Key Takeaways
- • The higher endowment tax signed into law by President Trump last month takes effect in 2026 and sets tiered rates of 8%, 4%, and 1.4% based on endowment assets per enrolled student.
- • Harvard, Yale, Stanford, Princeton and MIT are expected to pay the 8% rate, while Notre Dame, Dartmouth, Rice, Penn, Washington University in St. Louis and Vanderbilt face the 4% rate, according to an Associated Press analysis of NACUBO data.
- • Yale estimates it will pay about $280 million in total endowment taxes and has implemented a hiring freeze, while Stanford is cutting its operating budget by $140 million, including 363 layoffs.
- • Rice University anticipates a $6.4 million increase in taxes, equivalent to more than 100 student financial aid packages, raising concerns that financial aid could be reduced.
- • The tax now applies only to private institutions with at least 3,000 students, up from 500, concentrating the burden on large private research universities.
Summary
A substantial increase in the federal endowment tax is creating budget pressure at the wealthiest U.S. private colleges, with several already imposing layoffs or hiring freezes. President Donald Trump signed the measure into law last month as part of his signature spending bill. The new rates take effect in 2026, but institutions including Harvard, Yale and Stanford are already citing the tax among several reasons for cuts.
The legislation replaces the flat 1.4% levy introduced during Trump's first administration with a tiered structure. Schools with at least $2 million in assets per enrolled student will pay 8%, those between $750,000 and $2 million will pay 4%, and schools between $500,000 and $750,000 will remain at 1.4%. The tax now applies only to private colleges with at least 3,000 students, up from the previous 500-student threshold. Steven Bloom, assistant vice president of government relations at the American Council on Education, said the tax will now apply solely to private research universities and will force them to redirect endowment spending away from financial aid.
According to an Associated Press analysis of National Association of College and University Business Officers data, roughly a dozen universities will face higher rates. Harvard, Yale, Stanford, Princeton and MIT are expected to pay 8%. Duke and Emory were near the threshold based on last fiscal year. Colleges typically spend about 5% of endowment investment earnings annually, much of it on scholarships. Phillip Levine, an economist at Wellesley College, warned that schools are seeking savings wherever possible, which could affect financial aid, noting that the highest-tax institutions also charge lower-income students the least.
Rice University officials estimate $6.4 million in additional taxes, equal to more than 100 financial aid packages, though the university says it will explore other options to avoid cutting that support. Yale expects to pay an estimated $280 million in total endowment taxes and cited the tax in a campus message announcing a hiring freeze. Stanford plans to cut $140 million from its operating budget for the coming year, including 363 layoffs and an ongoing hiring freeze, while stating it will continue supporting undergraduate aid and Ph.D. funding.
The tax burden compounds existing federal pressure on research universities, which face reduced grants from the National Institutes of Health and National Science Foundation. Harvard, with a $53 billion endowment, faces both the tax and federal actions: the government has frozen $2.6 billion in its research grants over civil rights investigations, and Harvard says other policy impacts could approach $1 billion annually. Levine said Harvard will not decline to mediocrity, but that the cuts will still cause pain for students.
The legislation replaces the flat 1.4% levy introduced during Trump's first administration with a tiered structure. Schools with at least $2 million in assets per enrolled student will pay 8%, those between $750,000 and $2 million will pay 4%, and schools between $500,000 and $750,000 will remain at 1.4%. The tax now applies only to private colleges with at least 3,000 students, up from the previous 500-student threshold. Steven Bloom, assistant vice president of government relations at the American Council on Education, said the tax will now apply solely to private research universities and will force them to redirect endowment spending away from financial aid.
According to an Associated Press analysis of National Association of College and University Business Officers data, roughly a dozen universities will face higher rates. Harvard, Yale, Stanford, Princeton and MIT are expected to pay 8%. Duke and Emory were near the threshold based on last fiscal year. Colleges typically spend about 5% of endowment investment earnings annually, much of it on scholarships. Phillip Levine, an economist at Wellesley College, warned that schools are seeking savings wherever possible, which could affect financial aid, noting that the highest-tax institutions also charge lower-income students the least.
Rice University officials estimate $6.4 million in additional taxes, equal to more than 100 financial aid packages, though the university says it will explore other options to avoid cutting that support. Yale expects to pay an estimated $280 million in total endowment taxes and cited the tax in a campus message announcing a hiring freeze. Stanford plans to cut $140 million from its operating budget for the coming year, including 363 layoffs and an ongoing hiring freeze, while stating it will continue supporting undergraduate aid and Ph.D. funding.
The tax burden compounds existing federal pressure on research universities, which face reduced grants from the National Institutes of Health and National Science Foundation. Harvard, with a $53 billion endowment, faces both the tax and federal actions: the government has frozen $2.6 billion in its research grants over civil rights investigations, and Harvard says other policy impacts could approach $1 billion annually. Levine said Harvard will not decline to mediocrity, but that the cuts will still cause pain for students.
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