The Impact of the Proposed Increase of the University and College Endowment Tax

James S. Murphy

This piece was revised on June 28, 2025, to reflect the Senate reconciliation bill, which includes significant changes to the endowment tax proposed by the House and by Senate Finance Committee. The Senate bill’s two most significant changes to the previous proposals are raising the threshold of the number of enrolled students required to impose the tax and using all students, not just residents, to calculate the value of an institution’s endowment.

In 2017, Republicans used the budget reconciliation process to create an endowment tax on private colleges and universities with

• an endowment worth at least $500,000 per full-time equivalent (FTE) enrollment
• more than 500 tuition-paying students (a provision created to exempt Kentucky’s Berea College, where almost all students receive Pell Grants and no one pays tuition)
• more than 50 percent of the tuition-paying students living in the United States (a condition that has little effect, if any)

At the time, the Chairman of Ways and Means Committee, Kevin Brady, claimed, “The goal is pretty simple: It encourages colleges to use their major endowments to lower the cost of education.”

It was never clear, however, how the tax would accomplish that goal, unless Brady thought colleges could easily spend their endowment down below the threshold. They cannot, as Beth Popp Berman explains here. Even sillier is the suggestion that they could just enroll more students and fall beneath the threshold. Under newly proposed rules for the endowment tax, Harvard would need to enroll about 80,000 more students from the United States to get under $500K per enrollment.

The Endowment Tax Was a Bust

Needless to say, the endowment tax did very little to lower the cost of education, and not only because it affected about two percent of four-year colleges and less than one percent of students enrolled in four-year colleges. There was, too, the fact that many of the institutions with large endowments also provide very generous financial aid and can be more affordable than public universities and colleges for a low-income student fortunate enough to get in.

Brief aside: That, of course, is the real problem with affordability at super wealthy colleges: they enroll a lot of very wealthy students and relatively few poor or even middle class ones. Even when you control for grades and test scores, rich applicants are a lot more likely to get into an Ivy Plus school, thanks to the edge given to legacies, athletes, and students who go to expensive (and also well-endowed) independent private schools. A smart endowment tax with incentives to boost enrollment of low-income students and transfers from community colleges and erase the obviously unfair tip for legacies would help offset these advantages.

Data Source: Opportunity Insights

The endowment tax did not even raise much money, according to IRS data.

To be honest, it was never very clear that the tax was meant to do much of anything other than throw a jab at elite institutions. Back in control of Congress and anxious to raise money to extend the Trump tax cuts for the rich, Republicans have returned to the endowment tax with a vengeance. Now they want to turn that jab into a real body blow to mega-wealthy colleges and universities.

What’s New in the Endowment Tax Proposals

Well, that depends on whose proposal we’re talking about.

In April, the House of Representatives narrowly passed a reconciliation budget bill. The Senate Finance Committee budget plan introduced in mid-June differed in several significant ways from the House proposal. Those differences only grew larger in the Senate’s final version, introduced on June 27, 2025. Here are the major differences:

Tax Rates

The House proposal would dramatically increase the endowment tax by as much as 15 times the original rate. The wealthier a college or university is the more it will pay. Not for nothing, the highest proposed rate is the same as the flat corporate tax rate that was instituted under the Trump administration in 2017. The Senate version proposes much lower rates.

Endowment value per FTE	Proposed House Tax Rate	Proposed Senate Tax Rate
$500,000 to $750,000	1.4%	1.4%
$750,000 to $1,250,000	7%	4%
$1,250,000 to $2,000,000	14%	4%
More than $2,000,000	21%	8%

Who Pays the Tax and How Much They Pay

The House version of the endowment would not only tax institutions at a much higher rate; it would tax more institutions thanks to a change in how endowment values are calculated. The value of the endowment in the existing tax is calculates on a per student basis. The same would be true in the new proposal, but it would only include students who are U.S. residents. As a result, institutions like Columbia University that enroll a large number of international students would have to start paying the endowment tax. Using 2023 data from the Department of Education, here are the institutions that would pay the new endowment tax.

It is likely that some more institutions would be added to this list using 2025 data for their enrollment and endowment. Likewise, tax rates might be affected by the number of tuition-paying students are enrolled, particularly if the threshold increases to 3,000 students who pay tuition. Those data are not currently available.

