Key Takeaways
- • Trump and Republicans in Congress have floated proposals to substantially expand the college endowment tax, which could be included in the upcoming budget reconciliation process, where bills pass the Senate by simple majority.
- • The current 1.4% excise tax, enacted in 2017, applies to colleges with at least 500 tuition-paying students and at least $500,000 in endowment per student and affects roughly 50 to 55 institutions, according to Commonfund OCIO's Tim Yates.
- • A leaked House policy list proposed raising the rate to 14% while keeping the $500,000-per-student threshold, which the document estimated would raise $10 billion over 10 years.
- • Rep. Troy Nehls' January bill would raise the rate to 21%, while a separate proposal would cut the per-student threshold to $200,000, potentially subjecting many smaller colleges to the tax.
- • NACUBO and Commonfund warn that the tax would divert resources from teaching, research and student aid, given that 48.1% of endowment spending in fiscal 2024 went to student aid.
Summary
During President Donald Trump's second term, the administration's main financial impact on higher education has been funding cuts. According to Higher Ed Dive, further financial pressure could come from proposals by Trump and congressional Republicans to make colleges pay the government, including substantial expansions of the endowment tax.
Congress first enacted an excise tax on college endowments in 2017, during Trump's first term. The 1.4% rate applies to colleges with 500 or more tuition-paying students and at least $500,000 in endowment funds per student. Tim Yates, president and CEO of Commonfund OCIO, said the tax has affected roughly 50 to 55 institutions, most of them among the wealthiest in the U.S. Harvard University, the largest endowment, paid about $44 million in taxes and other fees in fiscal 2024.
Proposals under consideration would raise the burden considerably. A House policy list leaked in January included raising the rate to 14% while keeping the per-student threshold, an estimated $10 billion gain over 10 years. Republican Rep. Troy Nehls of Texas introduced a bill in January that would set the rate at 21%, matching the corporate rate. At least one proposal would cut the threshold to $200,000 per student, and Jason Delisle of the Urban Institute warned during an American Council on Education panel in February that small private liberal arts colleges could be affected. Vice President JD Vance's 2023 Senate bill would have set a 35% tax on endowments above $10 billion.
NACUBO, which opposes any endowment tax, said the measure diverts resources from teaching, research and public service. Liz Clark, NACUBO's vice president for policy and research, said that "You are undercutting your future." The NACUBO-Commonfund study found that 48.1% of endowment spending in fiscal 2024 went to student aid, with 17.7% going to academic programs and research and 10.8% to endowed faculty positions. Yates warned that higher taxes could push endowments toward riskier assets, noting that "You're either gonna have to earn more or spend less." Moody's analysts said a higher tax could lead colleges to revisit endowment draw policies and asset allocation, and some might cut financial aid.
Observers also cautioned that the tax could weaken donor relationships. George Suttles, executive director of the Commonfund Institute, said higher education philanthropy colleagues expect a real impact on giving.
Congress first enacted an excise tax on college endowments in 2017, during Trump's first term. The 1.4% rate applies to colleges with 500 or more tuition-paying students and at least $500,000 in endowment funds per student. Tim Yates, president and CEO of Commonfund OCIO, said the tax has affected roughly 50 to 55 institutions, most of them among the wealthiest in the U.S. Harvard University, the largest endowment, paid about $44 million in taxes and other fees in fiscal 2024.
Proposals under consideration would raise the burden considerably. A House policy list leaked in January included raising the rate to 14% while keeping the per-student threshold, an estimated $10 billion gain over 10 years. Republican Rep. Troy Nehls of Texas introduced a bill in January that would set the rate at 21%, matching the corporate rate. At least one proposal would cut the threshold to $200,000 per student, and Jason Delisle of the Urban Institute warned during an American Council on Education panel in February that small private liberal arts colleges could be affected. Vice President JD Vance's 2023 Senate bill would have set a 35% tax on endowments above $10 billion.
NACUBO, which opposes any endowment tax, said the measure diverts resources from teaching, research and public service. Liz Clark, NACUBO's vice president for policy and research, said that "You are undercutting your future." The NACUBO-Commonfund study found that 48.1% of endowment spending in fiscal 2024 went to student aid, with 17.7% going to academic programs and research and 10.8% to endowed faculty positions. Yates warned that higher taxes could push endowments toward riskier assets, noting that "You're either gonna have to earn more or spend less." Moody's analysts said a higher tax could lead colleges to revisit endowment draw policies and asset allocation, and some might cut financial aid.
Observers also cautioned that the tax could weaken donor relationships. George Suttles, executive director of the Commonfund Institute, said higher education philanthropy colleagues expect a real impact on giving.
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