Penn State President Eric J. Barron has shared the following message with the university community regarding tax reform legislation under consideration in Washington, D.C., and its potential negative impact on the University.
To the Penn State community:
As you may know, the U.S. House of Representatives passed the Tax Cuts and Jobs Act on Nov. 16, and the U.S. Senate is considering its own version of the bill. A number of proposed reforms in the bills currently under consideration on Capitol Hill are of significant concern for Penn State and all of higher education. Proposed changes would increase the cost of higher education for our students and employees, now and into the future. I want you to know that my administration is actively working with members in the House and Senate to ensure Congress is fully aware of the potential impacts on Penn State students and employees.
Along with other universities across the country, we are raising red flags about the possible serious and long-term negative consequences of some of these proposals. You also can play a role by making your concerns known via the online site of the American Council on Education (ACE), a higher education advocacy group to which Penn State belongs.
Graduate Students
The House tax bill in its current form would create significant financial burden for Penn State’s 4,000 graduate assistants and 400 graduate fellows — and could fundamentally alter graduate student education throughout the United States — by making it financially impossible for many students to pursue advanced degrees. Current law enables graduate students to exclude funds received for scholarships, fellowships and grants from taxable income if funds are used to pay tuition and fees, among other items. If the House version of the bill were to become law in its current form, we estimate that graduate students and fellows at Penn State will experience, on average, a $2,000 increase in their tax obligations, though individual students may be affected differently. The Senate bill currently does not contain similar provisions that would impact graduate students.
If the House tax bill becomes law, many students will likely not pursue graduate study because they would be forced to take on additional student debt. By making graduate education more expensive, this bill would not only discourage the pursuit of advanced degrees, but could have negative impacts on research, innovation and other integral components of graduate education at Penn State and universities across the nation, and ultimately harm U.S. competitiveness, as the pipeline for the nation’s intellectual capital is compromised. Again, we are working directly with our Congressional delegation on these issues.
Employees and their children
In addition, under current law, tuition reductions provided by universities to employees, spouses or dependents are excluded from an individual’s income. The House version of the bill proposes to repeal this provision, a move that, if the bill were to become law, would impact about 4,200 individuals at Penn State. The tuition reduction is part of our employees’ compensation package and is used to help recruit high-quality faculty and staff; by our estimate, University employees who receive this benefit would likely have to pay an additional combined $5 million in taxes each year if this law were repealed. The Senate bill currently does not repeal tuition reductions.
Student loans and philanthropy
Other areas of concern include the House bill’s proposed repeal of the ability for former students repaying federal loans to deduct up to $2,500 in interest payments each year, potentially impacting nearly 19,500 graduating Penn Staters annually and close to 200,000 former Penn State students; and proposed changes that would reduce the incentive for charitable giving that helps to improve access and affordability for low-income Pennsylvania students through scholarships.
The American Council on Education (ACE) has several resources available on its website, including summaries of both the House and Senate bills. ACE’s Action Center also enables individuals to reach out to their members of Congress specifically regarding the education tax benefits. The site will automatically direct the user to the appropriate members of the House and Senate based upon the user's zip code. Draft messages for students and families, University employees, and regarding concerns over charitable giving have been drafted but can be modified. Penn State's Grassroots Network also is advocating for changes.
We understand the legislative process in Washington is far from over and we will continue to advocate on behalf of our students and employees. The public policies that created the university/federal/state partnership have enabled Penn State to become Pennsylvania’s largest public university and single largest contributor to the state’s economy; changes in tax policy that make it harder for students to attend and pay for higher education will hurt not only Penn State’s ability to educate future generations, foster innovation, job creation, and economic competitiveness for Pennsylvania, but also may hurt the future of students seeking a degree.
Eric J. Barron
President, Penn State