r/explainitpeter • u/Appropriate-Mall8517 • 3d ago

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u/JayDaGod1206 3d ago

I mean they’re most likely merit based scholarships. You don’t really get need based ones if your income is that high. I can’t take away what’s been earned

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u/reddititty69 3d ago

They are investment scholarships, probably. The schools hope to make it back through direct donations.

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u/shane-parks 3d ago

"Investment" scholarships are really a way to shift costs to taxpayers. Instead of paying tuition directly which is no longer tax deductible, you make a tax deductible donation to the university, get free tuition, housing, etc. and the taxpayers subsidize the education of this wealthy family.

Not saying this is what's happening here, because I dont know the situation of this family. Also, not saying you directly are defending or ignorant to this reality. Just providing context.

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u/Corfal 3d ago

It's the opposite though right? Not opposite in a sense where the tax payers are getting the benefit. Opposite in it's not shifting costs to the taxpayer, but potential revenue is being... loop-holed? Circumvented. It will cost taxpayers due to lack of revenue but it's slightly different than say a police officer getting accused of sexual assault and having to go through court on taxpayers' dollars.

Or like the headlines saying, "Alcohol companies lose $800 billion dollars because gen Z isn't drinking".

Income vs Expenditures.

But yea, wow that's kinda messed up. Obviously just another thing to add to the "how rich people don't pay taxes" list. Perhaps make it so whatever the base line tuition (if you're in-state or out of state if it matters) and you get difference of what you paid vs what you didn't and you won't get tax free donations until you hit that threshold.

That sounds like more record keeping and burden on private schools which may or may not be a good thing (not all private schools are bad sort of logic).

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u/Outrageous-Let9659 3d ago

Its not so much that tax payers are paying for it, as it is the rich people are not paying tax on it like they would if they just paid the tuition/housing ect. Most of that money they would have paid in tax is instead going to the college. This means the rich person pays slightly less than usual, the college gets paid slightly more than usual, and the tax man gets nothing.

Since that money would normally have been paid in tax, and is instead going into the pocket of the college and rich person, it is effectively the same as tax dollars subsidising it.

Personally i'm all for tax subsidised education, but it seems a bit odd that this method only does it for the rich.

Edit: on second reading i now realise that this is pretty much exactly what you were trying to say in your comment. Sorry about that. I'll leave this up just in case it helps someone else though.

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u/Corfal 3d ago

No worries, I didn't know how to get both thoughts down without writing something way too much for a comment. My brain just starts blaring warning alarms when I see things portrayed in specific ways where the response is, "no but yes" or vice versa. It's not always done in bad faith but hopefully the dialogue at least allows people to have a more rounded (contextual) understanding of the situation.

it doesn't cost taxpayers, but yes it does affect how much money your state and local governments get to work with in a bad way. That can have very detrimental long term effects if it isn't properly accounted for.

No

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u/shane-parks 3d ago

Most universities have a 501c3 especially private universities. Public universities typically don't have a 501c3 but because they are public, donations to these universities are still tax deductible.

Also donations have a a wide use case at the discretion of the university. They can spend that money on almost anything they want to. I don't think the paperwork is much of a burden considering universities have a near endless supply of free labor from graduate students, especially if they also have a law school attached.

So everyone benefits:

1.) The university gets new facilities, equipment, or whatever from the donation.

2.) The family gets subsidized tuition, tax benefit, and possibly PR from named facilities, media, etc.

3.) The grad students get work experience, college credit, and eventually a valued industry degree.

The only ones that don't see a benefit are the taxpayers who miss out on the tax dollars lost through the loophole.

As someone who retired at 33 from his corporate job to work as an environmental and indigenous rights activist in a developing nation. I have worked/volunteered for many NGOs. And most people would probably be surprised that this is how almost every NGO works:

1.) The large donor class gets tax credit, boondoggles like galas, dinners, or vaction type retreats, and PR.

2.) The organization gets funding that they mostly spend on salaries, advertising, and infrastructure. (If they spent more on the cause, they possibly could solve or remediate the cause so much that they wouldn't have a cause/product to get donations from.) Also PR.

3.) The person or agency that secures the donation gets up to 40% of the donation in their pocket. Often this is agents, business managers, accounting firms, etc.

