Discover How 26 Wealthy Private Colleges Just Scored a Tax Break from Republicans – What This Means for Students

While 11 prestigious schools like Princeton, MIT, Yale, and Harvard face increased taxes on their endowments, smaller, wealthy colleges such as Swarthmore and Amherst will benefit from tax cuts. This unexpected twist emerged when tweaks were made to a major tax bill signed by former President Donald Trump.

Initially, the plan aimed to raise the excise tax on income from college endowments, targeting affluent institutions that have been criticized for their “woke” policies. The idea was to increase the current 1.4% tax rate significantly, especially for elite universities.

But the final bill included a surprising exemption for colleges with fewer than 3,000 full-time students. As a result, these smaller institutions will escape this new levy. For example, Grinnell College expects to save approximately $2.4 million annually due to this change.

According to the latest federal data, more than two dozen wealthy colleges now facing the endowment tax will be exempt next year. This list includes top liberal arts schools as well as CalTech and Juilliard.

The original proposal included drastic measures such as raising the endowment tax to as high as 21%, impacting institutions with hefty endowments. A report by the IRS revealed that in 2023, 56 colleges paid $381 million in endowment taxes.

As the bill moved to the Senate, it underwent significant changes. Initially, unique provisions aimed to exempt schools based on their religious affiliation and financial aid status. However, the Senate Parliamentarian ruled many of these items did not meet requirements and struck them down.

The final compromise allowed colleges like Hillsdale College, known for its conservative stance and smaller student body, to qualify for exemption. Jonathan Fansmith from the American Council on Education noted that smaller colleges argued their endowments shouldn’t be compared to those of larger schools.

While the smaller schools may feel relieved, experts warn that the tax issue could resurface. Dean Zerbe, a former tax counsel, emphasized that once lawmakers introduce such measures, they can become a recurring challenge.

The overall impact of the tax changes is significant. Congress estimates that colleges will owe an additional $761 million over ten years compared to previous calculations. In 2026, close to a dozen universities will be subject to new tax rates—8% or 4% for wealthier schools and retaining the original 1.4% for others.

This latest tax development reflects broader trends in education financing and government policy, underscoring a complex relationship between wealth, education, and politics. As colleges navigate these changes, students may ultimately feel the effects in the form of scholarship funding and tuition rates.

For more detailed insights on how these taxes affect higher education, you can read the full analyses from Forbes.

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