Should tuition waivers be taxed?

by on November 6, 2017 at 12:48 am in Economics, Education, Law, Uncategorized | Permalink

My overall opinion here is the same as with taxes on private university endowments: no.  The federal government needs to stick to a budget, and broadening the tax base in this way would only postpone that needed development.  At some margins, “starving the beast” is a good idea, even if it doesn’t always work.

That said, some tuition waivers should be taxed, in particular those that accrue to faculty members when their children attend the same college or university.  That is simply a benefit to the well-off and well-educated, and it would not seem to fit the canons of optimal tax theory.  If you wish, let the government make it easier to borrow money to go to school.  In the meantime, treat this as in-kind pay to faculty and tax it.

What about tuition waivers that universities offer independently to deserving students, often graduate students?  Even apart from the public choice considerations, I don’t see why the efficiency case for taxing these is so strong.

Let’s say I can either self-educate at great effort (but perhaps little upfront expense), or I can invest a lot of resources convincing someone I am worth taking under their wing and tutoring, for free.  I will reflect glory on my tutor for many years to come.  In equilibrium, the rates of return to these two strategies should roughly equilibrate.

Now, if I self-educate, few would say I should be taxed on the benefit I give to myself from all the reading and learning.  It would be odd, to say the least, to call it “self in-kind compensation.”  (On top of that, it would bankrupt me in particular.)  Similarly, if I persuade someone to stuff book knowledge into my ears for free, why should I then be taxed?  Haven’t I done more or less the same thing, just using an intermediary and applying the effort at a slightly different stage of the education process?  Unlike the faculty member enrolling his or her children, it is not a surreptitious way of delivering in-kind income to somebody.  Rather, the tuition waiver is helping someone make an investment more cheaply.  What if I sit down and patiently explain to you why “buy and hold low cost diversified funds” are a better investment option?  Should you be taxed on receiving that wisdom?  Again, I say no, noting that you will be taxed on any later financial payoff from that wisdom.  We needn’t count the input as a taxable form of income.

Similarly, when it comes to education, if the tuition waiver helps you earn more, you will be taxed on that income later on too.

Alternatively, you might think there are too many graduate students in the system, a kind of Malthusian crowding when it comes to queuing for jobs.  That might describe the world even for a lot of STEM jobs (NYT).  Nonetheless, even if a legal/tax solution is required (debatable), taxing tuition waivers as in-kind income seems like the wrong approach.  That change falls most heavily on the graduate students judged by the school to be most qualified.  Those are also the people most likely to be future innovators.  Instead, a paring back of more general tuition and tax subsidies would fall on the graduate students more evenly and I suspect more efficiently.

Maybe I’ll write a separate post on the most likely incidence of taxing tuition waivers as in-kind income — it’s a tricky problem, a good test of your micro mettle.

1 BC November 6, 2017 at 1:16 am

In general, it is hard to distinguish between education financial aid, including tuition waivers, and price discrimination. The “sticker price” tuition is not the “true” tuition. At the undergraduate level, students pay different tuitions due to financial aid/price discrimination. At the graduate level, “sticker price” tuition seems to be a way for the university to receive more federal research grants and fellowships. (For example, since NSF and DoD graduate fellowships usually include tuition in addition to a stipend, it behooves universities to list a high sticker price to maximize the tuition received.) Do we tax coupons or the “discount” when consumers buy products “on sale”? News flash: when a store sells to you for $80 an item with list price of $100, it didn’t really give you $20 of merchandise for free, i.e., you did not receive $20 of in-kind income.

2 BC November 6, 2017 at 1:33 am

“That change falls most heavily on the graduate students judged by the school to be most qualified. Those are also the people most likely to be future innovators.”

Another type of price discrimination. Schools want these most qualified graduate students, awarding them research assistantships and fellowships with stipends. The schools will accept the less qualified students if those students are willing to pay tuition. That does not mean that the students in the first group received tuition waivers as income any more than professors receive “tuition waivers” because they too pay no tuition. The students in the first group contribute to the scholarship mission of the university. The students in the second group are revenue sources.

Note also, even graduate students doing full time research usually register for a non-course called “Graduate Thesis” or something similar and receive “tuition waivers” for same. Again, the sticker-price tuition is an accounting gimmick for price discrimination, not a true price.

3 John Thacker November 6, 2017 at 6:02 am

Yes, the issue is that in many departments, every graduate student receives a tuition waiver of some kind. In those, being “admitted without support” is a clear sign that you shouldn’t attend at all. The tuition waivers provided by the university are close to an accounting fiction, as you note, and I agree partially used to cause outside fellowships to pay more.

