Those who keep abreast of political news may be following the tax reform legislation under construction currently. We are monitoring the situation closely because of the current legislation in Congress (the Senate’s Tax Cuts and Jobs Act and H.R. 1 in the House of Representatives). Both bills have serious implications for higher education institutions.
At this writing, both bills have passed in their respective chambers. It may be possible to change the final version of the law during the Conference process when the House and Senate versions are reconciled with each other.
Here are proposed changes to tax law that could have serious negative consequences for higher education institutions:
- Student Loan Interest – The current $2,500 student loan interest deduction would be eliminated. Result: Student loans become more difficult to repay.
- Charitable Giving – The standard deduction would effectively be doubled, significantly reducing the value of the charitable deduction. This change would result in a dramatic drop in the amount of charitable giving in the U.S. due to an estimated 32 million fewer people eligible to claim the deduction.
- Endowments – Private institutions would pay a 1.4% excise tax on net investment income above a certain threshold based on the ratio of enrollment to endowment size. Result: This would reduce the amount of endowment proceeds available for operations and student scholarships for institutions that reach the threshold.
- Tax Exempt Bond Financing – Private institutions would no longer have access to tax-exempt bonds. Result: Cost of capital for construction and improvements would increase.
- Qualified Tuition Benefit Reduction – Tuition waivers for employees, spouses and dependents would become taxable. Result: IWU would immediate pay over $360,000 in new FICA taxes, and IWU employees would be liable for $1.4M in newly taxable benefits.
- Lifetime Learning Credit – The current $2,000 per year tax credit for part-time, nontraditional students would be eliminated. Result: An incentive for adults to pursue degrees would be removed.
These changes directly impact the accessibility and affordability of private higher education at a time when these institutions are already vulnerable. The Council for Christian College and Universities has been proactive in presenting our case against many of these measures. They seem to unfairly and inappropriately target private higher education.
Last month, Trustee David Dimmich and I participated with about 40 CCCU presidents, trustees, and administrators in an intensive day of visits to our Congressional delegates in Washington, DC, to make them aware of our concerns. We were well received by our Indiana legislators including Senator Todd Young, Representative Susan Brooks, Representative Todd Rokita, Representative Jim Banks, and Representative Jackie Walorski.
We have reason to believe that at least some of these issues will be removed from the final version of the new tax code.