What Tax Reform Could Mean For Education; DeVos Visits Hurricane-Hit Islands
Hello and welcome to another edition of our weekly education roundup. This one is tax-bill-centric.
The Republican tax bill now under consideration in the House may go through many revisions — there are significant differences with the Senate's proposal. And it may or may not become law. Still, here's what the education world is watching.
Private colleges bristle at GOP tax bill
Of the nation's thousands of colleges and universities, a relative few have significant endowments. This money can be invested tax-free, thanks to the colleges' nonprofit status. Many schools reported high returns and record values in the fiscal year that just ended. At the top of the heap is Harvard with $37.1 billion in the bank, followed by Yale with $27.2 billion.
The Republican tax bill now under consideration in the House would levy a tax of 1.4 percent on net investment income for well-endowed private colleges.
After an outcry from some universities and their lobbying groups, the language was adjusted so that the tax would apply only to colleges with $250,000 or more in the bank per full-time student. This reduces the list of schools subject to the tax to 60 to 70, including some small private schools like Oberlin College and College of the Ozarks.
At least two other provisions in the bill would affect colleges. One is a 20 percent excise tax on compensation for employees earning above $1 million at all nonprofit entities, including universities. This would apply to a select few administrators, coaches, athletic directors and perhaps some doctors at university hospitals nationwide.
Finally, the bill would eliminate something called tax-exempt private-activity bonds. Private colleges can raise money more cheaply by backing these bonds, which are issued by state and local governments.
Paradise Papers hint at colleges' offshore money
While Congress mulls over these proposals, the New York Times published an expose this week on a related topic, derived from the Paradise Papers leak. It focuses on wealthy private colleges' use of offshore accounts and "blocker companies" to shield their investments.
Tuition waivers would be taxable; student tax break changes
Also coming in for new taxes under the House Republican tax plan would be higher education students. Currently, about 145,000 graduate students receive tuition waivers in exchange for teaching and research. In addition, employers can provide tuition assistance as a benefit, and colleges can waive tuition for their employees and their families. The House plan would count these waivers and tuition assistance as income for the purposes of federal tax. Graduate students and universities say the provision will hurt American research.
The Senate plan, released later in the week, leaves graduate tuition waivers alone.
School choice boosted in tax bill; public education advocates worried
On the K-12 side of the equation, the Republican tax proposal would allow parents to use up to $10,000 from tax-advantaged education savings plans — sometimes referred to as a 529 plan — to pay for expenses for their school, including tuition for private schools.
By the most recent numbers, there are 12.5 million active accounts like this in the U.S. Currently, 529 money can be spent only on qualifying higher education expenses, not on K-12.
Education Week reported the bill also includes a plan to eliminate the federal deduction for state and local income and sales taxes. This has some public education advocates worried that it could pressure states and localities to cut those taxes, which in turn provide an important source of funding for both public schools and universities.
Last but not least, the House bill would scrap a $250 deduction that teachers can now use to offset their personal cost of classroom supplies. One recent survey found that teachers spend about twice that, on average, out of pocket.
DeVos visits hurricane-hit schools
Education Secretary Betsy DeVos toured public schools in Puerto Rico and the U.S. Virgin Islands this week and met with local leaders to discuss hurricane recovery. Getting students back into the classroom has been a challenge. Of the 1,100 schools on the island of Puerto Rico, only about half have reopened since Hurricane Maria. More than half of the island remains without electricity.
As we've been reporting, meanwhile, many Puerto Rican students are enrolling on the mainland.
For-profit colleges draw almost all fraud complaints
A report by the nonpartisan Century Foundation reviewed 100,000 so-called borrower defense claims obtained by a Freedom of Information Act request. Students make these complaints to the Education Department when they believe they have been defrauded by colleges and want their loans forgiven.
Ninety-nine percent of the claims, according to the report, were made against for-profit colleges. And 76 percent were against just one school, Corinthian Colleges, which shut down in 2014 amid accusations of fraud.
Secretary DeVos blocked the implementation of the rule governing these complaints this summer and instituted a rewriting process.