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Forbes
05-07-2025
- Business
- Forbes
These 26 Rich Private Colleges Just Got A Tax Cut From Republicans
S trange things happen when details of a massive tax and budget bill, like the one President Donald Trump signed yesterday, are tweaked behind closed doors. Among them: A couple dozen of the nation's wealthiest small private colleges will be getting a tax cut next year, even as bigger rich universities, including Princeton, MIT, Yale and Harvard, will be slammed with higher taxes. It all began as an effort by House Republicans to dramatically raise the excise tax imposed on the earnings of college endowments, and particularly the endowments of wealthy 'woke' schools like Harvard University that they (and President Donald Trump) have targeted. But as it turns out, while Harvard's tax bill will likely more than double, some smaller schools with famously left-leaning student bodies (e.g. Swarthmore College and Amherst College) are getting tax relief. That's because schools with fewer than 3,000 full-time equivalent tuition-paying students will be exempt from the revamped endowment tax beginning next year. It currently applies to private schools with more than 500 full-time equivalent tuition-paying students and endowments worth more than $500,000 per student. Using the latest available federal data from fiscal year 2023, Forbes identified at least 26 wealthy colleges that are likely subject to the endowment tax now, but will be exempt next year based on their size. Along with top liberal arts schools like Williams College, Wellesley College, Amherst and Swarthmore, the list includes the California Institute of Technology, a STEM powerhouse, and the Julliard School, the New York city institution known for its music, dance and drama training. Grinnell College in Iowa, which enrolled 1,790 students in 2023, will save around $2.4 million in tax each year as a result of the change, President Anne Harris said in an email to Forbes . Here's what happened. As passed by the House in late May, the One Big Beautiful Bill (its Trumpian name) increased the current 1.4% excise tax on college endowments' investment earnings to as high as 21% for the richest institutions—those with endowments worth more than $2 million a student. (While these schools are all non-profits and traditionally tax exempt, the 1.4% tax on investment earnings was introduced by Trump's big 2017 tax bill. According to Internal Revenue Service data, 56 schools paid a total of $381 million in endowment tax in calendar 2023.) Along with raising the rate, the House voted to exempt from the tax both religiously-affiliated schools (think the University of Notre Dame) and those that don't take federal student financial aid. (The religious exemption was structured in a way that Harvard, founded by the Puritans to train ministers, wouldn't qualify.) The House also sought to penalize schools like Columbia University, with heavy international student enrollments, by excluding students who aren't U.S. citizens or lawful permanent residents from the per capita calculations. Then the bill went to the Senate, where the Finance Committee settled on more modest–albeit still stiff–rate hikes. Schools with endowments of $500,000 to $750,000 per capita would still pay at a 1.4% rate, while those with endowments above $750,000 and up to $2 million would pay 4%. Those with endowments worth more than $2 million per student would pay an 8% tax on their earnings, not the 21% passed by the House. Enter Senate Parliamentarian Elizabeth MacDonough, who makes decisions on the Senate's Byrd rule, which requires parts of a budget reconciliation bill like this one to have a primary purpose related to the budget—not other types of policy. The Byrd rule was put in place because reconciliation isn't subject to filibuster. 'You can't get into a lot of prescriptive activity' in a budget reconciliation bill, explains Dean Zerbe, a national managing director for Alliantgroup, who worked on college endowment issues back when he was tax counsel for Sen. Chuck Grassley (R-Iowa). 'Like, 'you've got to hop on one foot,' or 'you've got to make tuition affordable,' or 'you've got to do better in terms of admission.'' The Parliamentarian ruled that those three House provisions—exempting religious-affiliated schools, exempting schools that don't take federal aid, and excluding foreign students from the per capita calculation—didn't pass the Byrd test. At that point, Republican senators settled on the 3,000-student threshold in large part to specifically exempt one school from the tax: Hillsdale College, an ultra-conservative, Christian liberal arts college in Hillsdale, Michigan and a GOP darling. It enrolled 1,794 students in 2023, had an endowment worth $584,000 per-student, and notably accepts no federal money, including student aid. (So both the religious exemption and the one for schools taking no federal student aid would have presumably shielded Hillsdale from the endowment tax—before the Parliamentarian gave them the thumbs down.) There was also a broader group of small schools pushing for the exemption, notes Jonathan Fansmith, senior vice president for government relations and national engagement at the American Council on Education. 'They made an argument that I think got some positive reception among Republican senators of saying that essentially, while their endowments may be big relative to the fact that they have small student bodies … their endowments weren't big.' A school like Amherst, he adds, 'might have a big endowment for a small school, but they don't have a big endowment relative to the Ivies and the more heavily resourced [universities].' House Republicans, under intense pressure to meet Trump's July 4th deadline, ended up accepting the final Senate product in full. That meant exempting the smaller schools, including the 'woke' ones, while levying a rate of up to 8% on the endowments of bigger schools. Congress' Joint Committee on Taxation estimates colleges will now pay an extra $761 million in tax over 10 years, compared to the extra $6.7 billion they would have paid under the House version with its higher 21% rate and broader reach. Based on data from 2023, Forbes estimates that at least 11 universities will have their endowment earnings taxed at an 8% or 4% rate in 2026, while five will continue to pay the 1.4% rate. Three schools—Princeton University, Yale University, and the Massachusetts Institute of Technology—will likely be required to pay an 8% excise tax on their endowment earnings. Another eight, including Harvard, Stanford University, Dartmouth College and Vanderbilt University, will likely pay a 4% tax. The remaining five schools—Emory University, Duke University, Washington University in St Louis, the University of Pennsylvania, and Brown University—would pay the same 1.4% endowment tax rate they're paying now, based on fiscal 2023 numbers. One school that will likely pay 4% is the University of Notre Dame, a Catholic-affiliated school which would have been exempt from the tax were it not for the Byrd rule. 