College endowment tax is leading to hiring freezes and could mean cuts
in financial aid
[August 09, 2025] By
CHEYANNE MUMPHREY
A big increase in the tax on university endowments is adding to
financial uncertainty for the wealthiest colleges in the U.S., leading
several already to lay off staff or implement hiring freezes.
Spending more endowment money on taxes could also lead colleges to
reduce financial aid, cutting off access to elite institutions for
lower-income students, colleges and industry experts have warned.
President Donald Trump signed the tax increase into law last month as
part of his signature spending bill.
The new tax rates take effect in 2026, but colleges such as Harvard,
Yale and Stanford already are citing the tax as one of many reasons for
making cuts across their universities. Each will be on the hook to pay
hundreds of millions more in taxes, while also navigating reductions in
research grants and other threats to funding by the Trump
administration.
A tax on college endowments was introduced during Trump's first
administration, collecting 1.4% of wealthy universities' investment
earnings. The law signed by Trump last month creates a new tiered system
that taxes the richest schools at the highest rates.
The new tax will charge an 8% rate at schools with $2 million or more in
assets for each enrolled student. Schools with $750,000 to $2 million
will be charged 4%, and schools with $500,000 to $750,000 will continue
to be charged the 1.4% rate.
The tax applies only to private colleges and universities with at least
3,000 students, up from the previous cutoff of 500 students.
“The tax now will really solely apply to private research universities,”
said Steven Bloom, assistant vice president of government relations for
the American Council on Education. “It’s going to mean that these
schools are going to have to spend more money under the tax, taking it
away from what they primarily use their endowment assets for — financial
aid.”
This small group of wealthy colleges faces a tax increase
The law will increase the endowment tax for about a dozen universities,
according to an Associated Press analysis of data from the National
Association of College and University Business Officers.
Harvard, Yale, Stanford, Princeton and the Massachusetts Institute of
Technology are expected to pay the 8% rate next year. The schools facing
the 4% rate include Notre Dame, Dartmouth College, Rice University,
University of Pennsylvania, Washington University in St. Louis and
Vanderbilt University.
Some universities are on the edge of the law's parameters. Both Duke and
Emory, for instance, were shy of the $750,000-per-student endowment
threshold based on last fiscal year.
Endowments are made up of donations to the college, which are invested
to maintain the money over time. Colleges often spend about 5% of their
investment earnings every year to put toward their budgets. Much of it
goes toward scholarships for students, along with costs such as research
or endowed faculty positions.
Despite the colleges' wealth, the tax will drastically impact their
budgets, said Phillip Levine, an economist and professor at Wellesley
College.
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An woman walks past Rice University's Lovett Hall, the oldest
building on campus, Jan. 23, 2001, in Houston. (AP Photo/Pat
Sullivan, File)
 “They’re looking for savings
wherever possible,” Levine said, which could impact financial aid.
“One of the most important things they do with their endowment is
lower the cost of education for lower- and middle-income students.
The institutions paying the highest tax are also the ones charging
these students the least amount of money to attend.”
For example, at Rice University in Houston,
officials anticipate the college will need to pay $6.4 million more
in taxes. That equates to more than 100 student financial aid
packages, the university said, but Rice officials will explore all
other options to avoid cutting that support.
How colleges are adjusting to financial pressures
In the meantime, some universities are going forward with staff
cuts.
Yale University says it will have to pay an estimated $280 million
in total endowment taxes, citing the tax in a campus message
implementing a hiring freeze. Stanford University announced plans to
reduce its operating budget by $140 million this upcoming school
year, which included 363 layoffs and an ongoing hiring freeze. The
university spent months trying to determine where to reduce its
budget, but said it would continue to support undergraduate
financial aid and funding for Ph.D. students.
Research universities are under increasing financial pressure from
reductions in funding from the National Institutes of Health, the
National Science Foundation and other federal agencies.
No university knows this pressure better than Harvard, the country's
wealthiest college. Its $53 billion endowment puts it at the top of
the list for the new tax, but it's also seeing massive portions of
research funding under threat in its ongoing battle with the White
House.
The federal government has frozen $2.6 billion in Harvard's research
grants in connection with civil rights investigations focused on
antisemitism and Harvard's efforts to promote diversity on campus.
But the impact of other administration policies on the university
could approach $1 billion annually, Harvard said in a statement.
“It’s not like Harvard is going to go from one of the best
institutions in the world to just a mediocre institution. That’s
probably not going to happen," Levine said. “But that doesn’t mean
it’s not going to be a bad thing — that there won't be pain and that
students won't suffer.”
___
Mumphrey reported from Phoenix. Associated Press writer Sharon Lurye
in Philadelphia contributed to this report.
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