Issue Brief: Tax Reform - Education Related Provisions
    March 15, 2016

    Although changes to the tax code were enacted at the end of the first session of the 114th Congress, for graduate students there are additional items of concern. Decisions about specific tax provisions often are guided by revenue estimates and whether the changes are revenue neutral. A number of changes that have been proposed to the tax code in the past could have a negative impact on how graduate students finance their education. For example, proposals that would repeal the Lifetime Learning Credit and eliminate the deduction for interest paid on student loans could increase the financial burden for many graduate students who are pursuing their master’s or doctoral degrees.

     

    Over the past few years, a number of congressional actions outside of tax reform have had a negative impact on federal financial assistance for graduate students. Graduate students no longer qualify for in-school interest subsidies and they pay higher interest rates. These changes, if coupled with suggested tax reforms, would require graduate students to pay an even higher price for the education decisions and choices they make to acquire advanced knowledge and skills. This knowledge is becoming ever more necessary in an increasing number of high-demand fields and careers. To remain competitive in a global economy, the U.S. cannot afford to discourage talented individuals from pursuing graduate education.

     

    So that students from diverse economic and demographic backgrounds have access to high quality, affordable graduate education, CGS recommends the following principles when changes to the tax code are proposed:

     

    Preserve the Lifetime Learning Credit (LLC).

    Eligible expenses for this credit include tuition and fees for courses to acquire or improve job skills.

    • Graduate students benefit from the LLC. Limiting the number of years that this credit can be claimed would remove this benefit for graduate students.

     

    Maintain or extend deductions for interest paid on student loans, and for qualified tuition and related expenses.

    • Subsidized federal student loans are no longer available to graduate students, which means that while they are in school they either must pay the interest on their loans or allow the interest to accrue which only increases their debt.
    • Graduate students already pay higher interest rates for their loans. Removing the ability to deduct their interest payment and qualified tuition and related expenses only increases their debt.

     

    Retain section 117(d) in the tax code which provides for the exclusion for tuition waivers from overall tax burden.

    • About one out of four students (24.4%) pursuing doctoral degrees in the Academic Year 2011-12 received institutional tuition and fee waivers, the average amount being $12,645.90. In addition, 6.2% of Master’s degree seeking students also received institutional tuition and fee waivers, the average amount being $6,510.80 in the Academic Year 2011-12. Eliminating this provision would increase graduate students’ tax liability on “income” they never see.
    • Stipends or salaries earned for teaching assistantships or research assistantships would remain unaffected by the proposal.

     

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