The Republican Tax Bill feels, in many ways, like an old western movie for college students. The Good, The Bad, and The Ugly Part 2.
While most of the coverage for the bill has been highlighting corporate rates and middle-class returns (or the lack thereof), a whole section exists within the reform bill that would be hugely impactful to college students.
To break down the changes, it will probably be easiest to work in the order students might face these changes.
The first change is to 529 saving plans. These plans are designed to give families a secure place away from any taxes to save money for their children’s education. There is currently another style of account for these purposes, a Coverdell’s account. The main differences are that Coverdell accounts have a maximum contribution limit of $2,000 a year while the 529 support up to $14,000 of contributions per year.
The plan proposes ending the Coverdell accounts and allowing 529 accounts to be used for elementary and high school educations along with apprenticeships, but capping them at $10,000 for contributions a year.
Once at school, students will see significant changes in the three higher education tax credits. Currently, there are three separate credits, the American Opportunity Tax Credit, Lifetime Learning Credit and Hope Scholarship Credit, but these would transition into a single credit. The credit would provide families $2,000 worth of credit for the first $2,000 spent on tuition, books, and supplies. Then they would receive 25% on the next $2,000 spent. The credit would then take half effect in the fifth year of college, presumably encouraging lapsing students to graduate on time.
The problem with this approach is that it forces graduate students to take a huge hit, as their educations go on well past 5 years. Through a combination inside the legislation, it would also change their amount of taxable income to include their graduate tuition should the school waive it for working at the institution. As an example, let’s say an English graduate student worked as a graduate assistant. If she worked for $25,000 year, but had $25,000 of tuition waived, she would be taxed at $50,000 dollars of income, placing her in a higher tax bracket.
The biggest issue for most general students are changes to the way student loan payments are treated. The plan would get rid of up to $2,500 dollars a year students can claim while repaying student loans.
Along with these much harsher financial lines for college students, there are a few steps the GOP is taking to help out students and ensure a more stable college environment.
One change is to individuals who are on disability with the tag of “Medical Improvement Not Expected”, and those who have passed away, who are still subject to student loan debt. The plan would discharge their student loans entirely.
The other change is how endowments are used by universities. With some rather broad applicability, the changes would require schools to pay an excise tax on their endowments of 1.4%. After this specific change drew fire, Kevin Brady (R-TX), proposed a change that passed Monday evening which would shrink the size of schools affected. Now, 50 to 60 schools stand to be affected, schools with massive endowments in the billions such as Princeton and Harvard.
With all of these changes, it seems set to add a significant price tag to the education Sam students are now receiving. Worth noting is that changes to the tax plan from this reform bill would not see grandfather clauses, any changes would begin immediately unless otherwise noted.
There are still many more rounds of changes coming to the GOP Tax Reform Bill, and it will be worth keeping an eye out for changes that will be coming to the areas that are specifically targeting students. The Congress plans to pass the Bill before the new year, so the clock is ticking.
With the looming threat of a more expensive future, it may be time for students to tighten their belts, cut spending, and maybe call Patsy Collins over in the Student Money Management Center.
