House GOP Tax Bill Targets College Endowments, Royalties And Support From Private Foundations

Forbes

13-05-2025

Under the proposed endowment tax, Harvard University's $53.2 billion fund would be subject to a 21% tax.
Republicans who control the House Ways and Means Committee have released the tax portion of President Trump's 'big beautiful bill' and it contains provisions which seek to wring billions from private colleges. A plan to raise the tax on the investment earnings of the richest college endowments from 1.4% to as high as 21% has grabbed headlines, but three other proposals could also hit schools' bottom lines: a change to the way schools' vulnerability to the tax is calculated; a tax on some nonprofit royalty income; and increased taxes on private foundations.
As part of their effort to siphon funds from wealthy private colleges, House Republicans want to exclude foreign and undocumented students from the endowment-per-student calculation that the law uses to determine which colleges are subject to the endowment tax. Currently, only schools with at least 500 full-time equivalent, tuition-paying students and an endowment worth at least $500,000 per student are subject to the tax. But the bill seeks to change the way that per student number is calculated by excluding foreign students and undocumented U.S. students from the calculation. That would in turn boost schools' endowment-per-student wealth, ultimately requiring more colleges to pay the tax and some schools to pay the tax at a higher rate.
A Forbes analysis last month, based on fiscal 2023 endowment and enrollment totals, identified 11 additional schools, including Trump-targeted Columbia University, that would be roped into paying the tax. Colby College in Maine, DePauw University Indiana, and Whitman College in Washington would also be subject, per Forbes' numbers. In addition, some schools already subject to the tax would see a dramatic increase in the calculation of their per student endowment. For example, the Forbes analysis found, excluding foreign students would raise Harvard University's per capita endowment from $1.6 million to $2.4 million, the California Institute of Technology's per capita endowment from $1.5 to $2.2 million and the Massachusetts Institute of Technology's per capita endowment from $2 million to $3 million.
Only colleges with endowments-per-student worth at least $2 million (excluding foreign students), such as MIT, Harvard and Princeton and Yale University, would be required to pay the highest 21% tax rate. Schools with a per-student endowment worth between $500,000 and $750,000 would continue to pay the current 1.4% tax rate. Schools with a per-student endowment worth between $750,000 and $1.25 million would pay a 7% tax on investment income, and schools with between $1.25 million and $2 million in per-student endowment assets would pay tax at a 14% rate.
The higher graduated tax rate, combined with the new formula for calculating per-student endowments, which would be effective beginning in calendar year 2026, would raise an additional $6.7 billion in revenue for Uncle Sam through fiscal 2034, the Joint Committee on Taxation estimates.
The House Ways and Means Committee on Tuesday began to mark up the tax bill, and House Republicans hope to push the legislation through the entire House before Memorial Day, though internal divisions over issues unrelated to college taxes could interfere with that timetable.
Colleges may have more success in lobbying the Senate to soften the changes to the endowment tax, says Steven Bloom, assistant vice president for government relations at the American Council on Education. In 2017, when the endowment tax was first put in place as part of Trump's signature tax cuts, schools successfully lobbied the Senate to bring the endowment-per-student threshold up to $500,000 from a House-passed $250,000 (and proposals for thresholds as low as $100,000).
'It was bad policy when it was enacted in 2017, and they just made it a lot more complicated. Making it more complicated doesn't make it better, it makes it worse,' says Bloom of the endowment tax. 'It's a scholarship tax, and it's going to take money away from the ability of these schools … to provide the robust financial aid packages that they [give].' (According to a National Association of College and University Business Officers-Commonfund study, 48% of endowment spending in fiscal 2024 was for student scholarships.)
Also buried in the behemoth tax bill is a proposal to make taxable name and logo royalties at some nonprofits, including colleges and universities. The royalties would be treated as 'unrelated business taxable income' and any school that receives revenue from licensing its name or logo would be taxed. It's not a major source of revenue for schools, but it adds to the 'the big pot of assets that generate some investment income' for colleges, says Bloom. Any chipping away at revenue hurts, especially as colleges' dominant revenue streams—tuition, government grants and endowments—remain under attack by the Trump administration. This proposal, which applies to more than just colleges, would generate an additional $3.8 billion in revenue between fiscal years 2025 and 2034, per the Joint Committee on Taxation.
The Ways and Means Committee bill also proposes a tiered tax on private foundations' investment income, rather than the current 1.39% flat tax for all. Foundations with less than $50 million in total assets would continue to pay the 1.39% rate. Foundations with between $50 million and $250 million would pay 2.78%, and foundations with between $250 million and $5 billion in assets would pay 5%. The largest foundations, those with more than $5 billion in assets, would be subject to a 10% tax on investment income. Among the most prominent foundations that would be hit: Bill Gates' foundation, with $77 billion in assets. Gates, 69, has recently made headlines by announcing he will spend all his assets on charity over the next 20 years. During interviews he has criticized Elon Musk's callous shuttering of USAID and blamed him for endangering lives worldwide.
The increased taxes would generate $15.9 billion in revenue over the next 10 fiscal years, and result in fewer dollars for private foundations to give to colleges for scholarships, research funding and other support.
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