New GOP Tax Plan Places Heavy Financial Burden on Students and Universities

capitol congress hearing subcommittee on higher education
National Capitol

The new GOP tax plan proposes several cuts to higher education that amount to approximately $65 billion worth of tax benefits for individuals and institutions.

One of the cuts would do away with a deduction on interest paid on student loans. Currently, the deduction reduces students’ taxable income by up to $2,500. Because it only applies to interest payments, it is most beneficial to those who have taken out large loans. According to the IRS, roughly 12.4 million people claimed this deduction in 2015. Some argue that this change, among others, will make higher education less affordable for many.

The plan also includes eliminating tax breaks for all employer-provided educational assistance programs. Previously, employees could receive a tax break of up to $5,250 per year if the money was used to pay for education at the undergraduate or graduate level. The Society for Human Resource Management has criticized the move, arguing that educational assistance programs allow employers to recruit and retain highly skilled workers. A similar cut would eliminate tax breaks on tuition discounts for college employees.

Two additional tax credits, the Lifetime Learning Credit (LLC) and Hope Scholarship Credit (HSC), would also be eliminated under the new budget. The LLC covers 20 percent of the first $10,000 of a student’s education expenses. It applies to single filers with an income of $65,000 or less and married filers with an income of $131,000 or less. The HSC provides a tax credit of up to $2,500 per student, per year if an individual pays tuition and educational expenses for the first four years of their higher education experience. According to the legislation, by eliminating these two credits, the federal government would gain $17.3 billion in revenue over the next decade.

In place of these credits and deductions, the bill proposes stretching the American Opportunity Tax Credit (AOTC) over five years instead of four; this would allow students to receive up to $2,500 in yearly tax breaks for the first four years of their education if they spend $4,000 on tuition and fees, as well as up to $1,250 in tax breaks the fifth year. There is also an income cap for the AOTC: $90,000 for single filers and $180,000 if married and filing jointly.

Finally, the plan proposes levying a 1.4 percent excise tax on endowments at private universities that have at least 500 students and total assets valued at $100,000 per full-time student. Republicans argue that because private foundations are taxed, private universities should be as well. This stipulation would affect some of the country’s wealthiest, most prestigious universities.

Shortly after the GOP’s tax plan was released, the American Association of State Colleges and Universities issued a statement saying that the plan undermines higher education. The House Ways and Means Committee also released a briefing, arguing that the plan simplifies and enhances tax benefits for families and students.

One unequivocally positive change proposed by the bill is that students who have their loans forgiven due to death or disability will no longer be required to pay taxes on the amount forgiven.