UNDATED-AP- 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.”
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