Higher education

Iowa higher education braces for tax overhaul consequences

Students and leaders worry they'll suffer more financial hits

Landon Elkind, a University of Iowa graduate student, speaks Nov. 29 during a rally on the Pentacrest against a provision in the U.S. House tax bill that would subject stipends to grad students who teach or conduct research to income taxes. (Stephen Mally/The Gazette)
Landon Elkind, a University of Iowa graduate student, speaks Nov. 29 during a rally on the Pentacrest against a provision in the U.S. House tax bill that would subject stipends to grad students who teach or conduct research to income taxes. (Stephen Mally/The Gazette)
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Changes from Washington are coming to Iowa’s higher education institutions and those they serve, and campuses are bracing for — if not protesting — the implications.

“Get your phones out,” University of Iowa graduate student Landon Elkind shouted to peers through a megaphone during a rally late last month, urging them to call lawmakers and oppose a sweeping overhaul of the tax code.

As the U.S. House and U.S. Senate work to reconcile different versions of tax bills, students, families and higher ed leaders are keeping a wary eye on provisions that would affect not only grad students like Elkind but also charitable donations to campuses, tax protections for tuition and student loans interest, the ability of universities to save money by refinancing debt — and more.

“Why are they doing this? That’s what I think a lot of us are sort of struggling with,” said Jonathan Brand, president of Cornell College in Mount Vernon. “If the goal of either tax bill is to promote or spur economic activity, and you believe — as I do and I think many do — that education is one of the great ways to spur economic activity, why make it more onerous for colleges and universities?”

The GOP-controlled Congress is looking to end these exemptions and others to help offset the loss of federal revenue because of the cuts.

Advocates argue that even with these provisions, most individual taxpayers will owe less.

But critics note that both versions of the bill call for breaks for individuals to end after a few years while a break for corporations remains.

MILLIONS AT STAKE

Regional colleges and universities are worried about charitable giving amendments that remove incentives for donations — which are becoming increasingly important amid state funding cuts.

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They’re also worried about a provision that ditches tax-related tuition perks for college employees’ spouses and children, and other employer-provided education assistance.

They’re opposed to a proposed repeal of the tax deduction for student loan interest that currently cuts a recipient’s tax burden by as much as $2,500 a year — helping reduce student debt.

And then there’s a suggested repeal of the tax-exempt status of advanced refunding bonds, harming institutions’ ability to refinance existing debt at lower rates.

Iowa’s public universities since 2012 have used that tool to realize net present value savings of more than $63.7 million.

“The elimination of the tax-exempt bond option will limit our ability to modernize education and research facilities, stunt growth, and drive up costs for students,” according to a letter that Iowa’s three public university leaders wrote to congressional leaders.

A recent statement on the tax proposals from the Association of Big Ten Students, signed by UI Student Body President Jacob Simpson and UI Graduate and Professional Student Government President Tejasvi Sharma, asserts the legislation “will increase the cost of higher education, make it virtually impossible for students to finance graduate programs, and drastically stifle our nation’s research and innovation.”

PRIVATE PAYBACK?

One of the highest-profile provisions involves large endowments at private colleges.

Both House and Senate versions would for the first time tax them. The House version would affect 65 to 70 schools with endowments worth at least $250,000 a student. A Senate measure ups that to $500,000 per student, affecting 25 to 30 private colleges.

The only Iowa college making the list of affected institutions is Grinnell College — an internationally-acclaimed liberal arts school with about 1,700 students and an endowment worth nearly $1.8 billion.

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Grinnell President Raynard Kington told NPR that a 1.4 percent excise tax on investment income might not seem like a lot, but it “takes away either from the quality of educational experience or from our ability to offer aid.”

Cornell’s Brand told The Gazette that while his institution would not be subject to the tax, “It’s not to say we’re not concerned about it.”

“We compete, but we also work together,” he said about Iowa’s private colleges. “I think it’s pretty clear that the excise tax on the endowment will have a serious impact on those schools.”

Politicians for years have criticized Ivy League schools as elitist, amassing huge endowments while still increasing tuition to students.

But the colleges have said they use endowment income to offer tuition breaks, and note that donors often place restrictions on how the money can be spent.

‘VERY SCARE PATH’

Proposals call for no longer excluding tuition benefits for college employees’ spouses and children from taxable income, and no longer excluding employer-provided educational assistance from taxes.

“If we are not able to recruit and retain the best faculty or staff … it’s a very scary path for an institution,” Brand said. “You’re only as good as the faculty and staff who are there.”

At Coe College, President David McInally said his campus “worries a lot” about a provision affecting charitable deductions — upping the standard deduction and thereby curtailing tax incentives to give.

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He also is concerned on behalf of his students about the House’s proposal to repeal tax deductions for interest paid on federal student loans.

“That would be a big one, not just for Coe students but graduates of all colleges everywhere — there are a lot of loans out there and this is very important to them,” he said.

Long-term, collective consequences of some of the tax code revisions, even if unintended, could be far reaching, McInally said — noting effects on universities’ ability to attract faculty, enroll a diverse pool of students, generate charity and fund capital projects.

“We wouldn’t see a college close immediately,” he said. “But, in a few years for weaker institutions, it could happen to them.”

GRAD DISTRESS

University employees can get a break on tuition under current law, and grad students who work as teaching assistants and researchers benefit.

But in Iowa City and at schools around the nation, they are protesting a provision in the House measure that would prevent colleges and universities from waiving or reducing tuition expenses for them without having tax consequences.

Curtailing the benefits could make a typical grad student on a stipend of about $19,000 responsible for nearly $30,000 in taxable income, according to a graduate-student union statement.

“I love my students, I seriously love my job, and this tax increase would hurt me and my ability to help my students,” UI graduate student Emily Legel, 21, said during the rally last month in Iowa City.

‘DAMAGE CONTROL’

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Federal lawmakers are expected to convene next week in a conference committee to try to reconcile the bills.

Iowa State University financial aid Director Roberta Johnson said she will be watching.

The unknowns make it hard to prepare, she said, except to stay informed and respond to anxious student questions — which abound.

“Once we know what that’s going to look like, then we have to jump into high gear to help people who are going to be impacted,” she said. “If it’s terrible, we probably will be looking at some kind of damage control, and how do we make people realize they can still afford to come to school?”

l Comments: (319) 339-3158; vanessa.miller@thegazette.com

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