Proposed Legislation Seeks Significant Tax Increase on University Endowments

Congressional Republicans have introduced legislation aiming to substantially increase the tax burden on investment returns from large private university endowments. The proposed measures include raising the current tax rate from 1.4% to as high as 21% and lowering the endowment threshold for taxation from $500,000 to $200,000 per student. This initiative could impact institutions such as Harvard, Stanford, and Princeton, potentially generating up to $112 billion over the next decade. ​

Background: The 2017 Endowment Tax

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a 1.4% excise tax on the net investment income of certain private colleges and universities. This tax applied to institutions with at least 500 tuition-paying students and endowment assets exceeding $500,000 per student. Prior to this, university endowments were largely exempt from federal taxation, allowing them to reinvest returns into financial aid, research, and campus operations. ​

Current Proposals: Key Details

• Endowment Tax Fairness Act: Introduced by Representative Troy Nehls (R-TX) on January 15, 2025, this bill proposes increasing the endowment tax rate from 1.4% to 21%, aligning it with the federal corporate income tax rate. The additional revenue is intended to reduce the national deficit. ​

• Endowment Accountability Act: Introduced by Representative Mike Lawler (R-NY) on February 7, 2025, this legislation seeks to raise the tax rate to 10% and lower the per-student endowment threshold from $500,000 to $200,000. This change would expand the number of institutions subject to the tax. ​

  
  

Potential Financial Impact on Universities

If enacted, these tax increases could significantly affect university finances. For example, under the proposed 21% tax rate, Harvard University, with an endowment of $53.2 billion, could see its annual tax obligation rise from approximately $49.8 million to over $500 million. Similarly, Stanford University, with an endowment generating $1.9 billion annually, could face taxes nearing $400 million.

Concerns Among University Officials

University administrators express concern that higher taxes on endowment earnings could reduce funds available for financial aid, research, faculty hiring, and campus operations. Some institutions, anticipating potential financial constraints, have already implemented measures such as hiring freezes. For instance, Stanford University recently announced a staff hiring freeze, citing uncertainties related to proposed federal tax increases and potential cuts to research funding. ​

Conclusion

The proposed legislation to increase taxes on university endowments represents a significant shift in federal policy toward higher education funding. As these bills progress through Congress, stakeholders will closely monitor their potential impact on university operations, financial aid availability, and the broader educational landscape.