The Republican tax bill unveiled Thursday amounts to a “tax on education,” according to one North Carolina college administrator.
The 76-page bill, called the Tax Cuts and Jobs Act, does away with a number of tax deductions and credits to help pay for lowering personal income tax rates and corporate tax rates.
Colleges, universities and students could be affected by many of the changes. The bill would eliminate deductions for student-loan interest payments and education expenses, repeal deductions that help part-time students and hit private schools by taxing more of their investments and ending their use of tax-free bonds for construction projects.
“It’s puzzling why a bill that is focused on job creation would place a greater burden on students and others who are trying to improve their lives by going to college,” said Michael Schoenfeld, Duke University’s vice president of public affairs and government relations. “It seems to be a tax on advancement or a tax on education, which is just an odd thing to be doing.”
More than 23.1 million Americans are repaying more than $2.1 trillion in federal student loans, according to data from the U.S. Department of Education. Estimates put the total number of Americans repaying student loans at 44 million.
Currently, some taxpayers are allowed to claim deductions of up to $2,500 on interest on student loans.
“Instead of using this deduction to offset tax cuts for millionaires while student debt is at an all-time high, we should be maintaining critical relief for American families,” said Rep. David Price, a Chapel Hill Democrat who proposed the deduction in 1997.
More than 12 million used the student loan interest deduction in 2015, according to IRS records.
“If people want to debate whether the student loan interest deduction is a good use of federal dollars, that’s a fair point. It’s troublesome to see it outright eliminated to pay for broader tax reform,” said Megan Coval, vice president for policy at the National Association of Student Financial Aid Administrators, which represents those college officials. “The process of how it’s being eliminated is concerning.”
The tax bill, which will be considered in the House Ways and Means Committee on Monday, also does away with the Lifetime Learning Credit, which provides a tax credit for up to 20 percent of as much as $10,000 for post-secondary education and does not have a limit on the number of years it may be claimed, which means it is often used by part-time students who are also working.
The bill slightly expands a similar program called the American Opportunity Tax Credit, which allows for five years of credits.
“Would you rather have that deduction or would you rather have a lower rate? If you’re going to lower rates for everybody, you’ve got to clean out this stuff,” said Rep. George Holding, a Republican whose district includes much of suburban Raleigh. Holding is a member of the Ways and Means Committee that wrote the legislation.
“This is a tax bill where you’re going to see virtually every American is going to get a cut in their taxes.”
In the Tax Cuts and Jobs Act, private universities could face a 1.4 percent excise tax on large endowments – investment funds made up of private donations to the universities. Colleges and universities with at least 500 students and an endowment valued at more than $100,000 per student would face the tax.
Duke University has a $7.9 billion endowment, Schoenfeld said, and about 14,800 students.
About 150 schools would be impacted, said Liz Clark, the director of federal affairs for the National Association of College and University Business Officers.
“We don’t understand how this helps with affordability,” she said.
Private schools will also be banned from using tax-free bonds to finance construction projects.
“Without access to the tax-exempt bond market, borrowing to build facilities will be more expensive,” Clark said. “College and universities, if this bill goes forward, will have to make some tough decisions about tuition and tough decisions about the services and educational offerings they provide.”
Republican lawmakers are using some of the savings to the federal government from the cuts to roughly double the standard deduction – the level of tax-free income for taxpayers who don’t itemize their deductions – to $12,000 for individuals.
But colleges are concerned that doubling the standard deduction will eliminate the incentive for many to donate since fewer will be itemizing on their tax returns. Additionally, the bill eliminates a deduction for donations that are often required to buy season tickets for college sports teams.
“North Carolinians want greater investments in public education and for college to be more affordable, yet House Republicans are proposing to fund tax cuts for corporations and the wealthy on the backs of students and teachers,” said Rep. Alma Adams, a Charlotte Democrat.
Brian Murphy: 202.383.6089; Twitter: @MurphinDC