Special Campus Memo: Federal Tax Legislation

Published:
November 09, 2017

Dear Grinnellians,

Grinnell College is tracking parts of the proposed federal tax legislation that could have serious impacts on Grinnellians, and jeopardize our ability to deliver on our mission. We are concerned about the possibility of changes in tax credits and deductions, and new taxes on tuition benefits and endowment income. Passage of the tax bill in the House of Representatives and the Senate is a fluid process that the College is following closely in conjunction with the national associations that advocate for higher education's interests. I will keep the campus community informed about significant changes impacting the College that may occur as the tax bill makes its way through Congress.

The College strongly opposes the proposed 1.4 percent excise tax on private college and university endowments. This is an unfair penalty that would divert resources from our students, and threaten our ability to continue to support our mission, serve our students, provide opportunities for access and a diverse student body, construct facilities to enhance student learning, contribute to the local economy, and manage costs amid increased regulation and external pressures.

The tax would apply only to private colleges and universities that have at least 500 students and assets valued at the close of the preceding tax year of at least $250,000 per full-time student. There is a possible exclusion "for funds used directly in carrying out the institution's educational purposes," but we don't yet know how that would be defined.

The proposed legislation doesn't appear to be tied to policy, but seems to be strictly about generating revenue to offset proposed tax cuts. If these tax changes are enacted, higher education could lose approximately $110 billion dollars in direct revenue over 10 years -- an estimated $65 billion would come from tax benefits students have relied on to help finance their higher education, according to the Association of Governing Boards of Universities and Colleges.

The new tax would have a major negative impact on Grinnell because our endowment funds 55 percent of our annual operating budget, which this year includes $48.5 million in institutional grant aid. This year 87 percent of Grinnell students received financial aid, including Pell-eligible students, who represent 19 percent of our student body.

The tax bill also would repeal the Student Loan Interest Deduction, which many borrowers can claim to help pay off their loans. The average student loan debt of 2017 Grinnell graduates is $19,392. Consequently, this proposal would make it harder for graduates starting their careers to pay back their student loans. It also would increase the cost of going to college, and potentially decrease the number of students who choose to attend college at all.

The section of tax law that allows colleges and universities to refrain from taxing tuition benefits for employees also would be eliminated. Grinnell currently remits 90 percent of tuition ($50,264 for 2017-18) for employees' dependents attending Grinnell. This means tuition remission for one student this year would total $45,238. If an employee had a marginal tax rate of 25 percent, this tuition remission could generate an income tax liability of approximately $11,000 per year on the generous tuition benefits that faculty and staff receive from the College.

The College currently participates in a tuition exchange program in which 90 percent of tuition is waived for employees' dependents who attend Associated Colleges of the Midwest (ACM) schools. Approximately 85 percent of tuition is waived for employees' dependents who attend colleges in the Great Lakes College Association. These benefits would be taxed under the new tax bill, as would cash grants for those employees' dependents who attend other accredited higher education institutions.

These tax implications would also impact educational assistance for employees, who can receive up to $4,000 per year to attend classes at other accredited higher education institutions. 

Another provision of the tax plan would ban private schools from using tax-free bonds to finance building projects. This would increase construction costs because colleges would have to pay higher interest rates on taxable bonds. As a result, many colleges would likely curtail campus improvement projects that would have provided immense benefits to students.

I hope each of you will reach out to your representative and senators in Congress to share your concerns about these proposed changes in tax law that would have a significant impact on our entire campus community. You can find out how to contact your members of Congress.

Sincerely,

Raynard S. Kington

President

We use cookies to enable essential services and functionality on our site, enhance your user experience, provide better service through personalized content, collect data on how visitors interact with our site, and enable advertising services.

To accept the use of cookies and continue on to the site, click "I Agree." For more information about our use of cookies and how to opt out, please refer to our website privacy policy.