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A Small College That Mostly Accepts Poor Students Is A Last-Minute Loser In The New Tax Plan

Berea College will be subject to a new tax, after Senate Democrats flagged a provision that would have spared the school as going against procedure.

Posted on December 20, 2017, at 2:36 p.m. ET

Brittany Bonner, a first-year student at Berea College, sweeps outside the front door of the Berea College bookstore in Berea, Kentucky.
Brian Tietz / AP

Brittany Bonner, a first-year student at Berea College, sweeps outside the front door of the Berea College bookstore in Berea, Kentucky.

A tiny college in Appalachia that accepts almost entirely low-income students and charges no tuition saw its fortunes under the Republican tax bill abruptly shift because of a technicality, prompting an outcry that aimed blame at both parties.

Just before the bill passed Congress, Senate Democrats on Tuesday challenged a provision that would have exempted Berea College, in Kentucky, from paying taxes on its endowment — a requirement imposed on a handful of wealthy schools in the Republicans' bill.

When Democrats pored through the legislation looking for pieces that violated the procedure Senate Republicans were using to pass the bill with a bare majority of votes, they picked out the clause, which exempted schools whose students did not pay tuition from the endowment tax. The provision was ruled inadmissible by the Senate parliamentarian — meaning Berea will be forced to pay a 1.4% tax on its endowment once President Trump signs the bill into law.

"I think you can blame the haste of the process and the polarized nature of the bill," Berea's president Lyle Roelofs told BuzzFeed News. "They ended up with an outcome that nobody, Republican or Democrat, wanted."

The Republicans' endowment tax, which targets schools whose endowments exceed $500,000 per student, was widely seen as a shot at elite colleges like Harvard and Yale, with multibillion-dollar endowments and student bodies that are mostly liberal and disproportionately wealthy.

At Berea, which was founded to educate freed slaves and "poor white mountaineers," 96% of first-year students are eligible for federal Pell Grants, which are given to low-income students, and the median family income for students — many of whom come to the school from poor parts of Appalachia — is under $30,000. At Harvard, by contrast, 16% of students receive Pell Grants, and the median family income is $168,000.

Berea spends simply, using much of its $1 billion endowment to cover its 1,600 students' tuition costs. Dining hall food comes from the school's farm, and furniture is often handmade; all of its students must work in on-campus jobs.

Berea's inclusion in the endowment tax is "pretty shocking and shameful, in my view," said Stephanie Khani, who graduated from Berea in 2008. Khani grew up in Louisville, Kentucky, in a low-income family that would not have been able to afford tuition at any of Kentucky's bigger public colleges. At Berea, she graduated with $0 in debt. "I had some really amazing experiences — I got to travel to Paris; I met amazing people."

Senate Majority Leader Mitch McConnell, who represents Kentucky, blamed Democrats for how Berea is due to be treated under the plan. "I'm frankly mystified that the Democrats stripped this provision from the bill," he said in a statement Wednesday after the bill passed Congress. He added that he would work with other members of Congress from Kentucky to "protect Berea and its students."

McConnell had worked along with Berea's representative, Andy Barr, to "support" the college throughout the tax bill process, Roelofs said. "They were cooperative with us in trying to include language that would exempt Berea."

Since the provision was struck on Tuesday, Roelofs said, he's heard from offices on both sides of the aisle that lamented Berea's inclusion in the tax. "The Republicans can rightly say, 'Well, we didn't raise this point of order, that came from Democratic leadership,' and the Democrats would say, 'Well, we didn't put in the tax, and we didn't vote for the bill.' Neither side considers this outcome their fault."

The specific problem with the provision was its requirement that the endowment tax apply only to colleges with 500 "tuition-paying" students, said Josh Miller-Lewis, the deputy communications director for Sen. Bernie Sanders, the top Democrat on the Senate's Budget Committee. "Tuition-paying" wasn't defined in the bill's text, Miller-Lewis said, meaning it had to be stricken.

Khani, a Democrat, said she struggled to understand why the party would do something that targeted Berea. "I feel like the blame is really shared," she said.

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