Bipartisan lawmakers in Congress fight tax on college endowments

Under the sweeping overhaul of the tax code that Republicans passed last year, private colleges must pay a 1.4 percent annual excise tax on the gains in their endowments. The provision only applies to institutions with endowments larger than $500,000 per full-time student.

About 30 schools are likely to be affected, according to a list compiled by the National Association of Independent Colleges and Universities. It includes some of the most prestigious schools in the country: Princeton, Yale, Dartmouth, Stanford and MIT, among others.

According to government estimates, the provision will raise nearly $2 billion over the next decade, helping to offset the $1.5 trillion price tag of the new tax law. Harvard projected it would have paid $43 million on its endowment gains if the levy had been in place last fiscal year. MIT predicted the tax will cost it at least $10 million next year.

But those numbers are highly uncertain, said Karin Johns, tax policy director at the NAICU. Endowment funds used for educational purposes are exempt from the tax, but lawmakers did not define what that means.

At Harvard, for example, endowment funds cover about 36 percent of the university’s operating budget – a larger share than tuition. The endowment also pays for financial aid for lower-income students, Faust said, and it is unclear whether that money would be subject to the new levy.

Without guidance from the Treasury Department and the IRS, the precise financial toll on universities remains uncertain. But Johns said many schools believe the tax will be “devastating.”

“They just feel like they’re going to have their hands tied on what they can spend their own money on on their own campuses,” she said.