Do we tax coupons or the “discount” when consumers buy products “on sale”? News flash: when a store sells to you for $80 an item with list price of $100, it didn’t really give you $20 of merchandise for free, i.e., you did not receive $20 of in-kind income.

There’s something persuasive in this argument, but wouldn’t it then argue in favor of taxing outside graduate fellowships (NSF, NDSEG, etc.) but not in-house tuition waivers?

The problem with the argument is that the universities ostensibly set up many of the tuition waivers as payments in exchange for teaching (or research after a few years), which moves them for some tax purposes closer to the “benefits offered to employees of the university.” (As an aside, I recall my father, in finance at a research university, mentioning that for tax purposes in the 80s that the university extended the private school tuition benefits from just faculty to all employees, down to janitorial staff and grounds, in order to prevent it being taxed. Then again, he noted that so few of the lower paid employees used the benefit, sending their kids to public universities instead, that it was strictly cheaper for the university to do so rather than have the existing benefit taxed.)

If the tuition waiver were rephrased in terms of a scholarship, it likely wouldn’t now become subject to tax. Perhaps the graduate school would lose some kind of effective hold over the students forcing them to teach.

4 mpowell November 6, 2017 at 10:33 am

Tuition charges to graduate students are mostly about shifting money from the department to the central org. This new policy mostly seems like just another tax accounting hassle that probably isn’t worth it (but accounting and compliance costs are never factored in unfortunately), but on the surface it makes sense. If the central org needs more money from the departments, charge them directly. If they can’t justify tuition charges on students because they must now be taxed, that probably forces the accounting to the central org uses to be more transparent and force them to better justify the costs.

5 byomtov November 7, 2017 at 8:22 am

Good points.

Another is the question of why the waiver should be thought of as income at all.

Absent a waiver, how many recipients were going to pay full freight? Not many, I’ll wager.

This is not the same thing at all as having a debt forgiven, say, where a real obligation is erased.

Given that graduate students at least, routinely get tuition waivers, it’s fair that the nominal tuition is largely an arbitrary number selected for other purposes.

6 Viking November 6, 2017 at 1:17 am

My wife is a professor, and when I took a class with cost of 30 percent of regular in state tuition, the discount was added to her W-2. There might be exceptions, but in our case, what Prof. Cowen advocated is already implemented.

7 HA2 November 6, 2017 at 1:20 am

From someone who’s been a grad student, I have no idea where I’d have gotten get the money to pay taxes on my tuition waiver if I had to pay them. From my RA stipend I was making an amount of money classified as “Very Low Income Level” – it was barely covering rent and food. Looking up tuition for that school, my tuition waiver value was probably about 3x my actual wages… that tax would have hurt, badly.

I guess the desired effect of the tuition waiver is for the university to absorb the costs of that tax instead of passing it on? Because the other option is that grad students can’t afford to go to grad school because they can’t pay taxes on the tuition waiver…

I suspect that an alternate effect of taxing tuition waivers would instead be that universities change around the paperwork to decrease their value – after all, the tuition is an arbitrary number set by the university, so they’re the only ones actually listing the value of its waiver. I’d guess they’d just put together some new set of arcane rules for determining what “tuition” is that magically work out to everybody paying them basically the same but the taxable ‘waiver’ amounts being substantially less.

8 Hazel Meade November 6, 2017 at 10:50 am

Yeah, been there. I was basically living on about $1,000 a month in graduate school. How the fuck would I have been able to pay taxes on $30,000 in tuition waivers?

9 BC November 6, 2017 at 8:02 pm

Yes, hard to pay taxes on fictitious income. Again, think of professors (not tuition waivers for family, professors themselves). Suppose, the university said, you know, professors learn on the job, so we’re going to charge them tuition too. We will charge them $100k in tuition, but also grant them $100k in “tuition waivers” for teaching classes. Economically, professors and the university would be in exactly the same situation as without the tuition and offsetting waivers. But, suddenly professors would have $100k in additional taxable income??

Since everyone in every profession learns and gains experience on the job, here is a way for government to find additional revenue sources without officially raising tax rates: deem everyone to be receiving tuition waivers from their employers for “job training” and allow the IRS to create tables or “fair values” for such training. Everyone is a lifelong learner, right?

10 Viking November 6, 2017 at 1:22 am

Regarding last point, discount coupons, while the full price is not subject to sales tax, in the case of rebates, the sales tax is unreasonably charged on undiscounted amount.

11 Viking November 6, 2017 at 1:25 am

That was last point of BC.

