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Posts tagged with: student loan programs

Tuition Waivers for Graduate Students

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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?