he noted that government officials have estimated that the bill would increase the cost of attending college by more than $65 billion by 2027.

“It is possible to offer tax relief to hard-working middle-class and lower-income Americans in a way that does not increase college costs and does not make a quality higher education less accessible,” he said. “We are eager to work with Congress to enact such legislation, but this bill heads in the wrong direction.”

Potential effects

Provisions in the recently passed House of Representatives bill would eliminate tuition benefits that support thousands of graduate students at USC and elsewhere. If approved in its current form, the legislation would significantly increase the tax burden on PhD and master’s students, who currently enjoy tax-free tuition assistance as part of their financial aid package.

Between 3,000 and 3,100 doctoral students at USC would be affected by the tax on tuition support, said Sally Pratt, the university’s vice provost for graduate programs. In a letter sent to USC graduate students, Pratt and Elizabeth Graddy, vice provost for academic and faculty affairs, noted that proposed changes to how student loans are handled could also impact many of the university’s 24,000 graduate students.

This legislation has the potential to dramatically limit our ability to educate and train graduate students in this country.

Michael Quick

“This legislation has the potential to dramatically limit our ability to educate and train graduate students in this country,” said USC Provost Michael Quick. “It could profoundly harm the ability of U.S. universities to attract the best and brightest students from all economic backgrounds, and it will substantially impact areas where the United States is the world’s leader: innovation and creativity.”

In addition, research institutions could bear a significant portion of those effects. ACE cited data from the U.S. Department of Education showing that 57 percent of tuition assistance goes to graduate students in science, technology, engineering and math fields.

“These proposals would be seriously harmful for our PhD students, who rely on these stipends for support as they develop as researchers and teachers, and to all of our graduate students who have student loans or qualify for other assistance,” Graddy and Pratt said in their letter.

Staff and faculty members who benefit from USC’s tuition support program for spouses and dependents could also experience a major cut in their paychecks or no longer be able to afford to send their child to USC if those benefits become taxable.

Charitable giving

Although it remains unclear if and when proposed tax law changes will be enacted, current provisions in tax reform bills could provide fewer benefits for charitable donations by doubling the standard deduction, doubling the estate tax exclusion amount and increasing the share of income that can be offset by deducting cash gifts to charity.

Individuals considering a gift to an institution of higher learning or other nonprofit organization could explore options such as a charitable lead trust, gift annuity or donor-advised fund that would preserve current tax benefits and permit a later determination of how to allocate the gift.

In addition, a separate provision in both House and Senate proposals would establish an excise tax on profits earned from endowment investments at certain private universities.

“Endowment funds support generous institutional student aid packages, student services like career counseling, and cutting-edge medical research, among many other things,” Coleman, AAU’s president, said in the AAU statement. “This is an unprecedented ‘phantom tax’ on donors who are making a personal choice about using their hard-earned dollars to fund public goods like student financial aid and cancer research.”

USC leaders vow to continue working with AAU, ACE and other higher education groups to advocate for the protection of tuition assistance programs, the student loan interest deduction and other tax benefits that support students at USC and other institutions of higher learning.