Graduate Studies, Taxes, and the Gift of 2017 (Updated)

2017:  the gift that keeps on giving.

Yesterday, the United States House of Representatives voted to approve the Republican budget for 2018 and beyond. There are all manner of terrible things in this bill, and you would do well to read about them and call your Senators in hopes we can shut this thing down before it screws a lot of people over. Today, I’d like to talk about the one feature of this bill that, if it passes the Senate, will end my graduate studies for good:  the proposal to tax tuition waivers as income.

Here’s roughly how a lot of graduate-level studies works in this United States:  for many (not all) graduate students, you are allowed to attend a university virtually “free” in exchange for a stipend / paid work as a research or teaching assistant in my case, as a graduate instructor). Tuition waivers are effectively a formality, since we know based on our signed contract that we aren’t required to actually pay tuition. Still, paperwork is filled out, and I suppose in a way these waivers operate as a kind of non-taxable income even though I never actually see the money in question. It just appears, wipes out what I owe to the university (mostly) and that’s it. I never see a cent of this money.

The House bill changes all of that. It would treat those tuition waivers as taxable income. That means I would be taxed as though I were making much more than I actually am and would be required to pay the additional tax out of pocket via any income I make as a teacher or in another line of work.¹ This sounds bad, but let me put it down into rough numbers so you understand just how totally fucked this whole tax proposal is.

I currently teach slightly more than full time — as a graduate instructor at my university and as an adjunct as a local state college. Combined, I can make about $30,000 a year (roughly $11-13K as a graduate instructor and the rest elsewhere). This number actually varies depending on the classes I teach, whether I teach during the summer, etc., but for the sake of simplicity, let’s stick with that nice round number. Since I am still registered as an out-of-state student, my annual tuition at the University of Florida is roughly $30,000. Currently, I am taxed on that first $30k at around $3-4k (I get a deduction for contributions to retirement).² If the Senate passes the House bill, I will be taxed as though I make $60k, raising my total tax on income to about $10k (give or take). In other words, the same amount of work I do now to make $26-27k after taxes would drop down to $20k, nearly cutting my total income by a third. It gets worse. For those that literally cannot work outside of the university (or who choose to focus on their graduate studies alone), such as foreign students, they would be taxed on $42k (actual income + the waiver); assuming they put the same amount of money into a retirement account as I do, they’d end up paying nearly $7,000 in taxes, reducing their income from $11k actual to $4k.

Update:  Now that we have more calculators to show the real impact of both the House and Senate plans, here’s a more accurate picture. Assume I still make roughly $30,000 and still get a fee waiver for roughly $30,000 at UF.

In the new calculations (see here), I would still see a tax increase even with the higher standard deduction of $12,000. In 2017, I actually paid about $2,700 in total taxes due to some extra deductions I took. If the tuition-waiver-as-income remains in the final tax plan, I would see an increase of taxes to roughly $6,100 to $6,500. That’s obviously much lower than my original calculations, which I blame on the fact that I’m not an accountant or tax ninja and thus had to rely on things that didn’t actually account for the things in the proposed plan. However, that’s still an increase of $3,500 or so in taxes. For many grad students, that’s an additional $17,500 in total costs for education ($3,500 x 5 years), which would have to be covered by income sources other than a stipend. It doesn’t really matter if it’s $3,500 or $7,000 in extra taxes. All of this will be a disaster if the tuition-waiver-as-income is kept in the final tax plan. Part of what makes U.S. graduate studies appealing is the fact that you can defray the costs of education by working at a university (this also adds experience to your CV). But this new tax plan could very well make all graduate studies in this country more expensive than the same study elsewhere in the world. I can see a lot of my colleagues encouraging undergraduates to take their academic interests abroad…

(Note:  in-state students will still see a tax increase. Using the baseline calculators provided above, an in-state student pays about $880 in tax under the current tax plan. With the new tax plan, they’d be responsible for $1,900 to $2,100 in taxes. That assumes their only income is a stipend and there are no other deductions they can take. Sure, that’s not a lot of extra money, but grad students are some of the most vulnerable hard workers in the country, and they’re enormously important both for education and for the intellectual growth of this country. The tax plan could very well add to their already considerable burden, all so some rich guy with a car elevator can buy another car elevator.)

This will completely destroy graduate-level studies as something anyone but the wealthy can reasonably pursue. If you’re already poor, you’ve likely made it to an M.A. or Ph.D program on a sinking boat of student loans. Now you’re looking at adding even more debt on top of that in a job market that increasingly looks less promising for almost everyone. We’re not talking small amounts of debt, either. According to UF’s Student Financial Affairs website, it’s recommended that you have roughly $30,000 in income per school year; this number assumes you’ll pay for your own tuition out of pocket (for in-state), so if we subtract $12.7k from that number, you get $17.3k. For many graduate students who cannot or won’t work outside of the university, they’ll need to pull at least $5k extra every year just for living expenses. These are UF’s very conservative estimates and assume you have no medical conditions, no children, no sudden expenses (an accident, etc.), or can reasonably live below the poverty line.³ Unfortunately, in my 7 years of experience living here, this is not actually reasonable. I’d estimate that you’d need at least $10k more every year to reach any semblance of comfort. Either way, for an average Ph.D student, that’s between $25k to $50k of added loan debt, most of which will likely fall into the unsubsidized category (it accrues interest from the moment you accept it).

Many graduate students might bite the bullet, live extremely frugal and miserable lives for a few years, and finish their degrees. This will do nothing to improve the mental well being of graduate students, who are already being systematically exploited and whose mental health is often ignored by the university. But some of them will still do it anyway. For a lot of other people, this just isn’t an option, leading some to seek other avenues towards success — or to seek paths to survival that don’t actually lead anywhere but “the basics.”

For me, this would be the end of my graduate studies. I cannot justified taking another $5,000 of student loan debt for a degree that offers no guarantee of a decent job.⁴ I’m certainly not willing to continue working 60 hours a week to make significantly less than I already do. This would be the nail in the coffin for me:  not only would I have to leave graduate school, but I’d likely be forced out of the teaching field entirely because I would need to find other ways to improve my economic situation.

This might not seem like such a bad thing to some people. After all, life intervenes in our plans all the time, right? Except this isn’t a normal thing. There’s no argument that can defend this new tax policy. It is immoral on its face and harms an entire segment of the American population for no real benefit. It will not improve the economy or reduce the deficit. Rather, it’ll do the exact opposite by putting more highly educated people deeper into debt and reducing how much disposable income they have to spend during and after graduate school.

This isn’t normal. This is what happens when you hand the reins to a political party bought by and in the service of the wealthy. Those without will get screwed over while those with far more than any single human being deserves to have will get more for no real gain to anyone else.

This is 2017 in a nutshell. Sadly, financial ruin is the thing 60 million Americans voted for…

1. Many universities actually prohibit graduate students from working more than a certain number of hours outside of the university itself, so this could have an even greater impact on a lot of my colleagues.
2. I’m using Smart Asset’s calculator for this. It’s a rough guide and doesn’t account for every variable, but it gives a clear enough picture.
3. I don’t know how taxing tuition waivers will affect whether graduate students can apply for public assistance, but I would not be surprised if it did.
4. I expect to graduate in May 2018