As Trump battles elite colleges, House GOP looks to hike endowment tax
by at least tenfold
[May 07, 2025]
By COLLIN BINKLEY and LISA MASCARO
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.
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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.
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