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 5.4% 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.

Current Tax Code  

Enacted in the One Big Beautiful Bill Act and effective in 2026, certain private colleges and universities face a tiered tax on the investment income of their endowments. This new structure replaced a tax enacted in the 2017 Tax Cuts and Jobs Act that imposed a flat 1.4% tax on private colleges and universities with at least 500 tuition-paying students with endowments above $500,000 per student. 

Under current law, private colleges and universities with at least 3,000 tuition-paying students and more than $500,000 in endowment assets per student face the following tiered tax structure on their endowment’s investment income:

• $500,000 per student* not in excess of $750,000 per student – 1.4% tax
• $750,000 per student* not in excess of $2,000,000 per student – 4% tax
• In excess of $2,000,000 per student* – 8% tax

Public institutions are not subject to the tax. However, private religious institutions that meet the eligibility criteria are subject to the tax. Qualified religious institutions were previously exempted from the tax imposed in the 2017 Tax Cuts and Jobs Act. 

Previous Legislative Proposals 

In 2025, House Republicans passed a larger increase to the university endowment excise tax in their initial version of the One Big Beautiful Bill Act. Senate Republicans ultimately walked back the proposal to what is currently law. But, the initial tiered structure applied to private institutions with at least 500 tuition-paying students was 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

House Republicans included a religious exemption in their version of the proposal and sought to change the student eligibility criteria so that foreign students were not counted in the endowment assets per student threshold, which would have subjected more schools to the tax. 

CASE, other higher education groups, and institutions advocated against this proposal, prompting the Senate to scale it back. 

CASE Position

CASE opposes the taxation of endowments and would strongly oppose any future attempts to expand the endowment tax. 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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