Tax Reform and Graduate Students

By Nathan Urban, Vice Provost for Graduate Studies

The House and Senate are currently considering tax reform proposals that differ in a key provision that would greatly impact graduate students and research universities. The tax reform proposal recently released by the U.S. House of Representatives would impose a new tax on the tuition scholarships that universities often award to students pursuing PhDs and other advanced degrees. This change would make graduate education unaffordable to many students and would jeopardize the pipeline of talented graduate students who drive important sectors of the economy through their work. Fortunately the Senate proposal does not contain language about this provision, and it is critical that the key elements of the House proposal are not in any bill that emerges from this process.

American universities are the best in the world at educating graduate students to be innovative leaders. American companies and institutions depend on these talented students to compete in fast-growing, highly competitive sectors. Pittsburgh is a great example of how talented students help to attract companies like Google and Uber and also help to create new startup companies and foster innovation.

How would the House proposal affect graduate students? Universities often provide tuition scholarships for PhD students, typically covering the full tuition (often $30-50K) of students in PhD programs. This is one way that universities support the investment of time and effort by PhD students in pursuing degrees that require innovative research. During their degree programs, students are trained and mentored by world-class faculty to discover new knowledge in areas like science, technology and the humanities. Historically, these tuition scholarships have not been considered taxable as income, provided students are engaged in research or teaching.

This model has allowed American universities to attract the best students and to dominate the rankings of the best global universities. The tax reform proposal would impose a new tax on this waived tuition, costing graduate students thousands of dollars per year—and making these programs unaffordable for many students. The talent pipeline could dwindle to a trickle, jeopardizing innovation and causing companies to seek talent overseas.

At a time when countries like China are rapidly expanding the number of PhD students they produce to fuel developing subject areas such as computer science, artificial intelligence, brain science, genetics, and environmental science, the United States cannot afford to create new barriers to educating the very students who will be uniquely qualified to strengthen and shape the future of our region and our country.