“The tax cuts and jobs act as amended is passed,” said Vice President Mike Pence to a round of applause from Republicans earlier this month. Yet there is little about the Tax Cuts and Jobs Act HR 1 worthy of applause. Although intended to deliver a $1.4 trillion tax cut — with benefits tilted toward corporations, business owners and wealthy families — graduate education and academic research in the US will also take a big hit. By substantially reducing tax benefits, the act will increase costs for college students by $65 billion over the next decade by introducing several provisions directed to amend, or in some cases even repeal, several benefits for master’s and doctoral level students.

Even though the measure enacted by the Senate still has to be reconciled with the House-passed version, the following repercussions are expected to occur. Firstly, the bill will affect charitable giving, which allows colleges and universities to fulfill their teaching, research and public service missions. Currently, the deductions for charitable donations are only available to roughly 30% of US taxpayers who itemize their tax returns. Given that the provision in the new bill is intended to double the standard deduction threshold for individuals and couples as well as reduce the number of taxpayers who itemize, only the 5% of them would be able to deduct their charitable gifts. This would result in a significant decline in the value of charitable giving to all non-profit organizations, including colleges and universities. According to an analysis carried out by the Joint Committee on Taxation, under the current law, 41 million donors would give around $241.1 billion in 2018. Under the new law, this figure would drop to 9 million donors pledging $146.3 billion — a $95 billion drop in the use of charitable deductions. Secondly, the proposed reform would introduce a new excise tax of 1.4% on investment returns at private colleges and universities that enroll at least 500 students and whose endowments equal at least $100,000 per full-time student. Because the provision is directed at schools with 500 students or more, the tax could target private schools with at least $50 million in endowment assets.

The role of endowments is absolutely crucial in financing higher education and in making college education affordable. While the vast majority of the nation’s 4,700 colleges and universities do not have significant endowments, those that do use those resources to provide substantial student financial aid to enhance access to education, particularly for low- and middle-income students. Indeed, the institutions with the largest endowments often have the lowest net price because they provide significant grant aid to students. Furthermore, institutions depend on their endowments to support new and emerging fields of study and research, along with nearly every aspect of an institution’s operation. Many institutions with the largest endowments make use of them as the main source of financial support, ranging from 20% to 50% of their operating budgets. According to the suggested provision, colleges and universities could hold down tuition increases and lower the cost of attendance by creating new federal mandates on university endowments. Unfortunately, this ignores the fact that many institutions are already devoting a great deal of their resources, including from endowment funds, to increase access for these students. It also reflects a lack of understanding about how university endowments operate and the restricted nature of these funds.

The bill also affects young people interested in graduate education by directly targeting student loan interests, tuition reductions and education assistance. With respect to interest paid on student loans, the current tax code permits taxpayers with less than $75,000 of income ($155,000 for joint filers) to deduct up to $2,500 in federal student loan interest payments each year. The proposed plan would no longer allow people repaying their student loans to reduce their tax burden, which currently provides a saving up to $625 per year for student loan borrowers making less than $65,000 or married couples making less than $130,000. Moreover, Trump’s budget would eliminate the Public Service Loan Forgiveness program, a federal program that forgives student loans for borrowers who are employed full-time in an eligible public service job or tax exempt non-profit who have made 120 payments over a period of 10 years.

Another crucial provision is concerned with tuition waivers, which will be treated as taxable income. Almost 145,000 graduate students receive reduced tuition in exchange for working at universities as teaching or research assistants. This goes some way in helping them afford to study at universities, even though at more expensive institutions, the pay students receive for work is just half or a third of the required tuition. The introduction of this provision would knock out a large number of graduate students from low-income backgrounds, who might be forced to leave school. If a $50,000 tuition waiver is included as taxable income, students who earn only $25,000 per year would be taxed as if they made $75,000 per year. For many students, that would mean a 400% increase in their taxes. In addition, university employees who receive discounts or free tuition if their children attend the college where they work, will be required to pay income taxes on the tuition waiver as though it was part of their take-home pay. Finally, two higher-education tax credits — Lifetime Learning Credit and the Hope Scholarship Credit — will be repealed and the American Opportunity Tax Credit slightly expanded to a fifth year (and at half the value). The new benefit would credit families for the first $2,000 spent on tuition, books and supplies, and provide an additional 25% tax credit for the next $2,000 spent.

Before drawing conclusions, it is worth noticing that the Tax Cuts and Jobs Act would also impact the way public and private non-profit colleges have access to funds by eliminating advance refunding bonds, an important financing tool for institutions that allows them to refinance outstanding debt at lower interest rates and generate significant interest savings over decades. Secondly, the bill intends to increase the Unrelated Business Income Tax — paid by academic institutions for any business income generated from activity unrelated to their educational, research, and community service missions — by placing both name and logo royalties into this category and computing unrelated business taxable income separately for each trade or business in a so-called “basketing” fashion. Last but not least, the Coverdell Education Savings Account, which allows families to invest for college or private school without the earnings being taxed, will be phased out by prohibiting new contributions including expenses associated with apprenticeship programs.

Interestingly enough, there seems to be an almost perfect symmetry between the outstanding US student loan debt, which exceeds $1.4 trillion and comes with an average payoff time of 20 years per student, and the estimated tax cuts arising from the reform. It does not require a stroke of genius to realize that the entire debt of a generation of students could be eliminated by simply not enriching taxpayers falling into the 95th to 99th percentiles of the income distribution. Shifting the burden of reform from the lowest-income families to the super-rich in the top 1% of the income distribution, would not only stimulate the economy in terms of aggregate demand (it is well-known that high-income households spend a smaller share of any increases in after-tax income than lower-income classes do), but it would also reduce the proportion of undergraduates reporting “overwhelming anxiety,” which according to the annual survey of the American College Health Association rose from 50 percent in 2011 to 62 percent in 2016. It is certainly true, on the other hand, that by allowing businesses to elect to immediately deduct new investment over the next five years, the reform would encourage firms to increase their near-term investment, further increasing demand and in turn economic output relative to its potential level. However, because the US economy is currently near full employment, the impact of increased demand on output would be smaller and diminish more quickly than if the economy were in recession (relying upon the newly published report by the Tax Policy Center). Even if the issue is analyzed from a political and economic rather than a more social and psychological perspective, what cannot be ignored is that the reform will raise the barriers to entry for American higher education for both national and international students, and furthermore dampen the trend of an educated labor force, which has grown steadily over the past 25 years.

Emanuele Citera is a Graduate Student (M.A. in Economics, The New School for Social Research) and Research Fellow at the Fondazione Luigi Einaudi Onlus (Italy). He graduated at the University of Bologna in 2014, where he studied Economics and Commerce (BSc, MSc) and in 2016 got a M.A. in Economics and Complexity (Collegio Carlo Alberto, Italy).