Endowments
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, foreign influence, and protests on university campuses, several U.S. lawmakers have proposed legislation on endowment spending and investment. Additionally, faced with rising debts and deficits, lawmakers have also proposed increases taxes on university endowments to raise revenue.
Background
Under current law, private colleges and universities with endowments above $500,000 per student are subject to a 1.4% tax on their net investment income. The institution must have at least 500 tuition-paying students during the preceding tax year. Public colleges and universities and qualified religious institutions are not subject to the tax. Roughly 50-60 institutions currently pay this tax, which was originally introduced as part of the Tax Cuts and Jobs Act of 2017.
Current Status
Most recently, the House Republican Tax Reconciliation BIll, introduced in May 2025, includes a significant expansion of the current 1.4 percent net investment income tax on certain private colleges and universities. The bill introduces a tiered tax structure as follows:
- $500,000 per student* not in excess of $750,000 per student – 1.4% tax
- $750,000 per student* not in excess of $1,250,000 per student – 7% tax
- $1,250,000 per student* not in excess of $2,000,000 per student – 14% tax
- In excess of $2,000,000 per student* – 21% tax
The bill explicitly exempts qualfiied religious institutions from this tax.
*The bill defines a full “eligible student” for the purpose of the excise tax to “be a citizen or national of the United States, a permanent resident of the United States, or able to provide evidence from the Immigration and Naturalization Service that he or she is in the United States for other than a temporary purpose with the intention of becoming a citizen or permanent resident.” Under this definition, institutions subject to the tax would not be able to count foreign students for purposes of determining if they are subject to the tax, thus shrinking the denominator and perhaps subjecting more institutions to the tax.
CASE Position
CASE strongly opposes expansion of this tax and urges lawmakers to remove the tax and tax hikes from the tax reconciliation bill. Below are key reasons for our opposition:
- Charitable Giving Supports Higher Education: Endowments are funded through charitable donations, which help colleges and universities go beyond public funding, particularly in an era of constrained state and federal budgets. Instead of taxing these charitable contributions, Congress should pass policies that encourage more giving to support higher education, especially as federal research funding remains frozen or reduced.
- Taxing Endowments is a Tax on Charitable Funds: The proposed endowment tax diverts critical resources from supporting students, faculty, research, and other essential academic programs. Such a move is counterproductive to the goal of supporting and improving educational opportunities.
- Support for Students: According to the latest CASE Insights on Voluntary Support of Education survey, nearly half (48%) of all gifts to endowment are earmarked for student financial aid. When including gifts designated for academic divisions, faculty, and staff positions, a staggering 87.2% of gifts to endowment directly support the cost of education.
- Increase in Tax Burden: The House proposal represents an outsized tax increase, with institutions in the highest tier facing tax bills 20 times greater than their current obligations. Even colleges and universities in the lowest tier would see their tax obligations increase by seven times. This steep increase places an unfair burden on institutions that are already working hard to support students and maintain affordability.
- Students Would Bear the Brunt: The proposed endowment tax hike would ultimately result in higher costs for students and reduced access to colleges and universities. Congress should not balance the federal budget on the backs of students, who would bear the consequences of these increased taxes.
Resources for Lawmakers & Government Relations Professionals
- CASE Talking Points on Proposal to Significantly Hike Taxes on Private College and University 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 Professional
- CASE Library Sample Collection: Endowment Management
- CASE Library Subject Guide: Endowment Management
- "Endowments Are Forever," Currents, Oct. 2016
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