by Christopher Gerry
Graduate school teaches you to accept how much you don’t know. Being a liberal arts college graduate and a current Ph.D. student in chemistry, I know—and gratefully accept—that I’m not an expert in federal tax law. So I initially didn’t imagine that I’d be writing about the tax reform bill that was passed through the House of Representatives earlier this month; that’s what journalists and policy wonks are for, right? But buried within its reams is a provision that would tax tens of thousands of dollars that never reach students’ bank accounts. As a result, roughly 145,000 graduate students may see their income taxes raised by several thousand dollars to effective rates that could eclipse 40%.
The House version of the Tax Cuts and Jobs Act repeals Section 117(d) of the tax code, which exempts college- and university-derived tuition assistance from students’ income tax burden. Graduate students often receive financial aid packages that can include tuition waivers worth upwards of $50,000 per year, annual stipends of ~$20,000-$35,000, and other benefits. The current law taxes stipends, which are used to pay for living expenses like rent and groceries, but leaves tuition waivers untouched. The House bill, however, would count the value of the tuition waiver towards taxable income. Therefore, a student who receives a $30,000 stipend and a $50,000 tuition waiver each year would be forced to use her $30,000 to pay taxes equivalent to those of someone making $80,000 per year. It should be noted that as of this writing, the bill working its way through the Senate does not contain this provision.
Students without a lucky lottery ticket or an eye for penny stocks must rely upon their modest stipends. Many graduate students earn significantly less than minimum wage if you consider the actual number of hours they work per week. Assuming an 80-hour work week—which is more common than we’d like to admit—a student who takes three weeks off per year would have to make $28,420 just to reach the federal minimum wage of $7.25/hour. In Massachusetts ($11/hour) this figure jumps to $43,120. But minimum wage doesn’t get you very far in the places where top universities tend to be located, like Boston, the Bay Area, and New York City. Rent alone can eat up most of your paycheck—the median studio apartment in Boston costs about $1,800/month (or $21,600/year), which is over 60% of a Harvard chemistry Ph.D. student’s income. So if the House’s proposed tax reforms become law, rent and federal income tax could seize all but ~$2,000 of that annual stipend.
The math is clear: these tax increases represent a massive disincentive for pursuing graduate education. Students spend 5-7+ years developing research skills while their colleagues in the workforce are gaining on-the-job expertise. And as generous as today’s financial aid may be, earning a higher degree often requires that students forgo wages that are double, triple, or quadruple the value of their stipend. Graduate students are making big bets on themselves—like all investors, they hope that their investments of time and resources will eventually pay dividends.
But why should graduate students get paid at all? In many ways, graduate school is more like a “real” job than a few extra years of college because students often fulfill teaching and research duties while pursuing their degrees. This isn’t a complaint—one of the reasons I came to Harvard was its bevy of teaching opportunities—but it’s part of the deal. As teaching assistants, graduate students are often responsible for writing and grading both homework problems and exams, holding office hours, and mediating discussion sections. Additionally, student-driven research is a significant source of funding and prestige for universities, especially in STEM fields where faculty often don’t have the bandwidth to perform experiments themselves.
Thankfully, these reforms would not affect every graduate student. Students who receive funding via external fellowships from sources like the NIH (National Institutes of Health) or NSF (National Science Foundation) would not see a tax hike. Also, some have suggested that universities should respond by dispensing tuition waiver funding in the form of tax-exempt scholarships. While not consequence-free, this change could soften the bite of potential tax increases. Despite these workarounds, however, some students still wouldn’t be able to avoid the brunt of the legislation, and they would get hit hard.
At the risk of sounding conceited, I’d argue that graduate students are the lifeblood of research universities. But these new tax reforms, which are dangerously close to being signed into law, send the academic talent pool through a financial sieve. Even a chemist can tell that none of this makes any economic or political sense.
Christopher Gerry is a fourth-year graduate student in the Department of Chemistry & Chemical Biology at Harvard University. He currently serves as Co-Editor-in-Chief of the Science in the News blog.
One thought on “Tax Reform Punches Down”
It’s worth noting that the proposed tax reform, which would increase the tax burden on graduate students, has drawn significant criticism from many in academia and beyond. This is because the reforms could have a severe impact on graduate education and research, particularly in STEM fields where graduate students often play a critical role in advancing scientific knowledge.