Universities are preparing for a potential financial reckoning as Wall Street advisers warn that the federal endowment tax—currently set at 1.4%—could balloon dramatically under renewed Republican efforts to penalize what they view as “far-left indoctrination” on campuses.
According to Fox Business correspondent Charles Gasparino, finance executives who advise top university endowments say schools have been told to expect a significantly higher tax rate—potentially as high as 30% in extreme cases—if new legislation materializes. This comes amid growing GOP support for steep, tiered tax structures aimed at institutions with per-student endowments exceeding $750,000.
One floated proposal would impose a 21% tax on endowment earnings for institutions like Princeton, MIT, and Yale, with slightly lower tiers—14% and 7%—targeting schools such as Amherst, Swarthmore, and Claremont McKenna.
An alternative framework would levy 10% and 20% rates depending on endowment-per-student brackets.
“If you want to know why you’re reading that colleges are selling debt [and] unloading chunks of their private equity holdings,” Gasparino noted, “it’s because [of] the financial pickle the colleges are in as Trump throttles federal funding.”
Yale University recently began liquidating up to $6 billion in private equity assets—around 15% of its $41.4 billion endowment—marking a sharp departure from its long-standing strategy of emphasizing illiquid investments. As of 2020, nearly half of Yale’s portfolio was tied to such alternatives, including 17.5% in leveraged buyouts and 23.5% in venture capital.
Harvard University, which has roughly 40% exposure to private equity in its $50.7 billion endowment, could face similar constraints if proposals to tax or conditionally revoke tax-exempt status gain traction. While only 56 colleges paid the 1.4% endowment tax in 2023, a far greater number could fall within the scope of new legislation depending on how value-per-student is calculated.
Higher education leaders argue that any tax hike would undermine the public missions of their institutions.
“The endowment tax…undermines the teaching and research missions…without doing anything to lower the cost of college,” the American Council on Education wrote last year. Nearly half of endowment spending in 2024 reportedly went to financial aid, with additional funding supporting faculty and academic programs.
Still, the political appetite to claw back what some Republicans view as unchecked ideological and financial power appears to be gaining momentum. Vice President J.D. Vance had previously floated a 30% rate when he was a senator, and the Trump administration has made no secret of its willingness to strip funding or exemptions from universities that resist policy directives.
Information for this briefing was found via The Chronical Of Higher Education and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
