It’s not just Harvard that will pay. As Republicans hunt for revenues, the tax on private college endowments could be raised and broadened. We found 127 schools that might be vulnerable.
Aspart of his battle with Harvard University, President Donald Trump has suggested that the Internal Revenue Service could yank the school’s tax exemption—a dramatic move that lawyers say likely won’t hold up in court. But the broader, more immediate tax threat to America’s wealthy private universities comes from Congressional Republicans eager to meld their dislike for “woke” colleges and the way they’ve handled antisemitism and diversity issues, with their hunt for revenues. They need those revenues to partially offset the multitrillion dollar cost of extending Trump’s 2017 tax cuts for individuals (due to expire at the end of this year) and of delivering on new tax goodies he has promised.
The GOP has a smorgasbord of ideas for hoovering up revenue from colleges, students and students’ parents—everything from tightening rules for student loans and loan repayments to limiting college tax credits to taxing the free tuition many graduate students get.
One of the most likely to be chosen from that menu: dramatically raising (and perhaps extending to more schools) the current 1.4% tax on the net investment income of college endowments. That tax was first adopted in 2017 to help pay for Trump’s signature tax cuts. Back then, the GOP-controlled Congress used the same “reconciliation” process it’s using now—one which enables Republicans to target colleges in a massive tax and budget package that doesn’t need any votes from Democrats.
The current endowment tax only applies to private colleges with more than 500 paying students and an endowment equal to $500,000 or more per student. According to Internal Revenue Service data, 56 schools paid a total of $381 million in endowment tax for calendar year 2023.
The IRS can’t legally name names, but we identified 41 schools that are almost surely subject to the tax, since their endowments were worth more than $500,000 per student as of June 30th, 2023, according to Department of Education data we crunched. (Those schools are shown in the first tab of the table below.) Stock prices rose sharply in the second half of calendar year 2023 and in 2024, meaning additional schools became subject to the tax as the value of their endowments grew. Our calculations show that current proposals by House Republicans, if combined, could subject as many as 127 schools to the tax.
While schools object to the endowment tax on principle (they are, after all, tax exempt because they serve the public good), the current tax bite is modest. For example, Harvard’s endowment, the largest in the nation with $53 billion in assets as of June 30th, 2024, reports it paid $44 million in “taxes and other fees” in fiscal 2024.
But the tax could soon take a much bigger bite. House members have proposed boosting the 1.4% endowment tax rate to 10%, 14% and as high as 21%, which matches the corporate tax rate. Back in 2023, while in the Senate, Vice President J.D. Vance proposed a 35% tax on investment income of college endowments worth $10 billion or more. Not to be outdone, Sen. Tom Cotton (R-Ark.) recently reintroduced his Woke Endowment Security Tax Act which would raise an estimated $16.6 billion by imposing a one time 6% tax on the endowments (not the investment income) of 11 rich universities, including six from the Ivy League.
The Tax Foundation figures a 21% tax on endowment investment income would extract $70 billion from the wealthiest colleges over the next decade, assuming they had a 7.5% annual rate of return, or $39 billion if they earned 5%. By contrast, in January, the House Budget Committee estimated a 14% rate would raise $10 billion. None of these numbers is huge in the total scheme of things.
“I don’t think what’s motivating this is revenue raising,’’ offers Steven Bloom, chair of the Higher Education Association Tax Working Group and a government relations specialist at the American Council on Education. “In the last several weeks the temperature has gone up a lot, beginning with Columbia and now Harvard, and I think the risk to higher education has gone up, particularly with regard to the endowment tax,” he adds. Whether or not the primary motivation is revenue, it’s the reconciliation process that could grease the way for this to happen—and quickly.
Republicans “like the money, but they’re also highly annoyed with the universities,’’ offers Dean Zerbe, who worked on college endowment issues while a tax counsel for Sen. Chuck Grassley (R-Iowa) and now watches tax legislation as a National Managing Director for Alliantgroup. (He is also a Forbes contributor.)
