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Tuition Waivers for Graduate Students


Has anyone heard about the newly proposed tax plan regarding graduate student tuition waivers? If not, take a sec and read this piece Forbes published, linked here.

In a nutshell, under the new plan, any graduate student who receives a tuition waiver will be taxed on the amount of tuition that was waived. This can amount anywhere from $25-$60k+/year of what would be considered “taxable income” under the new plan. People I know still in graduate school are freaking out, calling friends and family to reach out to legislators, and trying to figure out what this might mean for the future of their educational journey.

I have super mixed feelings on the whole thing.

If you remember my debt journey (if not, read some background here), you know that my own graduate school story was a bit of a mixed bag. The university in southern Florida where I went for my Master’s Degree did NOT offer guaranteed tuition waivers. I ended up paying nearly $50,000 for two years of school tuition, accumulating nearly $70,000 in total debt when including total living expenses.

I had the option to stay for my Ph.D., but opted to move to another university because, in short, we were BROKE! We could not afford to continue living in the super $$$ area of the country paying $$$ for my education.

So we moved to a different university, which did offer tuition waivers in addition to offering paid RA and TA positions (research assistant/teaching assistant). The salary was next-to-nothing, approximately $300/week for the 9-month academic year, but it was WORTH IT because I got to go to school for FREE! I still took out loans to help cover some of my living expenses, but at a much smaller rate compared to my previous 2 years of education.

The problem with the newly proposed tax plan is the mathematics involved. You can’t pay taxes on $25-$60k/year worth of forgiven tuition if you’re only earning $15,000/year. Where would the money come from??? Oh yeah…more loans.

The reason I’m torn is because, fundamentally, I believe in paying for the things we have. For example, my plan is to pay off my student loans ASAP rather than enter into one of the plans that would allow the debt to be forgiven in 10-15 years. First, I don’t want to wait that long to have it gone. Second, I distrust hand-out programs like this (will the forgiveness program still be there in a decade? Will the loans even be forgiven? I’ve read horror stories of it NOT working out for many who were mistakenly entered into the wrong type of loan repayment program. This is a whole other blog post in its own right. Take a second to read this heartbreaking piece on the topic). Third, it was my debt obligation, I promised to repay it, and I want to take care of it.

But I also see student loans as the next big “housing bubble.” I’m not the only one, right? Student loan debt is ballooning at an alarming rate. What is going to happen when all these students default on their loans and are unable to repay them (and/or the debt is forgiven)??? I fear it could lead to another economic crisis. So anything to minimize student loans is a GOOD thing in my eyes. From that perspective, it’s not a good idea to tax the forgiven tuition because it could end up just being more money (paid for on a student loan) that is never repaid in the end.

I’m very glad to now be in the workforce, fully finished with all of my educational pursuits. But I worry not only about my friends who are still graduate students, but about the country in general (for the reason outlined above). This is scary stuff!

What are your thoughts? Should graduate students pay taxes on the amount of graduate tuition that is waived? Or should things remain as they are currently – where universities “forgive” the tuition internally and it is not counted as taxable income? What are other potential implications of the proposed tax plan?

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  • Reply AT |

    Taxing kids for scholastic achievement has got to be the most short-sighted idea ever, unless the idea is to eliminate social mobility altogether. Taxing tuition waivers is going to hurt biomedical research in a big way, because those students are international customers and will go to Europe, Canada, China instead. Do we really want to cede drug discovery to foreign countries? The global pharma companies won’t care, but do we?

    If it goes through, it should also apply to athletic tuition waivers. Hurt college football and see where people land on the political spectrum!

    • Reply Ashley |

      You make a really good point regarding the biomedical industry! My understanding is this is for graduate students, only, so it would not apply to any undergraduate tuition waiver (i.e., athletics, etc.). But its an interesting analogy to make!

  • Reply Judi |

    Actually ~27,000 undergraduates also receive a 117(d) tuition reduction along with ~145,000 graduate students. The majority of these tuition reductions go to people in Science, Technology, Engineering and Math (STEM, 60%). We rely on these fields as a country to maintain a competitive edge in industrial innovation.