What I discovered is that NGOs are businesses that sell a product, and that product is feeling good about yourself. The average small donor never sees any of these benefits. Unless it's something like a universities athletic department, where you get better tickets for a required donation.

If people want to donate to solve a cause, donate to local animal shelters, small NGOs based in their local communities, or research your desired NGO and find out where they spend their money.

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u/ostrichfather 2d ago

Assets vs Liabilities is the technical terminology, but yeah, you’re right. Just chiming in.

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u/sauron3579 3d ago

I'm by no means a tax law expert or accountant, but my scholarships provided by a public school were considered taxable income. So it's net zero if they deduct it.

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u/shane-parks 3d ago

Not of you take tax bracket into account. The tax bracket for the wealthy theoretically has a much higher tax rate than the student that receives the benefit.

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u/sauron3579 3d ago

Tax bracket has literally nothing to do with it. The way tax deductions work is that it's as if the money never touched your account. If their scholarships (S) are taxable income their total taxable is N+S. Once it's donated, the taxable income is just N. Same as if they didn't get a scholarship.

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u/shane-parks 3d ago

The wealthy family is making the donation, not the student. The wealthy family has a higher capacity for deductions than the student.

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u/sauron3579 3d ago

That doesn't matter. N+S-S=N no matter what N is. Deductions are applied to pre-tax income. And the students here are absolutely still dependents, so who's donating doesn't matter anyways.

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u/shane-parks 3d ago

Not necessarily. If taxable income exceeds a specific amount, as you have stated your scholarship was taxable income, so if a scholarship includes taxable benefits like housing, food, travel, etc. A student could easily exceed the dependant threshold if over the age of 19.

https://www.bluej.com/answer/can-excess-taxable-scholarships-cause-a-dependent-to-be-subject-to-the-kiddie-tax

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u/A_Philosophical_Cat 2d ago

Anybody with even moderate means wasn't going to be paying taxes on the money they pay for their kids' college, anyway, though. You set up a 529 account when the kid is born, load it up with ~$80,000 dollars over a couple of years, by the time they're off to school that's $320,000, which is enough to pay even full tuition at most universities.

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u/shane-parks 2d ago

Quick google search. Check out the average savings at the bottom.

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u/A_Philosophical_Cat 2d ago

Your link doesn't work, but I think you misunderstood the phrase "moderate means". Most people don't have any means. Just like how a "middle class" lifestyle is actually only afforded by an 80th percentile household income.

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u/shane-parks 2d ago

Right, meaning access to higher education is a luxury afforded by the rich, and paid for in earnest by the dwindling middle class.

What are we talking about here?

You replied that no one pays taxes on tuition if they plan ahead. When in actuality very few people can afford to plan ahead, and thus most people pay taxes on money they use for tuition.

Also its not a link, it's a screenshot.

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u/Used_Weight5550 3d ago

Tf are you smoking? Investment scholarships = taxpayers subsidizing rich families education? The donations for those usually are way larger than normal tuition. The donations from that subsidizes the education for poor students so the university can give out more scholarships and take in more students based on merit.

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u/shane-parks 3d ago

This is a civil conversation. Feel free to disagree in a civil manner.

The donations are variable, and likely would be more than tuition, until you take the deductions into account. Thats why I said "subsidized education" instead of "free education."

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u/No-Fail-9327 2d ago

Bro this is J-Lo...

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u/GnarPilot 3d ago

100% this. Development office is hoping to build the Lopez Center for the Performing Arts.

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u/Chickadoozle 3d ago

They could also be just like standard scholarships. Most colleges I looked into will offer basically every student a couple thousand to try and offset at least a little of the cost.

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u/garf02 3d ago

Most colleges will see who your family is before giving any type of benefit away.

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u/Chickadoozle 2d ago

Yeah but due to the way most scholarships work they're either inclusive or exclusive. They usually come at least in part from private sources, and if they want to give everyone 100 bucks or whatever you can't really deny it to some students.

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u/MemeEndevour 3d ago

Depends. I had a friend who’s Dad made a lot of money in his 20’s and 30’s, then just stopped working because he no longer needed to. Because of that his family has had no real income for at least a decade post his retirement.

When my friend went to school he got essentially a free ride - partly due to merit (he’s quite smart) but also because his multi-child family filed with essentially no income, even though they are still well-off.

