To the extent that tuition waivers are granted in exchange for work by the recipient, they should be considered taxable income. In current practice, the waivers are little more than a tax dodge.
If nothing changes except the tax status of waivers, then yes, grad students will get screwed. But the change (if it happens) will not occur in a vacuum.
"Full price" tuition is like sticker price on a car or the asking price on a house. Hardly anyone pays full price. Every year, tuition rises by some ridiculous amount, with a corresponding increase in the average amount of "financial aid" for each student. When someone like George W. Bush applies to Yale or Harvard with more money than brains, they find room for him somehow -- at full price of course.
If universities had to charge the same price to every student in an identical program, and students had to think twice before signing up for vast amounts of debt, the free market would balance at some point lower than current prices.
Thanks largely to government "help", far too much money has been pumped into higher education. University spending (public and private) continues to grow in the absence of any restraint. Students can always borrow more money next year because the government will borrow more money to lend. As a result, tuition rises faster than inflation every year, but the quality of the finished product is pretty much the same.
We have a similar problem with health care. For many years, employees sought better and better health care insurance, because employers paid most of the cost and employees received the benefit tax-free. As taxes and health care costs both grew without restraint, the value of employer-provided health care increased as well, fueling a vicious cycle. Every year, the cost of health care increases far beyond the rate of inflation because insured people are effectively discouraged (if not blocked altogether) from price shopping for their insurance or health care services.
Before Congressional Democrats butchered it, early drafts of the Affordable Care Act tried to encourage more competition for both insurance and health care services. By the time the law was finalized, lobbyists "fixed" it, preserving the sacred status of health insurers, health care providers, and big pharma. To this day, vast amounts of government "help" accomplish little more than inflating the health care bubble and taking care of lobbyists.
In some ways, taxing tuition waivers and student loan interest can be considered the Obamacare of higher education. If the tax dodges go away and loan interest is taxed as well, maybe it's time for students to set a limit on the amount they are willing to pay for tuition. Rest assured, universities will not allow their seats to remain empty. If supply and demand forces them to lower their operating cost to survive in a price sensitive environment, so be it.
Students should be outraged at the prospect of paying high tuition, borrowing money at high interest rates, and paying high taxes on top of it all. I understand their anger. But asking government to keep inflating the bubble is a big mistake and not sustainable. Such "help" will only make things worse.