Bigger Berea Rule

The Senate version, on the other hand, would end up taxing many fewer institutions because of two major changes it introduced this week.

1. It returned to the existing method for calculating the endowment’s value, even though the Senate Finance version from just two weeks ago kept that calculation.
2. More significantly, it established a new threshold for the number of enrolled students at taxable institutions. While the current version and House proposal establish that an institution must enroll 500 students to be eligible for the tax, the Senate proposal raises that number to 3,000 students.

It is unclear why the Senate bill raises the threshold so much to create what amounts to a Bigger Berea exception. I suspect that it was in part to spare Hillsdale College from paying the endowment tax. After the House reconciliation budget passed, the president of Hillsdale wrote an angry op-ed against the endowment tax. The version introduced by the Senate Finance Committee added an exception to institutions that do not receive federal student aid, an exception that would have applied to exactly one institution: Hillsdale.

Perhaps out of a fear that the an exception for one college would not get past Senate rules, the new version replaces this exception with the new, higher enrollment threshold. That change spares not only Hillsdale College from paying the endowment tax but also every single liberal arts college. It likely helped that some of the affected liberal arts colleges (Earlham, Davidson, DePauw, Grinnell) are in red states.

The Senate version also strikes the exemption for “qualified religious institutions” contained in the House Bill. The Senate Parliamentarian ruled this past week that the religious exemption likely violated the Byrd Rule, which restricts the inclusion of non-budgetary provisions in reconciliation bills. This is a change with little impact since the vast majority of institutions that meet the threshold for paying the tax would not be eligible for a religious exemption. Essentially all this change means is that Notre Dame and it’s $20 billion endowment would no longer escape the endowment tax.

The big winners in the Senate proposal:

• Hillsdale
• Columbia
• Juilliard
• Liberal arts colleges
• Cal Tech
• U Chicago
• Wash U
• Hopkins

The big loser: Notre Dame

The House Ways and Means Committee predicts that the endowment tax will raise about $2.3 billion in the next five years and an additional $4 billion in the five years after that. That’s not a small amount of money, but it is nothing compared to the more than $3 trillion the House reconciliation budget is predicted to add to the deficit. The Senate version is expected to net just $761 million over a decade, thanks both to smaller rates and a vastly shrunken pool of taxed institutions. While almost 60 colleges and universities paid the endowment tax in 2023, the proposed Senate version would cut that number by more than two-thirds.

The Endowment Tax is Bad Policy

Given the deep cuts the Trump Administration is attempting to make to the National Institute of Health, the National Science Foundation, the National Endowment for the Humanities, as well as increased demand for need-based aid, endowments are going to be more important than ever for the next few years.

If it passes, the Senate’s downsized endowment tax will do less harm than the House’s proposal, but it is a long way from doing any good. There are, however, ways that an endowment tax could actually be increase access and lower prices for low- and middle-income students, which I discuss in this post.

Who Will Be Hit By the New Endowment Tax

Methodology: Below, you can see which universities and colleges would have been affected by the new enrollment tax rates in 2023 if this new legislation had been in effect. These numbers are not meant to predict precisely which institutions will have to pay the endowment tax or at what rate, although I suspect most of them will land in a similar place to where I have them. FIguring out just who would be affected and placed in which tax bracket is no simple matter. I used the Department of Education’s Integrated Postsecondary Education Data Survey (IPEDS) to get the 2022-23 end of year endowment values and the endowment value per FTE for all private four-year colleges. I also pulled 12 month enrollment data for all students (undergrad and grad) and the same for international students. I eliminated all institutions with fewer than 500 students. Next, I divided the total endowment by the endowment per FTE to arrive at a calculated FTE enrollment for each institution. This was necessary because the reported dividing the endowment value by the number of FTE enrollments was not consistently providing the amount that IPEDS showed for endowment value per FTE. Then, I took the calculated FTE enrollment and subtracted out the international enrollments to arrive at a calculated number of domestic students. I then divided the total endowment value by the calculated number of domestic FTEs to arrive at calculated endowment value per FTE, which I used to determine the tax rate. Given the amount of approximation in this approach required, I kept some colleges and universities in the table below who fell below the $500K/FTE threshold by my calculations. With shifts in enrollment, stock market performance, or calculation guidance, all these institutions could shift around this table and fall into higher or lower rates than they would have in 2023. Now more than ever, they might also see some years with little investment growth.