12 John Thacker November 6, 2017 at 6:08 am

Right, in most states (and it does vary) it depends on whether the discount is reimbursed by a third party, as rebates are. Note that this treatment would advocate for taxing NSF, NDSEG, and other outside fellowships’ tuition waivers but not necessarily in-house tuition waivers. (There would still be an argument for exempting NSF, NSDEG (DOD) and other government grants on the basis of the absurdity of taxing a government grant, though I suppose the progressive income tax would mean that the government might want to tax them only in order to get a higher rate out of the occasional independently wealthy graduate student with other outside income.)

13 Yancey Ward November 6, 2017 at 2:22 am

It is an interesting problem, isn’t it? When I went to Northwestern for graduate school, the tuition was waived and I had a stipend that paid my living expenses. I really don’t remember the tax details of the stipend, but the waived tuition was never an issue- the grant was to me, not my parents who had no connection to the university. However, waivers to the children of employees is probably taxed as a employment benefit unless the law explicitly treats it as non-taxable. In other words, the parent gets the tax bill, not the student.

14 David Wright November 6, 2017 at 3:54 am

My understanding is that current law distinguishes between the costs of training integral to your job, which are not taxed, and other tuition costs covered by your employer, which are classified as taxable in-kind benefits (above a $5K threshold). Grad student tuition waivers are currently untaxed because they are paying for “training” integral to your (RA) “job”. It’s a bit of a dodge but the end-effect seems reasonably just to me. If grad student tuition waivers were taxed, I suspect that the new equilibrium wouldn’t look much different, at least for the STEM grad students who typically get these waivers today: sufficient pay for subsistence living during a basically free education. Certainly the $5K threshold for non-student tuition benefits should be eliminated or radically lowered.

15 Jr November 6, 2017 at 4:06 am

If I manage to get a discount on something I buy, for whatever reason, the size of the discount is not charged to me as income for tax purposes. Why should tuition waivers be any different?

16 kenR November 6, 2017 at 4:59 am

…….. “Why should tuition waivers be any different?”

They should be treated the same. However, all discounts in personal & commercial financial transactions should be fully taxed.

US government at all levels has large debts and liabilities — and requires much more revenue. American government authority to tax is UNLIMITED — and certainly not limited by the selfish concerns of narrow groups such as the academic community.
All tax loopholes should be closed and all sources of new tax revenue should be vigorously explored.

If you personally endorse the existence of huge expansive government and its benefits — Pay Up ! (or deeply reconsider your most basic views of government/taxation)

17 Slugger November 6, 2017 at 9:15 am

This Chevy is in cherry condition, and usually I ask $25,000 for it, but we need to clear the lot for the new models. The price today is $19,000, and here is a 1099 for the six thou.

18 byomtov November 6, 2017 at 9:46 am

+1099

19 Harun November 6, 2017 at 3:37 pm

Universities are welcome to lower their listed prices. They can then waive less, and the student has less tax liability.

But we know that the tuition is high so that other, paying students can borrow more to pay tuition.

20 RustySynapses November 6, 2017 at 11:11 am

Doesn’t it depend on the “for whatever reason”? If you get a car for free (or a lot less) because you are a celebrity and you agree to recommend the car or be in an ad, you should get a 1099. So if you teach/work for it (whether it’s your or your kids’ tuition), it’s income.

21 Jr November 6, 2017 at 2:59 pm

You are right, if it could be classified as a form of wage for an employee or capital income for an owner it should be taxed. Since the US has a gift tax (which I forgot) I suppose discount should be taxed as a gift if large enough.

22 So Much For Subtlety November 6, 2017 at 4:30 am

That change falls most heavily on the graduate students judged by the school to be most qualified. Those are also the people most likely to be future innovators.

There seems to be a logical leap there that needs some justification. What is the connection between doing well academically and becoming a future innovator? Steve Jobs? Bill Gates? This seems to be a subsidy for future academics – and more pertinently future TAs as most of those doing post-graduate work will never see a tenured job.

23 Troll Me November 6, 2017 at 6:47 pm

1) If price goes up, supply goes down.

2) Presumably these major endowments are related to universities that already attract higher quality applicants, which is helped by the number and value of scholarships, etc.

3) If you filter more strongly by income by taxing tuition wavers, then there will be fewer higher quality applicants, and due to peer and network effects this reduces the pooling of talent in ways that could lead to interesting things.

It can also be noted that most companies seem disinterested in investing much in their people these days, in part because people tend to move jobs more often. That also means that the route of these lower income individuals entering the labour market sooner and/or getting and education at another university is not highly likely to result in high human capital accumulation that is not highly specific to tasks presently being performed.

