Tag: Endowment

  • House Republicans Propose Significant Endowment Tax Increase

    House Republicans Propose Significant Endowment Tax Increase

    Efforts to raise endowment taxes are in motion as the House Ways and Means Committee reportedly plans to unveil changes next week that will increase rates and include more colleges.

    Education leaders have worried about such a rate increase for months. Now the GOP-led committee is expected to propose raising endowment excise taxes from 1.4 percent to up to 21 percent, depending on endowment value per student, Punchbowl News, Politico and other outlets reported. 

    The proposed endowment tax would only apply to private institutions, as it does currently.

    Under the proposed formula, institutions with endowments of $750,000 to $1.25 million per student would reportedly be hit with 7 percent excise tax. That number would climb to a 14 percent tax for colleges with endowments valued at $1.25 to $2 million per student. Colleges at the highest level with endowments of $2 million or more per student would pay 21 percent. (Currently, colleges with endowments worth $500,000 per student or more pay the 1.4 percent tax.)

    The specifics of the tax increase aren’t final and could shift before the committee’s hearing Tuesday.

    Republicans are preparing to move forward with endowment tax increases as part of a broader effort known as reconciliation to cut billions in federal spending and pay for President Donald Trump’s priorities. Other House committees have unveiled their proposed cuts for reconciliation, including a sweeping plan to upend the student loan system, but the Ways and Means bill is crucial to this process.

    GOP motivations for the tax increase appear to be twofold in that it would help fund tax cuts and serve as a punitive measure for colleges they believe have gone “woke.” In 2023, a total of 56 universities paid roughly $380 million in endowment excise taxes.

    “Seven years ago, the Trump tax cuts sparked an economic boom and provided needed relief to working families,” committee chairman Rep. Jason Smith, a Missouri Republican, said in a Friday statement. “Pro-family, pro-worker tax provisions are the heart of President Trump’s economic agenda that puts working families ahead of Washington and will create jobs, grow wages and investment, and help usher in a new golden age of prosperity. Ways and Means Republicans have spent two years preparing for this moment, and we will deliver for the American people.”

    The proposal comes amid the president’s full blown attack on higher education, which has seen the federal government clamp down on research funding, go after colleges for alleged antisemitism, take aim at diversity, equity, and inclusion programs, and attempt to deport international students.

    Since the 1.4 percent endowment excise tax was passed in 2017 during the first Trump administration higher education leaders have long worried that the president would raise it in his second term. 

    As universities increased their lobbying efforts in the early days of Trump 2.0, the potential increase to the endowment tax has been a key concern. Recent lobbying reports show that Harvard University, which has the largest endowment, recently valued at more than $53 billion, Princeton University, Northwestern University, and multiple others, have pressed Congress on the issue. (Northwestern’s chief investment officer said last week that the potential increase would be “destructive.”)

    Smaller institutions, some of which had never hired federal lobbyists before 2025, have also raised concerns about how expanding the endowment tax would harm their educational mission.

    According to an analysis from James Murphy, director of career pathways and post-secondary policy at Education Reform Now, only three universities would pay the highest rate at 21 percent – Princeton, Yale University and the Massachusetts Institute of Technology. Another 10 universities, including Harvard, would get hit with the 14 percent rate.

    An analysis published last month by the investment firm Hirtle Callaghan noted that recently proposed changes to the endowment excise tax would “significantly broaden the universe of colleges and universities that pay the tax from large, wealthy institutions to smaller, regional ones.” That analysis warned that such increases “threaten to do irreparable damage to many schools which are significantly weaker financially than the schools paying the current tax.”

    Multiple higher education associations have previously expressed opposition to the increase. 

    Last fall, American Council on Education president Ted Mitchell sent a letter to Congress, co-signed by 19 other associations, calling for the repeal of the existing endowment tax, arguing that “this tax undermines the teaching and research missions of the affected institutions without doing anything to lower the cost of college, enhance access, or address student indebtedness.”

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  • Johns Hopkins Taps Endowment Earnings for Research Funding

    Johns Hopkins Taps Endowment Earnings for Research Funding

    Johns Hopkins University is turning to earnings on its $13.2 billion endowment to preserve research and protect researchers, trainees and staff amid drastic cuts to federal funding, The Baltimore Banner reported Monday.

    Since President Donald Trump started his second term in January, federal agencies have terminated or stalled billions in research grants to colleges and universities in a move scientists and higher education advocates warn will decimate university budgets, slow scientific innovation and hurt local economies. Johns Hopkins estimates that it has so far lost 100 federal grants, while others remain under review by the Trump administration to ensure they align with the federal goal of rooting out diversity, equity and inclusion, among other things. As a result, the university said it’s approaching $1 billion in federal funding losses so far this year.

    While Trump and his allies have suggested universities can use their endowments to fund research, officials at Johns Hopkins—which received more funding from the National Institutes of Health in 2024 than any other university—said Monday that’s not so easy.

    “It’s a common misconception that universities can simply ‘use the endowment’ in moments like this,” university officials said in a statement. “The reality is that most of our endowment is made up of legally restricted funds designated by donors for specific purposes. The principal of the endowment must legally be preserved in perpetuity—to support Johns Hopkins’ mission now and for future generations—and cannot be drawn down like a reserve fund.

    “That said, we are using flexible resources—some of which are tied to endowment earnings—to help sustain critical research in this moment of uncertainty.”

    Johns Hopkins hasn’t disclosed how much total earnings it plans to take from its endowment to help faculty and students continue their research, according to a news release.

