Looking at how the tax reform bill affects students


The United States Senate voted to approve a tax reform bill late last week, which could signal the largest change of the U.S. tax code in the past few decades. Although Republicans have said this tax reform bill aims to simplify taxes for the middle class, administrators at Calvin and other Christian institutions have voiced concerns about the bill’s effect on private higher education.

Earlier in November, a similar bill stood before the House of Representatives, called the Tax Cuts and Jobs Act. That bill passed in the House, receiving 227 votes for and 205 votes against, primarily along party lines. All of the affirmative votes were from Republican representatives, and all but 13 of the votes against were from Democrats.

When the bill was in front of the Senate, senators were able to continue writing amendments up until the vote, into the wee hours between Friday night and Saturday morning. The bill, with these amendments, passed by a two-vote margin at 51-49. All but one Republican, Bob Corker, voted for the bill.

Now that the separate bills passed in both the House and the Senate, a committee from the two must now work together on a single bill that would be approved in both before it can be signed into law by the president. Republicans have been optimistic about pushing this through before Christmas.

The president of Calvin College, Michael Le Roy, has shared his concern for the effects the bill could have on higher education, especially on private institutions like Calvin.

Todd Hubers, vice president of people, strategy and technology at Calvin College, said he is still trying to understand the Senate bill “because it’s a moving target.”

“I don’t think they even know what they passed,” Hubers said. As far he can tell, there is not much in the bill that could be of benefit to private higher education.

Shirley V. Hoogstra is president of the Council for Christian Colleges & Universities (CCCU), of which Calvin College is a member. She detailed her concerns in a letter that the CCCU hand-delivered to members of the House ways and means committee and the Senate committee on finance.

According to its website, the CCCU is concerned the bill “would make college more expensive, make repaying student loans more difficult, discourage employees from using employer-provided education benefits, and undermine schools’ finances.” Hoogstra’s letter outlined multiple areas of concern for private institutions of higher education.

The bill seeks to eliminate the tax deduction for interest paid on student loans. Currently, taxpayers can deduct up to $2,500, as long as they are in the qualifying income bracket. This change would especially affect recent college graduates who are working in lower-income jobs like social work or education. Without the tax deduction, more income will go toward paying taxes and less toward paying down the principal of the student loans.

Hubers said this would be a concern for both current students and Calvin graduates and would have a disproportionate effect on students with more debt in student loans. While this change does not specifically target private institutions like Calvin, the cost of a private education can be higher than a public education.

Until now, the Lifetime Learning Credit has provided up to $2,000 each year in tax credits to taxpayers whose income was under a set threshold. Calvin students who are not traditional 18 – 22-year-old, four-year students could find their ability to afford an education at Calvin impacted.

In addition to concerns about student affordability, Hubers listed a few ways that Calvin receives funding: charitable giving, private activity bonds and the endowment. He said it’s hard to predict the exact impact if charitable giving was not incentivized, but it would certainly impact both Calvin and other institutions schools.

In her letter, Hoogstra cited a study from the Indiana University Lilly Family School of Philanthropy that estimated the changes in tax deductions could reduce charitable giving in the United States by around $13 billion each year. In addition to deductions for charitable giving, changes in estate tax exemption could affect financial support of Calvin.

Another way the tax bill could affect Calvin is through the private activity bonds that qualified 501(c)(3)’s have been allowed to take. Calvin’s current debt is financed with private activity bonds. While the $78 million of debt is a typical amount for private colleges of Calvin’s size and budget, Hubers said, with the new bill, a refinance could increase the amount Calvin owes on the private activity bonds each year.

Calvin also relies on a $140 million endowment for funding. However, if the tax exemptions change, a larger percentage of these endowments will go to the government and less will support scholarships for students. Currently, the interest made from Calvin’s endowment supports around $1,600 for each student per year.

Wheaton College, another member of the CCCU, would be immediately affected by this change because they rely more heavily on endowments. However, because Calvin falls under the threshold, it may not see as much of an immediate change. According to the Association of Governing Boards of Universities and Colleges:

“Both [House and Senate] bills also propose an excise tax on investment income for private college and university endowments with assets valued at $250,000 or more per student. While limited to nearly 70 institutions, this tax would significantly impact how these institutions spend endowment funds and would set a dangerous precedent for taxing institutional endowments in the future.”

Institutions like Calvin have found creative ways to attract and retain quality faculty and staff. One way is by offering tuition benefits to employees and their dependants. For example, full-time employees are eligible to take one free class at Calvin each semester.

The Senate bill would reduce education assistance from employers. If an employee is pursuing a degree such as a masters at another institution, Calvin will reimburse up to 50 percent of the cost of tuition. This reimbursement is currently tax-exempt up to $5,250. Proposed changes would make that entire reimbursement taxable, disincentivizing Calvin employees from furthering their education. This continuing education is valuable to individual employees and the workforce as a whole.

In addition, tuition reduction is offered to the dependants of full-time employees. If the tax bill will no longer allow these sorts of compensations to be tax-free, this may make it more difficult for Calvin’s employees to justify staying in the private sector and encourage them to take their skills where they will be paid more for them.

“The U.S. economy is increasingly a knowledge-based economy, so the government should be doing everything possible to help citizens further their education,” Hoogstra wrote in her letter.

Hubers agreed that the tax reform bill is short-sighted. Instead, he said, the government ought to encourage higher education.

“The federal government would actually get more taxes over somebody’s lifetime. I mean, because it shows your income potential and your earnings are higher the higher degree you have, so it’s somewhat short-sighted to make grad school less affordable for grad students.”