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The House Tax Plan Looks Bad for Students
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By: Teri Bernstein

 

 from Newsy on YouTube

 

The GOP tax reform plan is far from being finalized, but certain aspects of the bill have a disproportionate (and negative) impact on specific populations. These groups tend to be people who don't make much money anyway. These education-related "losers" with respect to the proposed tax plan are:

 

  • Graduate students: Their tuition wavers (even though never received in cash) would be taxed as income--see the Kelly Balmes example below for the huge impact this has.
  • Universities: a new tax of 1.4% on net investment income--which was changed to apply only to "well-endowed" colleges when universities complained.
  • Those with student loans: a) the loan forgiveness benefit provided by some employers would be taxed as income; b) The $2500 deduction for student loan repayment that those making under $80,000 are eligible for would be eliminated; c) Loans would not be forgiven upon debt or permanent disability.
  • All students: a) Three tax credits now available to those paying for higher education (American opportunity tax credit, lifetime learning credit and Hope scholarship credit) would be consolidated into one credit. b) The Coverdell Education Savings Accounts (allowing families to save for college without being taxed) would be eliminated. 

 

Many observers feel the plan disproportionately affects STEM students and diverse populations. The Senate plan will be different; before any bill becomes law the differences will have to be reconciled. 

 

Since today's students will be employed over the next few years, the next question to ponder is:

 

 image from Wealth Management

 

As the details in the legislation get ironed out, the data that can provide realistic answers will become available.

 

Sources:

Discussion: 

  • How does the tax plan affect you? Don't guess: do the numbers for your self now and a 5-years-in-the-future-self (further education, higher income, maybe a change in family status). Run the numbers for your parents or others you know.  What is the reality?
  • How does the Senate plan affect you? 
  • Think of the big picture: what are all the factors that you can think of that determine an optimum tax situation? Consider taxation of ALL kinds, as well as revenues, expenses, current and future deficits, and how deductions and tax credits figure into "social engineering" (Examples of social engineering are corporate tax credits for locating in a city to create jobs, or encouraging stability by allowing deductions for mortgage interest for home buyers).