Taxing tuition waivers would benefit schools’ research missions

Universities were up in arms about the proposal to tax tuition waivers for graduate students, and it appears the final GOP tax bill will no longer include the measure. We disagree with this decision. We do not believe that Ph.D. students would end up suffering, and we think the change would lead to more, rather than fewer, resources deployed toward valuable research. 

In our experience as graduate students and faculty over the past 15 years, we know of no more than a handful of Ph.D. students who actually pay tuition themselves. Thus, the effective tuition for Ph.D. programs is approximately $0. 

{mosads}In fact, Ph.D. students in many fields, particularly sciences, look far more like revenue-generating employees rather than revenue-paying customers. Essentially, all students, at least in our fields, receive “tuition waivers” or have external, often federal, funding which covers “tuition.”

Now, if we tax the “tuition” benefit that ostensibly accrues to the student, universities face a choice. They can either impose this burden on Ph.D. students, who are generally bright individuals who have other potentially appealing paths in life and who will likely go elsewhere rather than pay the tax. Or why don’t universities respond by not charging “tuition” in the first place? 

To clarify our point focusing on the sciences, consider an aspiring Ph.D. student just admitted into a university. Two paths are possible: She may be given a teaching assistant position, which comes with a small work requirement, a small stipend, and a full-tuition waiver. The student has no out-of-pocket tuition costs.

Alternatively, the student is hired as a research assistant by a professor who has a grant, most likely from the National Science Foundationa (NSF). In this case, the professor allocates grant money to pay the student’s “tuition” to the central university and the stipend to the student. 

This payment to the university from the grant comes even after the already hefty overhead charge that universities take on federal grants. Still, our student faces no tuition costs herself. The cost for the university associated with this student is very small, as the student is taking relatively few classes and is in fact providing work to the university. 

Thus, it is perhaps not surprising that such students do not in fact pay tuition.

In neither case has the student paid anything to the university, while in the latter case the federal government has paid money to the general university administration. Instead, the presence of the “tuition” payment has led to a transfer from the scientist to the general university budget, even though the purpose of the NSF is to encourage fundamental scientific research, not to simply subsidize general university operations.

Not taxing “tuition” benefits simply becomes a way for universities to reallocate subsidies away from the originally intended purpose and toward general university operations.

If we as a society view subsidizing general university operations (which of course includes some valuable activities, but which also includes amenities like flowers on the quad and rock climbing walls) as valuable,  then these subsidies should be debated clearly and provided openly through the legislative process, not via accounting tricks.  

Since these subsidies are likely highly regressive, with the greatest benefits going to the most elite universities and with subsidies to universities in general most directly benefitting higher income classes, it is particularly important that such a debate takes place.

Thus, the concerns being voiced by universities, professors and students are, in our opinion, unwarranted. Indeed, the proposed policy change would be a benefit given the explosion of administrative costs at universities in recent years, much of which appear unconnected to the core research mission of a university.   

The measure would, if anything, promote more efficient allocation of resources at universities and benefit the research mission.

Carlos M. Carvalho is a professor of statistics at the University of Texas at Austin. Richard Lowery is an associate professor of finance at the University of Texas at Austin.