Universities strongly oppose Republican tax proposals

Higher education leaders have reacted strongly against Republican tax proposals unveiled on Thursday, warning that the plan to tax endowments of private institutions and scrap a deduction for student-loan interest would harm institutions and students.

The proposals, made in a bill in the House of Representatives, would bring in a tax of 1.4% on the earnings of large, private institution endowments and take away the current deduction for interest paid on student loans.

Together with the termination of other smaller tuition-related tax breaks, the plans should raise federal revenue by US$47.5 billion, congressional analysts said.

House Speaker Paul Ryan told a press conference that the proposed tax plan would enable a typical family of four to save around US$1,182 a year, which could go towards college savings.

But Ted Mitchell, president of the American Council on Education, the lead lobby group for higher education, said: “Taken in its entirety, the House tax reform proposal released today [on Thursday] would discourage participation in post-secondary education, make college more expensive for those who do enrol, and undermine the financial stability of public and private, two-year and four-year colleges and universities.”

John Walda, president and CEO of the National Association of College and University Business Officers or NACUBO, said: “Many provisions in this legislation would result only in making colleges and universities less financially secure and driving up costs rather than boosting affordability.”

The proposed tax on endowments would apply to private but not public universities and would only apply to endowments of at least US$100,000 per student enrolled. But university leaders say this reflects a lack of understanding of how endowments are used, including to support less wealthy students and widen access. Taxing them would require universities to raise tuition or cut programmes or financial aid.

Bob Durkee, vice-president and secretary at Princeton University, New Jersey, said his Ivy League institution uses its earnings from its US$22 billion endowment fund, one of the world’s largest, to give financial aid to more than 60% of its students and pay for academic courses, facilities and research, Reuters reported.

The proposed tax on endowments follows criticism from President Donald Trump last year that universities enjoy tax-free returns on their investments while hiking tuition fees.

The American Association of State Colleges and Universities, representing 400 public colleges, universities and systems, said in a statement that the proposed elimination of deductibility of state and local income and sales taxes, important tax advantages for students and families, and critical tax benefits for institutions, will undermine public higher education.

Making college less affordable

“These changes together would make college less affordable for the vast majority of students who access higher education through public colleges and universities.”

The American Council on Education said that the bill in the House of Representatives would raise the cost of attending college by more than US$65 billion between 2018 and 2027.

Walda, for NACUBO, said that although non-profit colleges and universities are tax-exempt because of their charitable mission – to teach, create and advance new knowledge through research and to serve their communities – the bill delivers a “disproportionate and unprecedented hit” on the tax-exempt sector, as well as students and families.

Part-time students who take classes to acquire new job skills will no longer be able to claim an education for tax credit, he said.

In addition, the proposed excise tax on college and university endowments would result in fewer dollars available for scholarships, student services, research and college and university operating costs.

He added that the provisions eliminating sections of the tax code that allow for employer-provided education benefits set a new tax on tuition assistance, which is an important benefit for middle- and low-income employees.

Also, doubling the standard deduction without creating another charitable giving incentive will have a “significant and damaging impact on gifts to colleges and universities that rely on giving to enhance their ability to provide scholarship aid and deliver on education and research expectations”, he said.

Eliminating access to the private activity bond market would also increase borrowing costs and likely result in diminished investments in infrastructure. Colleges use these bonds to acquire, construct and renovate infrastructure, such as hospitals, academic buildings, halls of residence, athletic facilities and energy plants.

Walda said collectively these and other provisions would likely have “long-ranging detrimental effects on both revenue streams and expenditures at colleges and universities, negatively impacting the students they serve and professionals they employ”.

He urged legislators to modify the act in a way that leaves America’s “unparalleled system of post-secondary education stronger, not weaker”.

Mitchell said the American Council on Education believes it is possible to offer tax relief to hard-working middle-class and lower-income Americans in a way that does not increase college costs and make a quality higher education less accessible. “We are eager to work with Congress to enact such legislation.”

Private institutions’ endowment funds currently total US$350 billion, according to NACUBO.