Depending on the specific situation, the rates/amounts could be too high or too low, but there is no logical leap at all to think that removing a subsidy on a higher education activity will in most plausible situations negatively impact future innovation.

24 james harangueton November 6, 2017 at 5:11 am

TC says “Maybe I’ll write a separate post on the most likely incidence of taxing tuition waivers as in-kind income — it’s a tricky problem, a good test of your micro mettle.”

Economics is a kind of rent-seeking if it provides endless socially valueless work for economists. The stand-out feature of all these tax-focused deductions, exemptions, credits, and waivers is that as well as being an appalling distortionary drain on general economic welfare, and a dreadful public incentive to rort, short, and tort the market system, they provide endless work for economist-engineers and economist-planners, and endless blog posts debating which or other deduction or waiver is more ‘efficient’.

No, FLAT TAX MACRO is the way to go. Micro engineering of tax systems is a recipe for mediocrity and a great big muddle rather than a test of mettle. James Buchanan understood this principle of *generality* well. As he stated in an interview in 1995:

“It seems to me that far too much of our politics is favorable treatment or unfavorable treatment for particularized groups. If we could somehow introduce into politics the requirement that would be analogous to the rule of law, that is, don’t treat one group differently from another group. That has a lot of implications. That would not necessarily mean we’d have much smaller politics or government. It would mean there’d be a quite different characteristic of government. Recently, this analytical argument (and it’s a switch from where I was 10 or 15 years ago) has led me to come out very strongly in support of a flat tax …

“If you have discriminatory politics, it invites a tremendous amount of investment, it wastes resources in rent seeking in trying to get particular favors, either a tax exemption for your industry or a particularized spending program for your district or for your industry or your profession or whatever. We moved a little bit away from that in the 1986 Tax Reform Act. We were all enthusiastic about that. But Public Choice theory predicted that the provisions wouldn’t last long. Now they’re tearing up the 1986 act; they have been tearing it up ever since.

“The normative thrust of my current work is to try to push the generalization principle to the maximum extent possible, that is, so you don’t have particularized exemptions. One person gets it, everybody gets it. It cuts in favor of something like a flat tax …”

More here:
https://www.minneapolisfed.org/publications/the-region/interview-with-james-buchanan?sc_device=Default

Buchanan wouldn’t have thought economists should stoop so low as to test each other’s mettle by squabbling over whether one exemption or exception is more justifiable than another. SCRAP ‘EM ALL!

25 clockwork_prior November 6, 2017 at 5:53 am

You do know that Prof. Cowen has been the general director of the James M. Buchanan Center for Political Economy
for almost 20 years, according to the linked CV at the The Center for Study of Public Choice, of which he is currently a member, right?

26 james harangueton November 6, 2017 at 7:20 am

Not sure what your point is.

From the same 1995 interview:

“Region: Given this agitation and the new mood, I don’t think people can call you “mildly subversive” anymore. Would you say that’s right? Or are you still mildly subversive?

Buchanan: I think that’s a very perceptive point you make. I think 20 years ago clearly I would have been. Right now I don’t think so. I’m behind the curve now.”

And yet 20 years after that interview we don’t see any influential public intellectual as SUBVERSIVE as Buchanan was 20 years ago on rule of law budgets, welfare, tax, politics, you name it. Libertarian and conservative economists commenting on the tax proposals today could profitably reread Buchanan and remind themselves what — in all seriousness — it’s all about. What it means to be radical and yet clear-headed and consistent too.

27 clockwork_prior November 6, 2017 at 7:56 am

The point is that one of main designated figures to preserve Buchanan’s legacy (with the title and budget to back it up) is none other than Prof. Cowen.

If you wish to consider that ironic, be my guest.

28 Troll Me November 6, 2017 at 6:52 pm

$1000 is worth far more to a homeless man, and in many cases can do far more productive things with it, than a billionaire can with the same amount.

The second of these may not even stoop to pick up a dollar, whereas others in some places must labour hard for many hours to earn that amount.

Would you tax the billionaire who would not stoop to pick up a dollar in front of him at the same rate as the person who labours hard for hours to earn that amount?

In the era where individual photons can be teleported and some hedge fund owners own and operationalize databases on hundreds of millions of individuals, do you think it’s beyond abilities to have at least some handful of simple cut-offs/thresholds for 4 or 5 categories as a major feature of a progressive taxation system?

29 Axa November 6, 2017 at 5:16 am

But……college sports rely on tuition waivers. So will college athletes be taxed ?

