Endowments are:

• charitable funds that offer a source of stability for schools, colleges, and universities. 
• critical to the financial health of institutions.
• essential to support institutions as they work to offer high-quality, affordable, accessible education.
• Not a single fund, but a compilation of funds given by many donors over time, for specific purposes that cannot always be changed after the gift is made.

Educational institutions receive returns on their endowment investments each year. Those returns are generally spent at an approximate rate of 4.5% each fiscal year to meet current teaching, learning, and operational needs; any remaining investment returns are generally reinvested into the existing endowment.

Learn here about what endowments are and are not, and U.S. policy issues impacting endowments.

Legislation and Policy Issues

Concerned about the rising cost of college, U.S. lawmakers have proposed legislation on endowment spending and investment.

Background

• In September 2019, Reps. Brendan Boyle (D-PA) and Bradley Byrne (R-AL) reintroduced the Don't Tax Higher Education Act (H.R. 4438), which would repeal the endowment excise tax.
• In March 2018, Reps. John Delaney (D-MD) and Bradley Byrne (R-AL) introduced the Don't Tax Higher Education Act (H.R. 5520), which would repeal the 1.4 percent endowment excise tax. However, the bill was not further considered in the House.
• In 2018, Rep. Reed introduced the REDUCE Act, which would have required certain colleges and universities to direct 25% of their endowment investment gains to support working class families or face tax penalties.
• The Tax Cuts and Jobs Act passed in 2017 and included an excise tax on certain endowments of private colleges and universities.
• In 2014, former House Ways and Means Chairman Dave Camp (R-MI) proposed a 1 percent excise tax on private institution endowments with a value exceeding $100,000 per student. 

Impact

• Attempts to tax endowments are a tax on generosity.
• These endowment payout requirements impede institutions' ability to effectively manage endowment funds. 
• Such misguided tax policies will result in fewer funds for scholarships, research, and academic programs.

• Instead of bringing down college costs, this tax does the opposite. College and university endowment funds are an important source of revenue which support student financial aid, teaching, research, and public service missions. The new law redirected charitable funds away from these purposes and discourages donor generosity.
• As such, CASE supports a repeal of the 1.4 percent endowment tax and opposes any tax on endowed funds.

Resources for Lawmakers & Government Relations Professionals

• Don't Tax Higher Education Act (H.R. 4438)
• NACUBO Letter to Treasury and IRS on Endowment Excise Tax
• Proposed Regulations on Endowment Excise Tax
• CASE One-Pager and Talking Points on Endowments
• Debunking 5 Myths about Endowments
• Endowments: Where Does the Money Go?
• Facts About College and University Endowments
• College and University Endowments: Overview and Tax Policy Options
• Understanding College and University Endowments

Resources for Higher Education Professionals

• CASE Library Sample Collection: Endowment Management
• CASE Library Subject Guide: Endowment Management
• "Endowments Are Forever," Currents, Oct. 2016

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