It’s easy to see why endowments are such a tempting target: A survey of 658 schools that includes nearly all the richest ones, found they scored a net annualized return of 11% in fiscal 2024, ended last June 30th, and ended that year with a collective $874 billion in their endowments. Yet according to this National Association of College and University Business Officers-Commonfund study, the schools spent only $30 billion from their endowments during the year, with 48% of the cash going to support student scholarships. The schools say that low payout rate is prudent—they need to protect their endowments from bad investment years (they lost 8% in 2022), and from unanticipated challenges (like Trump’s sudden cuts to research funding). Taxing endowments more, they say, will endanger scholarship aid, making college even less affordable for low- and middle-income students.
Vassar College President Elizabeth H. Bradley says her school just became liable for the tax this year when its endowment crossed $500,000 per student. “We give $80 million a year in financial aid. Our endowment puts off about $70 million and we raise another $10 million (for aid) on the annual fund every year. So taxing that is really very, very distressing for us,’’ she says.
But it’s not just an arguably low payout rate that makes colleges politically vulnerable. According to Gallup, between 2015 and 2024, the share of Americans saying they have a “great deal” or “quite a lot” of confidence in higher education shrank from 57% to 36%, while those saying they had little to no confidence in colleges more than tripled, growing from 10% to 32%. Meanwhile, a partisan gulf in views towards education opened, with only 20% of Republicans, compared to 56% of Democrats, giving colleges a vote of confidence in 2024.
An increase in the 1.4% rate is the most likely (and simplest) change to endowment taxation, but it isn’t the only one on the table. The “Protecting American Students Act,’’ which was introduced last month by Rep. Vern Buchanan (R-Fla.), the vice-chair of the House Ways And Means Committee, would exclude foreign students when calculating the per student endowment. Republicans don’t mince words about their motive here. “Many of these so-called ‘elite’ schools also continue to condone pro-Hamas protests following the October 7th attacks that quickly devolve into instances of violence and hate speech. My bill makes it clear: enroll more American students or pay the price,” Buchanan said in a statement.
Based on year-end 2023 numbers, excluding foreign students would rope in 11 additional schools, most notably Columbia University in New York City, which has 40% foreign students and has been targeted by the Trump Administration and Congressional Republicans for its handling of allegedly antisemitic protests. By our calculation, 10 of the 11 added schools at risk are in blue states. (All the schools subject to tax using this definition are in the second tab of the table above.) A similar bill was reported out of the Ways and Means Committee last year, with all Republicans voting for it and Democrats opposed. In addition to foreign students, it would prevent schools from including undocumented immigrants, including the “dreamers” who came here as youngsters, in the per capita calculation. According to a House Budget Committee estimate, the change would raise only $275 million over a decade.
Could even more colleges face endowment taxes? Rep. Mike Lawler (R-N.Y.), has proposed a bill that would not only raise the tax rate to 10%, but also broaden it to apply to any school with $200,000 or more of endowment assets per student. The third and fourth options on our table show the impact (again based on 2023 endowments) of applying this reduced $200,000 cutoff, and of applying both a $200,000 cutoff and excluding foreign students from the calculation of a school’s per capita endowment. The last of those scenarios would force an additional 86 private colleges, 44% of them in red states, to pay the tax, for a total of 127 colleges at risk. The fact that so many colleges in Republican states would be hurt makes an expansion less likely. But it’s not impossible—in 2017, the Republican controlled House reported out a reconciliation package that taxed all endowments worth more than $250,000 per student, a cutoff that was raised to $500,000 by a Senate amendment.
If the endowment tax rate is raised, schools could in theory adjust their asset allocations to try to minimize the hit; since the tax is only imposed on interest, dividends and realized gains, they could tilt their holdings more to riskier illiquid investments, like private equity and venture capital. The problem, says Tim Yates, president and CEO of the Commonfund Asset Management Company, which advises endowments, is that colleges are also discussing doing the opposite—making their portfolios more liquid so they’re in a position to deal with revenue lost from moves by the Trump Administration, which has suspended billions in research grants and reduced the overhead payments on even more. “The clients we work with are talking about it at the board level, but are reluctant at the moment to make any big policy changes with regard to asset allocation because we’re still in the period of unknown,’’ Yates says. Join the crowd.
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