30 clockwork_prior November 6, 2017 at 5:44 am

Depends – do those academically minded athletes do e-sports?

31 John Thacker November 6, 2017 at 6:11 am

There’s an stronger case for it than other undergrads (and akin to graduate students) since the athletes are pretty clearly doing it in exchange for giving their labor to the university, at least at the higher end where the athletic events are a spectator sport. I suspect that in equilibrium it would more result in breaking the NCAA’s farcical amateurism rules and cause athletes to be paid; at the very least, I would expect some amount of stipend designed to cover the imputed taxes.

32 Marty December 4, 2017 at 6:32 pm

“in exchange for their labor” THAT is precisely why people who actually WORK for a university at lower than market normal wages are looking at! The STAFF do not get paid very much at universities. Now, they will no longer be able to afford to send their kids to go to school where they work. But, you still think the athletes should go for free because they play a game?

33 John Thacker November 6, 2017 at 6:26 am

Another change in the bill would reduce or eliminate the (currently 80% or so) deduction for athletic boosters, at least as goes donations that they must make in order to be allowed to purchase tickets for athletic events.

34 Slocum November 6, 2017 at 6:36 am

It seems like universities would have a pretty easy out on this one. For students they want to give a TA/RA salary and tuition waiver, they can simply offer a grant and a separate job offer. Very few grad students I know of would have accepted the grant but not the position. I know I certainly wouldn’t have at the time.

35 rayward November 6, 2017 at 7:07 am

Tuition waivers aren’t limited to colleges: they go all the way down to kindergarten. Do we tax the parents of a kindergarten student (or elementary school student, etc.)? Indeed, private schools use the lure of tuition waivers to build their faculties. I suppose if we view elite private schools as the first step in a progression of steps that contribute to increasing inequality we might. But I have another point related to college tuition waivers. Elite colleges are competing for the same pool of applicants. We tend to think of competition among the applicants, but there’s even greater competition among the elite schools. For a child of a faculty member at an elite college that offers tuition waivers, the competition will offer her a scholarship to match the tuition waiver, either in whole or as a part. Thus, tuition waivers often serve as a depressing effect on tuition of all elite schools not only those offering the waivers.

36 Slocum November 6, 2017 at 9:05 am

They’re talking specifically about tuition waivers that are offered as part of a teaching or research assistant pay package for grad students as well as tuition waivers for children of faculty that are, in effect, enormously valuable tax-free fringe benefits. How would you feel about a fortune 500 company offering free tuition for the children of executives and having that benefit — worth tens or hundreds of thousands of dollars — being tax free? I suspect you’d be outraged.

37 Marty December 4, 2017 at 6:36 pm

And I suspect that an exec at a fortune 500 company has more than enough money to pay for their children to go to school. THINK about it! If you only make 30k a year, you do not qualify for pell grants and can barely afford to live. It is the children of the college staff who are left in the cold!

38 Vivian Darkbloom November 6, 2017 at 7:29 am

“That said, some tuition waivers should be taxed, in particular those that accrue to faculty members when their children attend the same college or university. That is simply a benefit to the well-off and well-educated, and it would not seem to fit the canons of optimal tax theory.”

It is important here to distinguish between a “tuition waiver” (sometimes called “remission”) and a scholarship. The latter is based on academic merit and is not taxed. As far as I know, tuition waivers are given in conjunction with a teaching job (e.g., as a teaching assistant) and not merely to someone attending graduate school. This distinction is important to the discussion. If I am correct, graduate students don’t get tuition waivers for being students; they get them for being teachers or providing other services to the university. To say that the teaching parent of a student should be taxed on a tuition waiver given to the latter, but a teaching student shouldn’t be taxed on a tuition waiver given to himself or herself, strikes me as a rather arbitrary distinction.

Nor can the distinction be justified on the basis that graduate students are not “well off” or “well educated”. Graduate teaching assistants may not be “well off”, but they are likely not less well off than a minimum wage worker at McDonalds. The latter is taxed on his or her wages, including most types of fringe benefits that accrue as a result of their employment. It also seems ludicrous to me that a graduate student is not considered “well-educated”. They are most likely better educated than the minimum wage counterpart.

Also, not taxing these waivers is a benefit not only to the student teacher but also to the university that employs them. If the benefits are taxed, universities might be forced to raise the wages a bit and/or put more of the teaching burden on regular professors where it belongs.

The reason not to tax these benefits would for pragmatic reasons–distinguishing between a merit scholarship and a fringe benefit of a job is simply difficult.

