Dive Brief:
- The Senate Finance Committee released a plan Monday to hike the endowment tax up to 8% for the nation’s wealthiest private colleges, a rate that is far lower than what House lawmakers proposed in the sweeping reconciliation bill they passed last month.
- Much like the House’s version, the Senate panel proposed a tiered system starting at 1.4%, though it then jumps to 4% and 8% based on endowment assets per student. However, the House’s version jumps all the way up to 21% — a fifteenfold increase from the current rate.
- Senate and House lawmakers will have to reconcile differences between their two proposals to pass the sweeping legislation, which aims to fund Republican priorities like tax cuts and crackdowns on immigration.
Dive Insight:
Although the Senate panel proposed much lower endowment tax increases than House lawmakers, the top rate is still nearly six times higher than the 1.4% rate that the wealthiest colleges currently pay on investment returns from their endowments.
Private nonprofit colleges with at least $500,000 in endowment assets per student pay the tax, meaning only several dozen institutions are subject to it. Colleges must also enroll at least 500 tuition-paying students.
But much like the House bill, the Senate plan would exclude international and undocumented students when calculating endowment assets per student. That could make some colleges with high international student populations newly subject to the endowment tax — or push them into a higher tier.
Only colleges with endowment funds of at least $2 million per student would pay the 8% rate. Harvard University, the Massachusetts Institute of Technology, Princeton University, Stanford University and Yale University all had endowment assets of over $2 million per full-time equivalent student in the fiscal year 2024, according to data from National Association of College and University Business Officers and Commonfund.
The Senate’s plan, however, would exempt religious colleges from the excise tax — a provision that the House bill also contained. It also would not impose the tax on colleges that don’t accept Title IV aid, which includes federal student loans and Pell Grants.
The move comes after the president of Hillsdale College penned an op-ed slamming the House’s endowment tax proposal. Hillsdale, a conservative Christian college in Michigan that does not accept federal financial aid, has close ties with the Trump administration and is a favorite of prominent Republicans, including Florida Gov. Ron DeSantis.
“The revenue raised by taxing Hillsdale’s endowment would be negligible in the federal budget,” Larry Arnn, the college’s president, wrote in a May op-ed. “But the damage done to our ability to serve our students, to maintain the independence of our faculty, and to carry forward our mission would be profound.”
The Senate’s Health, Education, Labor and Pensions Committee also recently released its own reconciliation proposals, which had key differences from the House version.
For instance, the House-passed bill would create a risk-sharing system that requires colleges to make payments based on their former students’ unpaid student loans. The Senate HELP committee proposed a different accountability measure — cutting off federal student loan eligibility for programs that don’t provide an earnings bump to their students.
The House version would also require students to take at least 30 credits per year to be considered full-time, a status that is necessary to receive the maximum Pell Grant. The Senate, on the other hand, would eliminate Pell eligibility for students who receive scholarships that cover their full cost of attendance.
The Senate version would preserve subsidized loans for undergraduates, which allow students to avoid interest payments on their loans while they’re in college and for six months afterward.
Still, both versions would end Grad PLUS loans, which allow graduate and professional students to take out loans up to the total cost of their attendance.
The American Council on Education, which lobbies on behalf of colleges and universities, said in a statement last week that while the Senate’s version walks back several concerning provisions, it “still poses a serious threat to students and institutions.”
ACE added that the accountability provision needs work to “ensure that negative unintended consequences do not occur.”
