How Higher Ed Fares in the Final Tax Bill

The U.S. House and Senate this week approved sweeping legislation to overhaul the tax code, sending the package to President Trump's desk for signature.

Negotiators from both chambers reached agreement on Friday on the final tax reform bill. The conference committee, convened by Republican leaders in Congress, met last week to discuss significant differences between the two bills previously approved in the House and the Senate.

The compromise legislation excludes some of the more controversial measures that directly target higher education. Most notably, the final bill does not include a proposed tax on tuition waivers for graduate students and other college employees. The House-approved tax overhaul would have eliminated the tax-exempt status of those tuition waivers. Additionally, the conference deal leaves intact the deduction, of up to $2,500, for interest paid on student loans, as well as interest-free bonds that many colleges use to fund construction on campus. The House bill would have eliminated both the student loan interest deduction and the bonds.

AACRAO, in conjunction with numerous other higher education associations, rallied in defense of educational tax benefits and urged Congress to reject provisions that would negatively impact students and institutions. The groups reached out to lawmakers during each stage of the legislative process to some success. We are pleased to see the removal of the measures to tax graduate tuition waivers and eliminate the student loan interest rate deduction and interest-free bonds. However, we are still concerned that the overall package will significantly affect higher education budgets, curtailing both state appropriations and college fund raising, among other things.

The final bill imposes a 1.4 percent excise tax on investment income at private colleges with an enrollment of at least 500 students and with assets valued at $500,000 per full-time student. The provision will affect approximately 35 institutions and is estimated to raise about $1.8 billion in revenue over 10 years.

The legislation doubles the standard deduction to $24,400 for joint filers and $12,200 for individuals. Nonprofit groups say that the change will reduce the incentive for charitable donations to entities like colleges and universities. The compromise bill will also limit the deduction for state and local taxes paid, which will put pressure on states to constrain their own spending in areas such as higher education.