39 Vivian Darkbloom November 6, 2017 at 7:39 am

Another point regarding being “well-off”. Our progressive income tax system already accounts for this. One is considered well off enough to be taxed when one’s income exceeds a basic threshold after a standard deduction, personal exemption and other types of deductions and this threshold should not matter what kind of job one has. If a graduate student is not “well-off” he or she shouldn’t worry too much about being taxed on a fringe benefit.

40 Jonathan November 6, 2017 at 10:45 am

The problem is that the “fringe” benefit in this case is many times the actual salary that is taken home. When I was a grad student at the University of Chicago, the tuition that was being waved was something like $55k a year and my salary as a TA or RA was $15k. If I was taxed on the tuition waiver, my income would have been $70k a year and my tax liability would be roughly half of my salary. In the STEM fields the education and the work go hand in hand and you can’t reasonably do one without the other. It’s an apprenticeship system.

This tax change requires a complete transformation of how doctoral graduate education works in STEM and other supported fields. If I thought for a second that this was thought through more than here is something we can tax which hurts well-educated liberals more than conservatives, I would be open to it.

41 Vivian Darkbloom November 6, 2017 at 11:17 am

“When I was a grad student at the University of Chicago, the tuition that was being waved was something like $55k a year and my salary as a TA or RA was $15k. If I was taxed on the tuition waiver, my income would have been $70k a year and my tax liability would be roughly half of my salary.”

Exactly my point. Were it not for the tuition waiver, your (taxable) salary would have to be much higher. Why should grad students be given greater tax breaks than the poor folks working at McDonald’s?

As a single person, your federal and state income tax and FICA on $70,000 would be roughly $16,000. Not even “roughly” half your salary.

42 Larry Siegel November 7, 2017 at 4:49 am

I stumbled over that too, but I don’t think the proposal would include a FICA tax on the tuition waiver.

43 byomtov November 6, 2017 at 9:49 am

Based on my experience in graduate school that is not true.

I received a tuition waiver no matter what. If I taught or worked as a RA I received an extra stipend, which I believe was taxed. (It’s been a while, so I’m not certain.)

44 chuck martel November 6, 2017 at 7:45 am

Taxing tuition waivers is a sure recipe for eliminating trillions of dollars in government debt. Evidently educated economists are unable to grasp the fact that no increase in tax burden can erase the profligate spending of a congress gone berserk. There’s no solution except to keep enpixelating imaginary money and hope that death arrives before the bills come due.

45 Marty December 4, 2017 at 6:42 pm

EXACTLY! The money they will get from taxing the tuition waiver will not even begin to cover the spending problems! Cut the wages of our congress men! All they are doing is preventing a lot of people from being able to afford college. In particular the dependent on the college staff who do not get paid nearly enough. Even the faculty at some universities make less money than high school teachers! They accept below market wages with the understanding that they will receive the benefit of free tuition for their children.

46 WB November 6, 2017 at 8:06 am

“That said, some tuition waivers should be taxed, in particular those that accrue to faculty members when their children attend the same college or university. That is simply a benefit to the well-off and well-educated.”

Says the guy at an R1, who did his undergraduate degree when tuition was much, much lower. Ask the new professor at some backwater LAC or poorly funded directional how well-off he or she is doing. The new generation of faculty members are burdened by debt, often adjuncting for years after completing the PhD before finally landing a permanent job. Many of them won’t be able to afford to pay for their kids’ tuition without a waiver.

Indeed, many, many professors are not well-off. Most are in modest institutions that pay modest wages. And they only start earning these modest wages when they are in their mid-thirties. Stop perpetuating the myth of the rich professor. Aside from the tenure-track folks at ivies, R1s, and selective LACs, the rest of the professoriate ain’t doing so well.

47 chuck martel November 6, 2017 at 8:18 am

If most professors receive modest wages, where does the obscene tuition go? There are rumors going around that universities are over-run with administration. If that’s true maybe tuition could fall and teaching faculty salaries could rise with a change in human resource focus.

48 WB November 6, 2017 at 8:48 am

The expansion of administrators probably contributes. But I suspect the bigger culprits have been the increasing services and amenities offered at colleges. Students have access to things now (such as spa-like days before final exams) that simply didn’t exist a generation ago.

There’s been talk of an “amenities arms race” and “country club colleges” for years now. How do you attract students? Offer them great facilities that promise a great lifestyle. But that all costs money, money, money.

49 Marty December 4, 2017 at 6:45 pm

I have no idea where you get your “country club college” information. Colleges have to pay for utilities, healthcare for workers, insurance, building maintenance. I work at a university and we have had a wage freeze implemented a few years ago to help keep the costs down. Many of the professors make less money than some high school teachers!

