Hertz Fellow Douglas Natelson on Nanoscale Views: Taxes and Grad Student Tuition

November 7, 2017
Hertz Staff

Posted by Douglas Natelson

Taxes and grad student tuition

As has happened periodically over the last couple of decades (I remember a scare about this when Newt Gingrich's folks ran Congress in the mid-1990s), a tax bill has been put forward in the US House that would treat graduate student tuition waivers like taxable income (roughly speaking). This is discussed a little bit here, and here.

Here's an example of why this is an ill-informed idea. Suppose a first-year STEM grad student comes to a US university, and they are supported by, say, departmental fellowship funds or a TA position during that first year. Their stipend is something like $30K. These days the university waives their graduate tuition - that is, they do not expect the student to pony up tuition funds. At Rice, that tuition is around $45K. Under the proposed legislation, the student would end up getting taxed as if their income was $75K, when their actual gross pay is $30K.

That would be extremely bad for both graduate students and research universities. Right off the bat this would create unintended (I presume) economic incentives, for grad students to drop out of their programs, and/or for universities to play funny games with what they say is graduate tuition.

This has been pitched multiple times before, and my hypothesis is that it's put forward by congressional staffers who do not understand graduate school (and/or think that this is the same kind of tuition waiver as when a faculty member's child gets a vastly reduced tuition for attending the parent's employing university). Because it is glaringly dumb, it has been fixed whenever it's come up before. In the present environment, the prudent thing to do would be to exercise caution and let legislators know that this is a problem that needs to be fixed.