Wealthy colleges fight to protect their riches from taxation

Even before Donald Trump said he would pull $400 million in funding from Columbia University on Friday, officials at the wealthiest U.S. colleges were making efforts to fight monetary salvos from his administration.

Last week’s cancellation of federal grants and contracts to Manhattan’s Ivy League school — over its alleged failure to combat antisemitism on campus — represents just one tool in Trump’s playbook to ratchet up pressure on elite universities. The institutions also face multiple efforts to increase taxes on their endowments, and they’re mobilizing to defeat them.

Harvard University tapped the Republican-friendly lobbying firm that used to employ Attorney General Pam Bondi. Princeton University’s president said he’s spending more time in Washington to defend his school’s $34.1 billion fund, while the leader of the Massachusetts Institute of Technology has already paid three visits to DC this year. Another group of two dozen schools is holding Zoom meetings to strategize on next steps.

Columbia said it’s committed to combating antisemitism and pledged to work with the government to restore funding, but Republicans have set their sights on higher education institutions they view as promoting progressive values at the expense of common sense and meritocracy.

The onslaught has created an “existential threat” for colleges, according to the University of Pennsylvania’s president.

The types of elite universities currently subject to the endowment tax — private colleges with at least $500,000 per student — are under particular scrutiny. Universities say the endowments help fund scholarships, and higher taxes will come at the expense of the neediest students.

But they also must contend with the perception that institutions serving the sons and daughters of some of the world’s most privileged people are sitting on billions of dollars that they want to grow tax-free, a benefit that isn’t available to most other private foundations.

Davidson College, which recently hired alumnus and NBA star Steph Curry as an assistant general manager for its basketball team, said the $1.2 million tax it forked over last year could have paid for 15 full scholarships at the school. But critics point out that same amount could have hypothetically covered annual tuition for 300 community college students, based on the average cost of two-year public schools.

Endowments have a “stunning” amount of capital, but the cost of college remains steep, said U.S. Rep. David Schweikert, an Arizona Republican who serves on the House’s tax-writing committee. “You’re getting an advantage from the taxpayers, and are you meeting your mission? There’s this disharmony.”

Davidson College President Douglas Hicks is working to highlight the potential harms if Congress expands the levy. He has been traveling from the campus in suburban Charlotte, North Carolina, to Washington to try to protect the school’s $1.4 billion endowment, making the pitch directly to lawmakers. 

“If the goal is to make college more affordable, this is not an effective approach,” Hicks said in an interview. His school meets 100% of financial need for students.

Hicks’ fear is that colleges like his will end up as collateral damage in the GOP’s efforts to punish more high-profile schools that were criticized for lax treatment of pro-Palestinian protesters at campus demonstrations. On Monday, Harvard University said it will temporarily freeze hiring amid the risk of federal funding cuts by the Trump administration. Stanford, MIT and Cornell had already announced similar pauses.

‘Super Bowl of tax’

Lawmakers are calling 2025 the “Super Bowl of tax” as they look to extend a 2017 overhaul under the first Trump administration, which implemented the endowment levy. The 1.4% tax on net investment income is similar to one that private foundations pay.

The levy generated more than $380 million from 56 colleges or universities in 2023 — affecting just a small fraction of the 1,700 private, nonprofit U.S. schools. Most of them are well-known, places like Yale University, Stanford University and the University of Chicago.

But some are lesser known: Earlham College in Indiana, Trinity University in San Antonio and Grinnell College in Iowa, whose endowment is $2.7 billion because Warren Buffett used to serve on its investment committee.

Both Trump and Vice President JD Vance have targeted endowments in proposals. Raising the levy was included in a lengthy menu of ideas circulated recently among House Republicans. And at least three bills introduced this Congressional session would raise or expand the endowment tax, though they are unlikely to advance on their own.

Boosting the burden for rich colleges would do little to offset the cost of extending the Trump tax cuts, estimated to be in the trillions of dollars. One bill would increase the tax to 21%, the same as the corporate tax rate, which the Tax Foundation forecasts could raise $70 billion over a decade.

One risk for schools is that the tax is expanded by lowering the threshold to endowments with $250,000 per student, or even less.

Broadening the tax could spur pushback from lawmakers who represent areas where those institutions are located, said Dustin Stamper, who leads the tax legislative affairs practice for Grant Thornton.

Amid the threat, colleges are beefing up their lobbying efforts. Harvard — the richest university, with a $53 billion endowment — hired Ballard Partners, which counts Bondi and White House Chief of Staff Susie Wiles among its alumni. MIT, with a $24.6 billion fund, in January tapped the S-3 Group, whose registered lobbyists have worked for Republicans including House Majority Leader Steve Scalise. Washington and Lee University in Virginia also hired Holland & Knight to lobby on the tax.

Enabling student aid

Colleges increased their endowment spending to $30 billion in fiscal 2024, a 6% increase, according to a study of over 600 endowments with $873.7 billion in assets by the National Association of College and University Business Officers and Commonfund Institute. Nearly half of that was spent on student aid, the study said.

One fear within higher ed is that a higher endowment tax could deter wealthy donors, knowing that a portion of their money is going to the U.S. Treasury rather than to students or school projects.

Wabash College, an undergraduate school in Crawfordsville, Indiana, that serves almost 900 male students, risks being affected by the tax. Its endowment is about $430 million, which puts it close to the $500,000-per-student threshold. The school’s typical operating budget is roughly $50 million annually, and need-based financial aid tallies over $23 million a year.

College President Scott Feller said he’s trying to get in front of the issue, reaching out to Indiana’s Congressional lawmakers. He said most of them are surprised that the school would be affected.

“Our endowment is less than 1% of Harvard’s, yet we’re taxed at the same rate as the elite institutions,” he said in an interview. “We’re trying to do a lot of education on this — helping folks understand how different our situation is.”