'We are deeply disappointed by the removal of language protecting religious institutions of higher education from the endowment tax before passage of the final bill,' Notre Dame wrote in a statement to Forbes . 'Any expansion of the endowment tax threatens to undermine the ability of a broad range of faith-based institutions to serve their religious purpose. We are proud to have stood with a coalition of these institutions against that threat, and we are encouraged by the strong support for a religious exemption received from both chambers.' Fansmith, for his part, won't call the exemption of the small schools a win. 'We think the tax is a bad idea and it's bad policy, and no schools should be paying it. But, by the standard that fewer schools are paying, it's better, but it's still not good,' he says. 'It's not really about revenue,' adds Fansmith. 'It's really about punishing these schools that right now a segment of the Republican party doesn't like.' The schools make the argument that it's students who are being punished, since around half of endowment spending pays for student scholarships. Meanwhile, Zerbe warns the now exempt schools shouldn't take that status for granted. 'Once revenue raisers are in play and out there, they come back again and again,' he says. 'It would be a disaster for [colleges] to think somehow this was a win for them. This was a billion dollar hit on them and there's more to come later.' More from Forbes Forbes Here's What The Senate Budget And Tax Bill Means For Colleges By Emma Whitford Forbes Trump's Foreign Student Crackdown Puts These 16 Struggling Colleges At Risk By Emma Whitford Forbes Trump's Visa Ban Is Barring New Foreign Doctors From Entering U.S. By Emma Whitford Forbes What The One Big Beautiful Bill Act Will Mean For You And Your Business By Kelly Phillips Erb
Associated Press
06-05-2025
- Business
- Associated Press
As Trump battles elite colleges, House GOP looks to hike endowment tax by tenfold or more
By COLLIN BINKLEY and LISA MASCARO Updated [hour]:[minute] [AMPM] [timezone], [monthFull] [day], [year] WASHINGTON (AP) — President Donald Trump's feud with America's elite universities is lending momentum to Republicans on Capitol Hill who want to increase a tax on wealthy college endowments by tenfold or more. House Republicans already were considering a hike in the tax on college endowments' earnings from 1.4% to 14% as part of Trump's tax bill. As the president raises the stakes in his fight with Harvard , Columbia and other Ivy League schools, lawmakers are floating raising the rate as high as 21% in line with the corporate tax rate. It appears no decisions have been made. In a letter blocking Harvard from new funding on Monday, the Trump administration drew attention to the school's 'largely tax-free' $53 billion endowment, noting it's bigger than some nations' economies. Trump previously said he wants to see Harvard stripped of its tax-exempt status as he presses for reforms at colleges he accuses of 'indoctrinating' students with 'radical left' ideas. Similar rhetoric has been echoed by Republican lawmakers who question why wealthy colleges get tax breaks that businesses don't. In a letter to Brown University last month, Rep. Troy Nehls of Texas, who has proposed legislation with the higher rate, said lawmakers are concerned about the priorities of universities that operate in a 'largely tax-free' world. He questioned whether their endowments contribute to the public good. Republicans appear to be chipping away at the long-held notion that colleges provide the kind of public benefit that deserves to be protected from heavy taxation. And it's happening just as the House looks to cut or offset $1.5 trillion in spending as part of the president's sweeping tax bill. Endowment taxes were introduced in Trump's first administration Colleges weren't taxed on their investment gains until Trump's 2017 tax package, which applied a 1.4% levy to schools that enroll at least 500 students and have $500,000 per full-time student in the bank. A proposal floated by the House Ways and Means Committee in January called for a 14% endowment tax. Now lawmakers are looking at a 21% tax, among various options. As a senator, Vice President J.D. Vance proposed going further, to 35%. In 2023, the current tax generated $380 million from 56 colleges. Raising the tax to 14% would generate $10 billion for the federal government over 10 years, according to budget documents. On its own, it would have little impact on the House's goals for slashing government spending. The momentum for an increase reflects a broader attack on higher education, said Steven Bloom, an assistant vice president of the American Council on Education, which represents the presidents of hundreds of colleges. 'It's not a lot of money, so that can't be the motivating factor,' Bloom said. Multi-billion dollar endowments draw new scrutiny Colleges see their endowments as stability for the future. The wealthiest ones run massive investment portfolios, and they usually draw about 5% of their returns to cover scholarships and other operating costs. Critics say colleges have been allowed to amass huge, tax-free returns while charging students as much as $95,000 a year for tuition and fees. They point to Harvard, Yale and others with tens of billions stored away. In total, roughly 50 colleges have endowments worth more than $1 billion, while the vast majority are much smaller. The tax proposals heighten financial uncertainty for colleges, including some that already are drawing deeper into endowment reserves to make up for federal funding cuts or grappling with budget gaps amid enrollment decreases. At Davidson College, the most modest proposal would add $11 million a year to the school's tax bill, which was about $1 million last year, President Douglas Hicks said in an interview. 'That amount of money would be astronomical for our budget,' he said. Davidson is among a small group of colleges that don't consider students' income in admissions and agree to cover their full financial need. Hicks said the proposed tax hikes would take away the equivalent of full scholarships for up to 200 students. 'If leaders are trying to reform higher education, there are much better incentives,' Hicks said. Middlebury College in Vermont, a campus of about 3,000 students, cited the potential tax increase as a factor contributing to recent financial uncertainty. The school faces a budget deficit amid a dip in graduate school enrollment, but it's opting not to pull more from its endowment over concerns of a tax hike. 'Endowment tax increases that are currently under consideration could raise our tax bill from $1 million to $12 million,' university leaders wrote in an April update. ___ The Associated Press' education coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP's standards for working with philanthropies, a list of supporters and funded coverage areas at