    But in the plan released Monday, it said individuals will receive up to $100,000 for delayed grants or $150,000 for terminated grants during a 12-month period. The university will also offer a year of support to Ph.D. students completing their dissertations and postdoctoral fellows who had been expecting support from federal grants that were terminated, as well as expand a program that offers editorial support for grant proposals and journal articles and another that enables undergraduates to work with faculty mentors on original research or projects.

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  • Endowment returns climb amid fiscal uncertainty

    Endowment returns climb amid fiscal uncertainty

    Endowment returns climbed in fiscal year 2024, offering a boost to university coffers at a time when even the richest institutions have been gripped with financial uncertainty amid the Trump administration’s attempts to freeze federal funding and change research reimbursements.

    One-year returns averaged 11.2 percent for FY 2024, according to the latest study by the National Association of College and University Business Officers and the Commonfund Institute—up from 7.7 percent in FY 2023 and negative returns in FY 2022.

    The overall 10-year return averaged 6.8 percent, the study found.

    In a press call Tuesday, Commonfund Institute executive director George Suttles noted that FY24 “was characterized by a strong U.S. economy, steady consumer spending, strong employment data, including higher wages, easing inflation accompanied by the prospect of lower interest rates, reasonable energy costs” and a prosperous technology sector, among other factors.

    The endowment study also noted increased philanthropy in FY 2024. Donors contributed $15.2 billion in new gifts to university endowments included in the study—a nearly 20 percent bump from the $12.7 billion donated in FY23.

    Altogether, 658 institutions with combined endowment values of almost $874 billion participated in the voluntary survey, with the median endowment value at $243 million. Nearly a third (30 percent) of the respondents reported an endowment valued at $100 million or less.

    “While a handful of institutions receive wide public attention for the size of their endowments, the vast majority of colleges and universities are working with a much smaller set of resources,” NACUBO CEO Kara Freeman said on Tuesday’s press call. “And as we review the total market value, 86 percent was held by endowments with more than $1 billion in assets.”

    NACUBO has conducted annual college endowment studies since 1974. This year’s iteration had slightly fewer participants than the 688 who responded last year.

    Top Endowments

    The nation’s richest institutions kept their status in this year’s study, with no changes among the top 10 and only minor fluctuations among the 25 universities with the largest endowments.

    Harvard University is still the nation’s wealthiest institution with an endowment of almost $52 billion, followed by the University of Texas system ($47.4 billion), Yale University ($41.4 billion), Stanford University ($37.6 billion) and Princeton University, with just over $34 billion.

    Endowment values grew at all of the five wealthiest universities except Princeton.

    Though average annual one-year returns for FY 2024 were 11.2 percent, the nation’s top 25 wealthiest universities mostly missed that mark. The outlier among those was Johns Hopkins University, which had a nearly 24 percent one-year return in FY 2024.

    In all, 149 of the 658 participating institutions reported endowments valued at or over $1 billion.

    Endowment Performance

    Like last year, smaller endowments performed better on one-year returns than large ones. Institutions with endowments valued under $50 million saw an average return of 13 percent, while those with endowments over $5 billion had the lowest one-year returns, with an average of 9.1 percent.

    However, larger endowments outperformed smaller ones over the long term.

    Across the 10-year mark, institutions with assets above $5 billion reported returns of 8.3 percent, compared to 6.5 percent for those with less than $50 million. Large endowments also fared better on 25-year returns, reporting 8.5 percent compared to 4.5 percent for those under $50 million.

    On the spending side, endowments funded an average of 14 percent of the annual operating budgets at the institutions surveyed, up from 10.9 percent in FY23. That figure was slightly higher at institutions with multibillion-dollar endowments.

    Study respondents spent a total of $30 billion from their endowments in FY24, up from $28.4 billion in FY23. The most common use of endowment dollars was for financial aid.

    Issues Affecting Endowments

    With the return of Donald Trump to the White House, college leaders have publicly and privately fretted about the likelihood that Republicans will ratchet up endowment taxes.

    During his first term, the Trump administration passed an endowment excise tax of 1.4 percent on investment income at universities with endowment holdings of at least $500,000 per student and a minimum of 500 students. Earlier this month, Republican congressman Mike Lawler proposed raising that rate to 10 percent and changing the per-student endowment threshold from $500,000 to $200,000, which would affect more institutions. Another legislative proposal would raise that rate to 21 percent.

    In a question-and-answer session on Tuesday’s press call, the tax issue was the first to arise.

    Freeman said NACUBO “remains opposed to the endowment excise tax,” arguing that it “diminishes the charitable resources that would otherwise be available” to universities for financial aid, student services, academic support, research and innovation, among other uses.

    Mark Anson, CEO of Commonfund, said the tax could hit some universities hard, including many Ivy League institutions whose robust endowments make up a higher percentage of their operating budgets.

    On the press call, Inside Higher Ed asked about the fallout of last spring’s pro-Palestinian protests, in which students at numerous universities demanded divestment of their endowment holdings from Israel or companies profiting off the war in Gaza. While the study did not touch on that issue, experts noted the protests sparked questions from colleges; Anson said some asked for more information about their holdings.

    While colleges have largely rejected student divestment demands, one win for protesters has been more transparency around institutional investments.

    “What’s come out of this is a continued push for transparency around how endowments are invested,” Suttles said. “Thinking about transparency for stakeholders is an important part of this work. I am encouraged by the calls for transparency, but in terms of actual investment or divestment strategies and a shift in that, we haven’t seen much from our perspective.”

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