How the Tax Bills Would Hit Higher Ed

On eve of vote on Senate tax reform plan, we compare it to the House version, which would hurt students and families more. Both would hit colleges and universities hard by imposing new taxes and constraining state budgets.

November 30, 2017
 

As Republican leaders in the Senate lobbied to secure the votes needed for a drastic overhaul of the U.S. tax system, higher education leaders and student groups have continued to keep the spotlight on provisions in both houses of Congress that would significantly affect -- and, they believe, badly hurt -- institutions and college-goers alike.

Both tax reform plans would for the first time tax the income of college endowments by targeting the largest endowments at private institutions -- a "disastrous precedent for universities and indeed, for all charitable organizations," said Mary Sue Coleman, president of the Association of American Universities, in a statement this week. But the effects of the two bills on students and colleges are wide-ranging.

The House plan, passed earlier this month, strips out many tax benefits that made attending college and graduate programs as well as repaying student loans more affordable. Graduate students at campuses across the country organized walkouts Wednesday to protest a provision of the House plan that would tax graduate tuition benefits as income, a change that higher ed advocates say would render graduate education unattainable for many students. (House Ways and Means Chairman Kevin Brady hinted this week he was open to changing that provision during negotiations over the bill.)

The Senate plan, which has already cleared committee, left out many provisions of the House plan directly affecting student benefits. But it included a proposal that would create new costs for nonprofit entities like universities with business income unrelated to their core education mission. And it would tax income on royalties for licensing a college's name and logo.

A provision that eliminates the ability to deduct any state and local taxes from a taxpayer's federal liability could have even bigger long-term consequences for public higher education by placing a huge strain on state budgets.

It appears increasingly likely that some version of the tax plan will pass the Senate -- possibly as soon as this week. That means many of the details of tax reform legislation, and the discrepancies between the two versions, will be worked out in conference committee.

A comparison of the House and Senate tax reform legislation follows.

Tax Reform for Higher Education

  House Plan Senate Plan
Education Tax Benefits    
American Opportunity Tax Credit Consolidates AOTC and Lifetime Learning Credit and adds a fifth year with half the benefits. Repeal of Lifetime Learning Credit would mean no tax credit for part-time students. No changes to AOTC
Discharge of student debt Discharge of student debt from death or disability would be excluded from taxable income. No change
Student Loan Interest Deduction Repeals tax deduction for interest paid on federal student loans. Under current law, borrowers can deduct up to $2,500. Not included
Graduate student tuition Eliminates Section 117(d)5 of tax code, which allows institutions to waive or reduce tuition costs for graduate students without tax implications. No change
College employee dependent benefits Would no longer exclude tuition benefits for college employees' spouses or children from taxable income. No change
Employer-provided education assistance Would no longer exclude employer-provided education assistance from taxable income. Tax-exempt benefits are currently capped at $5,250 per year for undergraduate and graduate course work. No change
Endowment Tax Applies a 1.4 percent excise tax to private college endowments valued at $250,000 per full-time student. Same as the House plan
Charitable Contributions    
Charitable deductions Increases standard deduction from $12,700 to $24,000 for joint filers and from $6,350 to $12,000 for individuals. Charitable groups say the change will reduce the incentive for charitable giving to entities like colleges. Increases standard deduction to $24,400 for joint filers and $12,200 for individuals.
College athletic seating rights Eliminates rule providing for charitable deduction of 80 percent of amount paid to purchase tickets to athletic events. Same as House plan
Unrelated Business Income Tax    
Research income Tax-exempt organizations could exclude from unrelated business tax only income from research that is available to the public. Not included
Name and logo royalties Not included Would tax royalties a college derives from licensing its name or logo.
Business income taxed separately Not included Requires that unrelated business income be counted separately for tax purposes, meaning colleges could no longer use losses in one business area to offset tax liability for gains in another.
Tax-Exempt Bonds    
Termination of private activity bonds Effectively eliminates tax-exempt private activity bonds that lower the cost of building for colleges. Not included
Termination of advanced refunding bonds Interest on newly issued advance refunding bonds would become taxable. Same as the House plan
State and Local Tax Deductions Deductions for state and local property taxes would be capped at $10,000. Higher ed advocates say limiting the deductions will mean less support for taxes that support community colleges and public universities. Eliminates deduction entirely.

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