December 6, 2017
The United States Senate last Saturday approved its version of major tax reform legislation, following the House of Representatives passing its version on Nov. 16. The House and Senate must now reconcile differences with the goal of sending this to President Trump for his final approval and signature before the end of the year. The final bill likely will create significant negative tax impacts for higher education institutions and students, as well as for health care.
I want to assure you that the University has been working very closely with our elected officials and our state and national associations throughout recent weeks to do whatever is possible to represent the needs of our patients, students and employees, as well as future students coming to the University of Rochester. Overall, the final tax reform measure may have significant consequences for the University of Rochester in a number of ways, making higher education and health care less affordable, less accessible and less financially secure.
Along with other universities across the country, we remain very concerned about what the final legislation may be, and want to share with you what we do know at this point.
IRS Section 117(d) currently allows institutions to provide tax-free tuition waivers to their employees, spouses and dependents. It also lowers the cost of graduate education by providing many Ph.D. and master’s graduate students with non-taxable tuition reduction while serving as teaching or research assistants, a key component of their academic training. The House bill proposes taxing the tuition waivers that colleges and universities provide for their graduate students and employees. This measure is not contained in the Senate’s version of the bill.
Notably, our University is somewhat unique in that we treat tuition waivers provided to graduate students as tuition scholarships, and not tuition waivers or reductions, so there should be no tax impact to our graduate students if IRS Section 117(d) is repealed. However, it does impact many of our employees, including residents, fellows and nurses, as well as employees with dependent children attending the University. The House tax provision adds the value of tuition benefits to an individual’s taxable income, and in many cases will make it extremely difficult for these individuals to pursue educational opportunities for themselves and their families.
Until the House and Senate agree on a final bill, the University will support the tuition waivers continuing to be nontaxable, and we are working directly with our Congressional delegation on this issue.
Both the House and Senate also propose a 1.4% tax on some college and university endowments. The House version would impose this tax on private U.S. schools with endowment funds of more than $250,000 per student; the Senate raised that threshold to $500,000 per student. Thanks to the generosity and commitments of our donors, the University of Rochester’s endowment provides critical, perpetual annual support for the University’s educational, research, and clinical care missions. This includes student financial aid and faculty support as well as support for certain facilities and academic programs such as libraries, laboratories, clinical practices, medical research, new technologies, growth and vitality of the arts, and other physical assets of the University. The final bill will determine if there is a major tax implication to the University. The proposed excise tax sets a dangerous precedent by altering the tax treatment of not-for-profits and undermining the very purpose of our tax-exempt status that will result in fewer resources to support our core missions, including financial assistance made available to our current students, as well as future classes.
Other tax provisions may decrease charitable giving, change education tax credits, increase health care costs and reduce access, and eliminate tax-exempt bonds that provide discounted financing for new classrooms, research labs, and patient care facilities. Under the House bill, interest paid on student loans would no longer be tax deductible.
We are encouraging Congress to offer tax relief in a way that does not weaken the scientific enterprise, increase college costs or make a high quality higher education and health care less accessible for middle-class and lower-income Americans.
At the same time that Congress is considering a tax reform measure that will have major implications for higher education and health care, the House of Representatives Committee on Education and the Workforce on Friday released a bill that would reauthorize the Higher Education Act, which was last reauthorized in 2008. Like the tax reform bills, the bill will make higher education less affordable and accessible. Among other things, it proposes to eliminate and change student loan programs for millions of undergraduate and graduate students and their families. This bill is being fast-tracked and is expected to be considered in Committee as early as next week.
The University will continue to work with our Congressional delegation about our concerns. If you are interested in learning more, the American Council on Education (ACE) has several resources available on its website, including summaries of both the House and Senate tax bills and the House’s Higher Education Reauthorization Act. And the Association of American Universities, of which the University of Rochester is a longtime member, has been advocating for the legislative outcomes that enable our nation to train the next generation of scientists, engineers, doctors, artists, and entrepreneurs.