    The new bill also cuts the student loan interest deduction which would also affect undergraduates and anyone with students loans

    I agree with you that people should pay for the things they have, but I would also argue that people in graduate school earn the tuition waver for their hard work. I guess it is different depending on the field but when I was a graduate student in biomedical sciences (biochemistry to be exact) I worked 80 hours a week to make scientific discoveries that directly benefit society. One of these discoveries is a patented drug to treat type 2 diabetes that is currently in phase 2 clinical trials, while another has led to a new test for inborn errors in metabolism that is now used in hospitals for newborn screens. I worked this hard and made these discoveries for $26,000 a year and a tuition waver, while my industry job before graduate school as a chemist in a refinery paid $75,000. Obviously, I am extremely lucky to have gone to a great school and had a brilliant principal investigator guiding my work, but I also worked insanely hard. This is what we are putting in jeopardy: our societies investment in individuals that will make discoveries to directly improve our country.

    Before the bill is passed people can call their representatives to ask them to keep the tuition reductions and to keep the student loan interest deduction. I hope people consider calling.

    • Reply Katie |

      You’re absolutely correct. Graduate students EARN those waivers. This proposal is incredibly short-sighted.

  • Reply Still at work |

    I think it’s a terrible idea and setback to social mobility. I would also add that what makes me most furious about the tax plan as a general matter is that the sacrifices that middle class families are being called on to make are in service of getting rid of the estate tax for people whose estates are worth more than 11 million (for a married couple) and lowering the tax rate for the uber wealthy. If changes were being made to make the tax code more progressive or to improve infrastructure or even pay down the deficit, that might be something I could get behind, but no. I disagree that this tax is necessarily people “paying their way.” As a society we get to decide what we promote and what we need to tax. There are definitely choices being made here as to who pays and on what.

  • Reply Jennifer Bell |

    I think you DO pay for your education over the long run. An person with higher levels of education goes on to make more money than they would otherwise ( most of the time) That higher salary ends up being taxed more as well. You also put more into the economy through your actions, buying power etc… There have been studies ( please don’t ask which ones ) that show that subsidized post-secondary education pays itself back to society and even more through the increased earnings of the individual over their lifetime. I think of it as a tax deferred post-secondary education ( like a tax deferred retirement plan)

  • Reply Klm |

    How would this affect the pittance that grad students get paid for being RA or TAs? Part of why the stipends are low is that you are getting “paid” via tuition waivers. If you get taxed on that—say, $10k on $40k of tuition, then your actual pay goes down precipitously. There are a lot of career paths that require a Masters immediately or eventually to advance but that don’t pay well (education, social work, public health, etc). Taxing on tuition will only further limit the people who can afford to go into these fields.

  • Reply Hope |

    This is the most short sighted thing ever. Grad students provide super cheap labor and most live like paupers under high stress. We are slowly destroying the country we spent so long building into the shining light of the world. Beyond depressing.

    • Reply Sarah |

      Totally agree. Our son is a graduate student instructor getting his masters. He makes very little and works more than he is paid for. Luckily he is done in May 2018 so if this does become law, he will only have taxes on one semester tuition. TAing or GSIing certainly won’t be as attractive if this becomes law and the number of people who want to do it will certainly decrease!

  • Reply Mindy |

    I agree as well. The way my institution is planning on handling it is by increasing the students’ stipend to cover the extra expense. I’d assume this would mean fewer stipends available though.

    • Reply Sarah |

      I would think fewer stipends would be correct. I wouldn’t think it would cost as much to offer free tuition as it would to pay them a salary (which is real money – not just the movement of funds). Also, where our son goes to school, they have a problem getting enough TAs and GSIs so this will probably make it more difficult.

  • Reply csdx |

    In principle I’m not opposed to people paying income tax on what they make. It shouldn’t matter whether they get paid in dollars or in merchandise, they’re still paid whatever the value of the items were.

    But the main issue here is that the amount of the tuition wavier isn’t really representative of how much they’re actually getting paid. The system tuition works on is having a high regular price but usually offer some sale or discount to almost everyone (such as scholarships, needs based assistance, or in-state discounts). This whole tax on graduate students forces students to pay taxes on the full price when in reality they’d probably have qualified for some tuition reduction or assistance. It’s like buying something on sale but then being asked to pay sales tax on the full retail price.

  • Reply academicgal |

    I work in higher ed and this tax plan has several problematic elements for our industry. The tuition remission issue is not just for grad students– the tuition waivers/benefits universities offer dependents of their employees will also become taxable. Wouldn’t this impact your husband/family because of the discount your employer gives for family member tuition? I don’t have kids so I will be fine, but my administrative assistant who has accepted low pay in exchange for having her kids go to our school tuition free would be screwed.

So, what do you think ?