Despite Yale’s commitment to meeting full demonstrated financial need for its students, international students on full financial aid face an additional, often hidden cost.
All applicants to Yale, both domestic and international, benefit from the University’s need-blind and need-based financial aid policies, guaranteeing that students will be admitted regardless of their ability to pay tuition. However, according to Internal Revenue Service policies, financial aid in excess of tuition — often used to cover textbook costs or travel expenses — is classified as taxable income, requiring universities to withhold 14 percent in taxes for international students with nonresident status.
Thus, international students receiving financial aid above tuition in order to cover the additional costs of attending the University are often subject to extra fees. For international students on full financial aid, this adds up to roughly $900 per semester that students are responsible for paying, Elizabeth Casey ’18, a student from the United Kingdom, said.
“The tax bill is greatest for the poorest students, who receive the most aid above basic tuition,” said Iain Barr ’17, a student from the United Kingdom. “For me personally, it has meant that despite the University promising to help cover expenses such as international flights, books … I have to mostly cover these on my own. The money that’s supposed to pay for those expenses gets eaten up by the tax at the start of the semester.”
Director of Financial Aid Caesar Storlazzi said tax and withholding issues are not exclusive to Yale. These are issues that confront all international students, he said, regardless of which U.S. institution they attend.
“All scholarships above the level of tuition and qualified fees are taxable,” Storlazzi said. “This is true for all students, both international and domestic. [But] federal tax laws require institutions of higher education to withhold taxes in respect of taxable scholarships for international students, unless there is a tax treaty between the U.S. and the student’s home country.”
Storlazzi added that the subject of tax treaties can be complex, because the tax treaty status of a country may change from year to year, requiring students to apply for tax treaty benefits.
Office of International Students and Scholars Director Ann Kuhlman said OISS works with Student Financial Services and the Yale International Tax Office to help incoming international students understand the intricacies of U.S. federal taxes.
“Because it is such a complicated issue, OISS and SFS explain the subject in depth during the orientation for international freshmen, as part of longer discussion of how Yale financial aid works,” Kuhlman said.
However, international students interviewed criticized the University for neither informing them of the tax before arriving on campus, nor factoring the tax into the coverage of their advertised financial aid packages.
“I wasn’t aware of the tax until I arrived at Yale,” Barr said. “It’s not included in the [estimated] student expenses by the financial aid office. This seems ill-informed and quite misleading, considering that it’s by far the largest single expense I incur every semester.”
New students are advised to schedule appointments with the Yale International Tax Office, Kuhlman said, and are told whether they are beneficiaries of a tax treaty. She added that general information about taxes and withholding is available on the Yale website.
But Casey echoed Barr’s statement, noting that had the tax been included in her initial financial aid letter under estimated expenses, she would have appealed her financial aid package and asked the University for a larger scholarship.
Both Kuhlman and Storlazzi said scholarships for international students are adjusted freshman year in order to cover the 14 percent withholding for their first two semesters. However, Kuhlman said, students are informed at the orientation that the University only covers the withholding for one year.
Because international students are able to request a refund of tax withheld, OISS purchases a non-resident tax filer software program in late February of each year, Kuhlman said. Most international students will use this software to prepare their federal returns, she added, and access to the software will become available next week. Kuhlman said OISS will also hold information sessions on how to use the software, including a session that is particularly targeted at international freshmen.
“At the orientation, we explain that [the increase of financial aid to cover the tax] will only happen in the [freshman] year, and that the student will need to budget accordingly for the subsequent three years,” Kuhlman said. “For some students, it is a significant amount of money, but the refund of some of the taxes paid, as well as earnings from a campus job, can help offset the withholding — emergencies notwithstanding.”
But Barr said the refund he received from last year’s tax only amounted to roughly one-third of this year’s bill, and that international students are not assisted in paying the bill remaining after the tax refund. If the University is committed to meeting full demonstrated need, he added, it should include the tax in financial aid calculations beyond freshman year.
While Casey agreed that Yale should consider adjusting financial aid packages to cover the tax all four years, she said the main issue is the University’s lack of transparency.
“It seems fundamentally wrong that you get to show up to campus with these rosy views of what Yale is going to cost for your family, and then they tell you that you’re responsible for paying an extra sum of money each semester,” Casey said. “They should at least tell students in the ‘expected cost’ part of their bill that this tax exists, before they actually arrive at school.”
Each year, over $16 million is given to international students in scholarships by the University, Storlazzi said.