Tax Cuts and Jobs Act Seeks to Increase Tax Burden on Graduate Students in USA by 400%

American Dreams start with higher studies at US universities for many international students including those from India. Studying in the United States is going to be an extremely expensive affair, with a new bill proposing a massive tax hike for graduate students. The House bill named Tax Cuts and Jobs Act seeks to tax stipends, tuition waivers, health benefits and student loan interest.

Approved with 227 Republican votes, the House’s Tax Cuts and Jobs Act is awaiting votes from the Senate Committee on Finance. The Senate’s verdict on the bill is expected anytime by this month end (November 2017).

Graduate students are entitled to non-cash waivers on tuition fees for working on university campuses in the US. They also get non-encashable deductibles for health benefits. With support from the White House and votes from the Republicans, the Tax Cuts and Jobs Act is proposed to regard all stipends, tuition waivers and non-cash deductibles as income to be taxed. The bill also seeks to bring student loan interest under the tax radar. The new House bill, if converted into a law, will put a huge tax burden on graduate students for the income which they don’t see or get in cash.

The Graduate and Professional Student Association (GPSA) sums up how the Tax Cuts and Jobs Act will negatively impact graduate students:

• Tuition reductions for graduate student employees will be taxable.
• Any expense paid by the university (e.g., tuition remission/waiver, health insurance, etc.) for graduate student RAs and TAs will be taxable.
• Fellowships will be taxable.
• The Student Loan Interest Deduction will be eliminated.
• The Lifetime Learning Credit will be eliminated.
• The Hope Scholarship Credit will be eliminated.
• The American Opportunity Tax Credit will be expanded to cover a fifth year of higher education (i.e., a first year of graduate school), but the expansion will be limited to full-time students only.

Currently, a graduate student pays about $1200 as tax on a cash stipend worth $22,000 in the USA, according to the GPSA calculator. If non-cash tuition waiver of $26,000 and non-cash deductibles worth $2400 for health benefits are added to the cash stipend, the total is $50,000 which will increase the tax liability up to $4,600 by about 400%.

The Graduate and Professional Student Association (GPSA) also observes that the more the tuition waiver, the higher the tax bracket. The House’s Tax Cuts and Jobs Act will make it difficult for graduate students to manage with their stipends considering the average amount of stipends of graduate or professional students in the United States.

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The American Council on Education’s President Ted Mitchell remarked that the Tax Cuts and Jobs Act would discourage enrollment in postsecondary education, thereby encumbering the growth of research and innovation at US universities. He also stated that it would send a wrong message about the financial stability of public and private colleges and universities, across the world. The costs of attending college is estimated at over $65 billion between 2018 and 2027 adding to the tax burden on graduate students, which is not in the country’s national interest, according Ted Mitchell.

The House’s Tax Cuts and Jobs Act is likely to send a shock wave to India that sends the second highest number of students to the United States in the world. China is the leading source of foreign students studying in the USA. Out of the total foreign students in the USA for the 2016-2017 academic year were 186,267 from India. 165,918 Indian students traveled to the US for the 2015-2016 academic year.

The majority of Indian students in America are graduate students. In the 2016-2017 academic year, 56.3% of total Indian students in the US studied at the graduate level, according to Rajika Bhandari, head of research at the Institute of International Education. India-based students in America contributed around $6.5 million to the US economy in the same academic year.

The US tax experts and analysts opine that the House’s Tax Cuts and Jobs Act may also cause the talent and innovation quotient of America to go down apart from discouraging foreign students to pursue higher studies in the US.

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