Republicans say their new bill holds ‘woke’ universities and tax-exempt entities accountable. But it could cripple the finances of many schools – big and small.
Republicans in the United States Congress are pushing for an increase in taxes on US universities, under a new bill championed by President Donald Trump that narrowly passed in the House of Representatives last Thursday.
The bill’s supporters argue that a provision relating to higher educational institutions is crafted to target “woke” universities.
Universities have taken a hit from Trump’s executive orders and decisions aimed at changing education and immigration in the country, alongside cracking down on pro-Palestine protests that took place on US college campuses last year.
The new tax plans aim to increase taxes on what US universities earn from their endowments.
An endowment refers to funds or assets donated to a university to keep it financially sustained in the future.
Endowments typically comprise charitable donations from alumni, other donors and companies.
The bill before the US Congress sets tax rates for universities based on their effective endowments per student – by dividing their total endowments by the number of full-time students at the institution.
Earnings from investments made from endowments will be taxed, if the bill becomes law.
This changed during Trump’s first presidential term. In 2017, the US Congress passed the Tax Cuts and Jobs Act, which introduced a 1.4 percent tax on colleges with per-student endowments of at least $500,000, and at least 500 students who paid tuition. Hence, the tax applies only to some of the wealthiest institutions in the country.
This endowment tax generated approximately $380m in 2023, from 56 universities that met the taxation bar.
On May 22, the Republican-controlled House of Representatives passed, with a 215-214 vote, what Trump and the legislation’s authors have called the One Big Beautiful Bill. Within this bill is a proposal to raise taxes on elite universities.
The proposal is tiered, and aims to levy a tax of:
These percentages apply to universities that had at least 500 tuition-paying students in the previous taxable year and where 50 percent of their full-time tuition paying students are in the US. Universities identified as “qualified religious institutions” are exempt from this tax.
So, what exactly is an endowment?
The proposal was drafted by Republican legislators in the Ways and Means Committee, the oldest tax-writing body in the House.
“For too long, universities have received beneficial treatment from our tax code while disregarding the interest of taxpayers,” Jason Smith, Missouri Republican and chairman of the House Ways and Means Committee, said shortly after the bill passed.
On May 22, Trump wrote on his Truth Social platform: “Thank you to every Republican who voted YES on this Historic Bill! Now, it’s time for our friends in the United States Senate to get to work, and send this Bill to my desk AS SOON AS POSSIBLE!”
An investigation by The New York Times found that at least 58 schools could potentially be affected by this.
Major universities could fall under the highest tax slab.
In the 2024 fiscal year, Harvard University’s total endowment was worth approximately $53.2bn – the largest of any university. There are 24,596 students at Harvard, which means the per-student endowment is $2.16m. That means it will have to pay a 21 percent tax if the bill becomes law.
Yale University’s endowment is valued at $41bn and the university has 15,490 students, bringing the per-student endowment to about $2.7m. While the institute currently pays the 1.4 percent tax, it too will have to pay a 21 percent tax if the bill becomes law.
Likewise, Stanford’s endowment is $36.5bn and it has 17,529 students, making the per-student endowment about $2.1m. While the institute currently pays the 1.4 percent tax, it will have to pay a 21 percent tax if the bill becomes law.
By contrast, University of Pennsylvania’s total endowment was $22.3bn as of June 2024 and the institute has 24,219 full-time students, making the per-student endowment $920,764. While the institute currently pays the 1.4 percent tax, it will have to pay a 7 percent tax if the bill becomes law.
But because the bill determines which universities are taxable based on per-student endowments, it isn’t just big schools that will be affected: Even smaller private institutions, that previously paid 1.4 percent tax, might now have to pay much more.
Pomona College in Claremont, California, had a total endowment of $3bn in 2024, of which the institute uses 5 percent each year.
The university says 60 percent, or $36m, of financial aid at Pomona is covered by endowment, which also covers about half the institute’s operating budget. It has 1,747 students, which means Pomona has a per-student endowment of $1.7m. Until now, it paid a tax worth 1.4 percent of the endowment; if the bill passes, it will be taxed at 14 percent.
If the bill passes in the Senate, Trump is almost certain to sign it.
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