50 Bill November 6, 2017 at 9:13 am

Not all universities grant tuition waivers.

Trump University doesn’t offer tuition waivers.

51 byomtov November 6, 2017 at 9:51 am

They don’t offer any tuition – in the sense of teaching, not fees – either.

52 TMC November 6, 2017 at 10:16 am

So no crying about conflicts of interest either way this goes then, right?

53 Eric November 6, 2017 at 9:17 am

When I won an award that covered tuition in grad school, I thanked the Dean for the tuition waiver. He pointedly noted that it was not a waiver, that tuition was being paid. Does this change anything?

54 EM December 4, 2017 at 5:27 pm

Yes, it changes a lot. You would not have to worry about the tax as it sounds like you essentially received a scholarship. Tuition waivers are based on working for the university.

55 byomtov November 6, 2017 at 9:55 am

That said, some tuition waivers should be taxed, in particular those that accrue to faculty members when their children attend the same college or university. That is simply a benefit to the well-off and well-educated, and it would not seem to fit the canons of optimal tax theory. If you wish, let the government make it easier to borrow money to go to school. In the meantime, treat this as in-kind pay to faculty and tax it.

My understanding is that this practice was changed many years ago. It was, rightly, regarded as a benefit available only to highly paid employees (in the context of the organization) and hence not eligible for tax exemption. To preserve th etax benefit universities has to extend it to other employees, so it was not discriminatory in that way, and various solution=s were put in place. So it is, or was, a more complex issue than that.

56 Marty December 4, 2017 at 6:48 pm

I have heard that they taxed this benefit for awhile… But then went back to not taxing it… Seems to me they should look at the past and realize there was a reason they made tuition waivers exempt again. I just hope they think about this before they hurt and disappoint the families and students of under-paid university staff.

57 mb November 6, 2017 at 9:58 am

Both tax proposals will tax people that over their lifetime will make significantly more than people without degrees. I have always thought subsidizing college tuition to be one of the most odious tax expenditures there are.

58 TMC November 6, 2017 at 10:19 am

Sounds like a rare good investment on the govt’s part. The college kid will now be in a whole new, higher, tax bracket for most of his life. (not defending the subsidy)

59 Troll Me November 6, 2017 at 6:55 pm

There are positive externalities, a strong sign, a priori, that it’s a likely candidate for economic benefits from some form of subsidy.

60 MAS November 6, 2017 at 10:05 am

The proposed tax bill calls for immediate expensing for capital investment. Why shouldn’t students be allowed to immediately expense investments in human capital?

61 Hazel Meade November 6, 2017 at 10:48 am

The problem with taxing tuition waivers is that the value of the tuition is often so high that paying taxes on it would be a very large expense for a typical grad student. If you end up pay $1000 in taxes on $30,000, that might be an entire month’s living stipend, effectively 1/12 of the individuals annual take-home income. And individual earing $12,000 a year would normally pay $0 in taxes because they are below the poverty line, but taxing the tuition waiver quadruples their reported income and catapults them into a higher tax bracket.

62 john November 6, 2017 at 11:20 am

“Let’s say I can either self-educate at great effort (but perhaps little upfront expense), or I can invest a lot of resources convincing someone I am worth taking under their wing and tutoring, for free. I will reflect glory on my tutor for many years to come. In equilibrium, the rates of return to these two strategies should roughly equilibrate.”

This seems to fly in the face of actually business hiring practices — including universities and, I suspect, academic journal publishing. Would GMU hire a self-educated economist to teach and do research? Would many corporation HR department even accept a resume from someone not showing a degree from an accredited college?

Is this just a case of Theory in the face of empirical fact (or is the suggestion the above is not empirical fact disputed)?

63 B.B. November 6, 2017 at 11:42 am

Tax evasion is easy.

Yale and Harvard make a deal on tuition waivers for faculty.

Harvard faculty send their kids to Yale and get waivers. Yale faculty send their kids to Harvard and get waivers.

These aren’t taxable under your scheme because the faculty aren’t getting a benefit from their employer.

64 Harun November 6, 2017 at 3:27 pm

Its a very large assumption to claim that a PhD student will make more income than if they had instead challenged their time and energy, and brilliance, into private sector endeavors for those years.

65 Mykel November 6, 2017 at 5:43 pm

PASS THE 28TH AMENDMENT: ABSOLUTE SEPARATION BETWEEN CHURCH AND STATE; tmblr.co/ZFotutY6FbwZ

66 Zach November 6, 2017 at 6:00 pm

I, for one, would be all in favor of decoupling the role of “grad student” from the role of “professional scientific researcher.”

