The trouble is, Berea picks up the tab for tuition after all federal, state and private grants have been awarded. Because Berea students technically pay a portion of their tuition, they would be counted under Treasury’s guidelines. Scholarships “provided by third parties, even if administered by the institution, are considered payments of tuition on behalf of the student,” Treasury wrote in the draft. “Accordingly, a student will be considered a tuition-paying student . . . if payment of any tuition or a fee is required for enrollment or attendance.”
Here is the actual statement from the preamble (from page 11 of the proposed regulations):
For purposes of section 4968, the proposed regulations also provide that whether a student is “tuition-paying” is determined after taking into account any scholarships provided directly by the educational institution and any work study programs operated directly by the educational institution. However, scholarship payments provided by third parties, even if administered by the institution, are considered payments of tuition on behalf of the student. Accordingly, a student will be considered a tuition-paying student for purposes of section 4968 if payment of any tuition or a fee is required for the enrollment or attendance of the student for courses of instruction after the application of any scholarships offered directly by the institution or work study program operated directly by the institution.
Proposed Regulation 53.4968-1(a)(3)(ii)(C) is essentially the same as the the preamble. It appears to include as tuition paying students those whose tuition is paid by funds not directly granted by the school. So it sure looks like Pell and state grant recipients will be counted as "tuition-paying" thus making colleges like Berea more likely to be hit by the tax. An outcome that really makes no sense at all. Certainly a student who pays no tuition out of pocket, even if as a result of receiving federal, state, or third party scholarships and grants, doesn't claim to be "tuition-paying." Treasury should change that and I bet they will. Doing so will at least give the tax some semblance of being moored by rational tax policy.
In related news, the National Association of College and University Business Officers (NACUBO) have provided a first take look at the regulations.
Darryll K. Jones