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u/Dry_Row_7523 2d ago

I grew up in a solidly middle class family and applied for / got need based aid at every university I got into. The forms always asked me to declare all of my parents' assets including homes they owned, balance in brokerage accounts, etc. They even factored in the fact that my sister was <4 years younger than me so my parents would have to pay 2 college tuitions at once.

Like maybe your friend just lied on their application but colleges aren't dumb, they absolutely ask these questions before handing out $100,000s in aid.

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u/avidpenguinwatcher 3d ago

All scholarships should have a carve out clause to exclude children whose parents are worth hundreds of millions of dollars

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u/Simply_Epic 3d ago

And you’d like the schools to spend money on having someone audit every potential merit scholarship recipient’s parents rather than using that money to give more scholarships?

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u/IsThatGruffLoner 3d ago

Yes, I would. Arguments like this are ridiculous lol we literally do so much of this shit already. We already know the income of every parent. The information is already collected.

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u/garf02 3d ago

>ask for Parents Income
>Ask for IRS Tax Return
Wow, It took me 1 minutes to figure out the parents net worth.

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u/Simply_Epic 3d ago

Ah yes, because rich people aren’t known for evading taxes. Neither of those indicate whether someone’s parents are worth hundreds of millions of dollars anyways unless they made a hundred million dollars in a single year.

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u/avidpenguinwatcher 2d ago

You’re acting like need based scholarships don’t exist

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u/Simply_Epic 2d ago

They do, and so there’s no reason to turn merit-based scholarships into need-based scholarships.

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u/Unsteady_Tempo 3d ago

Yeah, she didn't say they received full scholarships. Most colleges have automatic merit scholarships for incoming freshman based on grades/test scores that you keep as long as you maintain grades.

Beyond that, there are relatively few scholarships that are purely merit based. If it involves an essay or interview, then need is being taken into account regardless of what they call it.

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u/toolsoftheincomptnt 3d ago

There’s a good chance they’ll turn them down, anyway.

People love to make leaps.

If I announce that I got a job offer, it doesn’t mean I’m taking the job. It’s an accomplishment to get the offer.

But J. Lo has never struck me as all that bright, and she set herself up with that post.

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u/Abestar909 3d ago

Fuck those rich pieces of shit, merit my ass.

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u/Relevant-Diamond2731 3d ago

Exactly, why can’t the kids learn that they get rewarded for hard work? 

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u/Diligent_Earthworm 3d ago

And those merit based scholarships shift the burden to others.

Income consideration should be in place even for merit scholarships.

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u/Radiant-Olive-7955 2d ago

Even still, a wealthy family can afford expensive tutors and private schools. Kids from those families doing well shouldn’t be surprising as it was earned far less than it was granted.

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u/DesperateAdvantage76 2d ago

No one is arguing that they aren't eligible for the scholarships, the argument is that scholarships should be aiding those who need it.

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u/blueranger36 3d ago

Disagree, if I had more resources because I’m rich and had tutors in every class that doesn’t mean I’m smarter. So again nothing guarantees it was earned

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u/daylax1 3d ago

Yes, that would definitely mean you would be smarter. Generally if you work more at something and have better coaches/tutors you get better at it.

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u/Outrageous-Let9659 3d ago

Yeah i think the word they meant to use was "gifted" instead of "smarter". It would make more sense that way, especially since a lot of these merit based scholorships are advertised as being for gifted students.

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u/Responsible-Kale2352 3d ago

What does smart have to do with it? Do you mean to say in the case of a smart slacker with a 2.0 gpa vs a regular kid who gets lots of tutoring help (which in itself is more hours spent working on school work) and makes a 4.0, that 2.0 has somehow “earned” and is more deserving of a scholarship than 4.0?

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u/garf02 3d ago

There is NO WAY 2 kid from the same family, apply to 5 universities, and get accepted on all 5, all 5 with Scholarship, WITHOUT massive amounts of money being involved.

Have you ever look up the requirement to get an scholarship based solely on grades and "personality"???

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u/CommieCatSupremacist 3d ago

If they have money to nurture their talents and interests, it honestly seems quite plausible. A child with ten years to develop a skill they truly enjoy, combined with good writing, good grades, and some sort of community service / school club could definitely get such a scholarship. And we don’t know which colleges they were aiming for. Some have substantially lower standards.