For most of your graduate career in the physical sciences, you are a professional researcher. You take no classes, conduct research on projects that the university is paid to undertake, and your basic relationship to your advisor is employee to boss. So why is more than half of your compensation in the form of useless scrip — a “tuition waiver” — that can’t be sold or redeemed anywhere but with the university that issued it?

Getting paid in real money would be a great step forward for most graduate students, even if a little of it got taxed. For grad student tax brackets, the tax hit is tiny compared to having control over the money which is deducted from the grant on your behalf.

67 Zach November 6, 2017 at 6:25 pm

Put it this way: if the University had paid me the amount that was deducted from the grant for tuition expenses, then billed me for tuition, there would have been a *lot* more pushback about “thesis hours.”

For the uninitiated: taking 1 “thesis hour” makes you a full time student. There are no classes, no coursework, and no grades. This is the very definition of useless scrip that can only be redeemed by the university that issues it.

68 Hazel Meade November 7, 2017 at 8:33 am

It’s called a post-doc.
You’re supposed to graduate at some point. Presumably soon after you finish your coursework. Then PhD in hand, you get a post doc and you can start getting paid a salary and stop getting paid tuition. It’s a pretty good incentive to finish your dissertation.

69 Dave Smith November 7, 2017 at 10:59 am

I used a 30 cent coupon for shake and bake. Should that be taxed?

70 BDub November 7, 2017 at 4:50 pm

“At some margins, “starving the beast” is a good idea, even if it doesn’t always work.”

We cant even get the beast on a diet-plan! At some point you have to shoot it in the head, so everyone can be better off.

71 Tom Hynes November 8, 2017 at 10:04 am

Tax undergraduate athletes for their scholarships.

72 Cindy Olivia November 28, 2017 at 5:55 am

It would be odd, to say the least, to call it “self in-kind compensation.” (On top of that, it would bankrupt me in particular.) Similarly, if I persuade someone to stuff book knowledge into my ears for free, why should I then be taxed? Haven’t I done more or less the same thing, just using an intermediary and applying the effort at a slightly different stage of the education process? Unlike the faculty member enrolling his or her children, it is not a surreptitious way of delivering in-kind income to somebody or canon mx922 driver. Rather, the tuition waiver is helping someone make an investment more cheaply. What if I sit down and patiently explain to you why “buy and hold low cost diversified funds” are a better investment option.

73 EBRush December 3, 2017 at 5:27 pm

“…if I persuade someone to stuff book knowledge into my ears for free, why should I then be taxed?”

I am not an economist or a business person (my PhD is in psychology), so anyone who understands this issue better should definitely feel free to educate me, but here’s where I have a problem with this argument. Tuition remission is not equivalent to someone stuffing knowledge into your head for free. That would be more comparable to a scholarship, and as I understand it, scholarships are NOT taxed as income. In the case of most graduate tuition remission, it is payment in exchange for labor (as a TA or RA). In any other business context, you can’t just barter goods and services in exchange for employment in order to avoid taxes, right? If a business did that, wouldn’t it be called tax fraud? If I am understanding this correctly, universities under the current system are taking something that really should be a taxable event, but up until now has not been because the IRS has made a special exception. Obviously, we can argue about whether a special exception should be made because getting a PhD is somehow “special” or “different,” but the comparison to coupons or getting something for free doesn’t seem to work because of the fact that the tuition remission is exchanged for labor.

Universities could just convert all tuition remission to scholarships and avoid this whole problem, but then they wouldn’t be able to force grad students to work as TAs. Alternatively, I’ve already heard rumors that some departments are talking about decreasing tuition for grad students to $1 if this thing passes. But then, why wouldn’t grad students just pay the $1 in tuition and refuse to TA? Universities must be getting great bang for their buck on graduate student labor under the current system, otherwise it wouldn’t be structured this way. It seems to me that there is no REAL reason that tuition remission shouldn’t be taxed, but that universities are obviously going to fight to keep the status quo because otherwise they would have to completely overhaul the way that graduate education is financed, and would have to figure out a different way to get TA and RA labor done. Is this a fair assessment?

I apologize if some of these issues have already come up in other comments…I am typing this as my kids are napping so I’m on borrowed time 🙂

74 Marty December 4, 2017 at 6:54 pm

Universities could just convert all tuition remission to scholarships and avoid this whole problem

That would be nice… But I don’t know how that would work.
Besides, if they can tax tuition remission, what is there to stop them from taxing ALL tuition scholarships?

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