You know at least one fellow student who has joked about living off of ramen (or you yourself had joked about it) because of how tight on cash they are, right? It’s a running witticism that college students don’t have money for even the essentials, but what’s not funny is that the joke is actually a reality. Students hide behind the twenty cent dinner humor, while in fact the cost of an education is bleeding them dry and it’s only getting worse.
The price tag on a college degree is continuing to rise. According to College Board, “the published in-state tuition and fees at public four-year institutions increased at an average rate of 3.2 percent per year beyond inflation.” In addition to higher tuition prices, public funding has dropped and that means students are paying more out of pocket for their degree.
As if the numbers aren’t horrifying enough, the new higher-education House tax bill, passed on November 16, could cost undergraduate, graduate and doctoral students and their families over $71 billion over the next ten years, which makes the appeal of a college degree even more dismal. In a Pew survey, 58 percent of Republicans currently believe colleges and universities have a negative impact on society. To have such a large number of politicians not believing in a college education is both depressing and worrisome.
According to the National Center for Education Statistics, of all the students who started a bachelor’s degree at a four-year institution in 2009, 59 percent took six years to complete their degree. With the graduation rate being slightly over 50 percent, those students will be greatly affected by the new tax bill, and they are not alone in this. In fact, a large majority of students are subject to these new changes. In 2016, 69.7 percent of the 3.1 million high school students were already enrolled at a college or university by October, according to the Bureau of Labor Statistics, which means at least over 2.1 million students will see the implication of the new tax bill on their education cost.
So what exactly is the new tax bill? The bill proposes several tax cuts to already existing tax credits and additional taxes on some highly relied on benefits. Let me break it down for you.
Student loan interest deductions would be eliminated. Student loan interest is the interest you paid on your qualified student loan during the year, which includes not only the voluntarily pre-paid interest payments but also the required ones. According to the Internal Revenue Service, you can deduct the lesser of $2,500 or the amount of interest you actually paid during the year. Under the new House bill, students will no longer be allowed to deduct that interest, which equates to more out-of-pocket and less actual income going into your bank account.
For many graduate and doctoral students, tuition is waived in exchange for teaching or doing research at their university. To some students, waived tuition is the only condition in which they can pursue graduate education. Under the new House tax bill, this type of waived tuition would be taxable just like any other income, which means thousands of dollars out of pocket for many students and it may as well be the end of their college career.
In some cases, colleges or universities offer benefits such as reduced tuition or tuition assistance to students of employees. Those benefits and waivers can critically help students get through school, but under the new bill, those benefits would also be taxable and that extra cost might make the difference in whether or not a student finishes their degree.
Fortunately, only tuition waivers that are in exchange for work would be taxed so other scholarships and grants would not be affected.
The new bill would significantly affect the local and state tax deductions. If that is the case, states might have to lower tax rates, which would then leave less funding for colleges and universities, which feeds into fewer and smaller scholarships, grants and aid to help you pay for college. If students are getting less aid, they are paying more themselves or taking out more loans.
The Lifetime Learning Credit and the Hope Scholarship Credit would also be cut. The Lifetime Learning Credit allows a credit of up to $2,000 per year towards qualified tuition at an eligible institution. It does have an income cap of $65,000 or less but can be used for as many years as you want. The Hope Scholarship Credit is similar but less generous. It allows a credit up to $2,500 per year if you paid tuition and expensed for the first four years of a college education. Eliminating the two credits would result in $17.3 billion in federal revenue but tremendously hurt those relying on the credits—college students.
Fortunately, despite the two credit cuts, the bill would extend the American Opportunity Tax Credit. The AOTC currently allows for a $2,500 credit for the first four years of higher education. You can receive a refund of 40 percent of the credit (up to $1,000) if the credit brings what you owe to zero. The bill would extend the AOTC for an extra year, meaning students would get a tax break for five years instead of four. However, the credit would be halved in the fifth year, making it a $1,250 tax credit.
All of this means that the bill would be costing students and families across the United States more than $71 billion in just ten years. Most students attend college to be able to get a better paying career, not to sink deeper into debt. Students could be forced to remove themselves from academia completely under these new tax bills. There will be fewer people with higher education, which could mean more people living in poverty because of unemployment and people with college degrees living with less because their taxes are so high.
The new House bill seems to benefit the federal revenue, but it doesn’t look at what catastrophic damage is being done to everyone else. Higher education could slowly become an untouchable resource for many.