Blogging Away Debt

by Ashley

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?

by Ashley

First, thanks so much for the many thoughtful (and kind!) comments on my budget post. When I saw the comment count shoot up it made me nervous to read through them, but almost everyone was really very kind and forgiving (and generous in offering support, tips, advice, etc.) THANK YOU!

Speaking to one of the common comment themes I saw – many people asked about my take-home pay. For a $95k salary, my take-home ($2440/biweekly) is pretty low. The reason for this is that I have a LOT of things withheld and/or paid from my check pre-tax. This list includes the following (all numbers from my most recent paycheck):

Medical insurance ($125.50/check)
Dental insurance ($52.28/check)
FSA – Health ($68.37/check)
FSA – Dependent Care ($136.75/check)
Retirement account (required and already investing at the lowest amount so no chance to reduce – $256.91/check)
Parking permit ($38.45/check)

Plus, of course, all my taxes as well ($552.13 from my last check).

If I added this all up correctly, that comes to a whopping $1230.39 taken from my check before it hits my direct deposit! WHOA! That’s a third of my check!

So the question came up – can I change some of these things so I can get back more money per paycheck. And the answer is – YES! Right now is my open enrollment period and I’d LOVE to have some help with figuring things out! Let me address things one at a time.

Taxes

I can likely lower my tax withholdings per check, but have opted not to make any changes right now. Taxes are not part of my open enrollment, so I can change those at any time. Based on what feels best to me (and many comments/advice I’ve received), I’m going to do our 2017 taxes ASAP once the new year hits. That will give us a better feel for how much we really owe and we can make adjustments accordingly. Given our huge tax debt (that we’ll be paying on for what feels like a lifetime), we’ve opted NOT to reduce our withholdings for the time being. We’re likely over-paying a little this year, but we feel okay with that – any extra money can go to help reduce the tax bill and we can re-adjust after the CPA has gone over everything.

Retirement, Dental, Parking

These are all pretty well “set” and cannot be changed. We have limited options for dental – I can decline the insurance, but we use it and need it. So it stays. In terms of parking, I live too far to walk/bike and don’t have anyone living nearby to ride-share with. So unless I switch up my Mom car for a motorcycle (never happening), this bill is pretty much “set” too. Retirement is required by my employer. I used to invest a full 10%, but have reduced down to the minimum (7%) already. No way to make this any lower.

Medical

So here is where I could REALLY use some advice. Currently, we have a PPO plan and this entire year I’ve been thinking that, come open enrollment, we’d switch to a HSA. But when I started really doing some research to compare the two options, I think we’d end up spending MORE with the HSA. Yes, we’d save on monthly premiums, but the out-of-pocket costs and deductibles are much higher. Here are some side-by-side comparisons I put together. What do you think?

	Health Savings Account	PPO
Per-paycheck Premium	$61	$150 (note: this is more than listed above because premiums are going up)
Overall Deductible	In-network: $1300/employee; $2600/family	In-network: $500/employee; $1,000/family
Other Deductibles	Non-preventive prescription coverage: $1300/employee; $2600/family	None
Out-of-pocket limit	In-network: $2,000/employee; $4,000/family	In-network: $1,000/employee; $2,000/family
Not included in out-of-pocket limit	Premiums and health care not covered by the plan	Premiums, drug co-pays, and health care not covered by the plan
Annual limit on what the plan pays	None	None
Costs for common services with in-network providers. Primary care to treat illness or injury Specialist visit Other practitioner office visit Preventive care /screening Diagnostic (x-ray, blood work) Imaging (CT/PET/MRI) Mental health Generic drugs	10% co-insurance 10% co-insurance 10% co-insurance No charge 10% co-insurance 10% co-insurance 10% co-insurance non-preventive: 100% until deductible is met. Preventive: $10 copay	$15 copay $30 copay $10 copay for OB/GYN $15 copay primary care; $10 OB/GYN No charge No charge $15 copay $10 copay

I receive biweekly pay (26 checks/year). So the HSA annual premium is $1586. The PPO annual premium is $3900 (a difference of $2314). But if we’re having to pay $2600 for our family health deductible + $2600 for the prescription deductible (compared to a $1,000 deductible for the PPO plan), I think it’s just too much money out-of-pocket! (though, caveat, I’m no expert with healthcare – does the out-of-pocket max only apply to healthcare, or would that also include prescription coverage??)

My thought is that we’d be better to stay in the PPO. It also scares me to think of paying 10% of any imaging, diagnostic, etc. We’ve been lucky thus far (knock on wood), but we have young kids – broken bones are a given at some point, right?

Those more experienced than I am – thoughts?

Flex Spending Accounts

The dependent care account contributions will decrease in 2018 and even moreso in 2019. Right now, we still have hefty monthly bills. Our girls are in kindergarten and, though half-day kinder is state-subsidized, the state does not cover the costs of full-day kinder. We pay that. The total was actually right about $1,000/month, but we paid out of our FSA a huge chunk for one of our kids’ entire semester of tuition (for which we received a discount). We’ve been paying the remaining costs out-of-pocket (the dependent care FSA was depleted months ago). For next year, we’ll only have one semester worth of full-day kinder costs (the second half of the year they’ll advance to first grade – totally free!), plus the costs of care for summer and after-care, as needed. (Note: several people have suggested that hubs take over childcare so I just wanted to address that here: hubs does handle the bulk of childcare. Where we live, half-day kinder is 8:30-11:30am. Hubs is in classes full-time that extends well beyond that timeframe. The full day kinder program is 8:30-3:00pm. Currently, hubs gets the girls at 3:00pm every day except Wednesday – his long day – so we pay very little in “after care” at the present time. Just one day per week. This arrangement is unlikely to change for the rest of the academic year).

Bottom line, we should be able to lower the amount of FSA money withheld for dependent care for next year, thus increasing the size of my take-home pay.

The health care FSA is entirely dependent upon whichever medical plan we choose. If we get the HSA, we’ll use the health savings account. If we keep the PPO, we’ll keep a flex spending account for medical expenses. This year, we put $1750 in our health FSA and it was not nearly enough. If we keep the PPO, we’ll increase our health FSA contributions probably to about $2250-ish (though I’d need to crunch numbers first).

So the big question is…..HSA or PPO (with a FSA)? Pros and cons? What are your thoughts and why?

Blogging Away Debt Blogging Away Debt follows real people on their journey to debt freedom — with tips on the debt snowball, budgeting, cutting expenses, and staying motivated.

Tuition Waivers for Graduate Students

Open Enrollment

Taxes