The Higher Education Accountability Tax Act increases excise taxes on the investment income of private colleges and universities, particularly those that raise tuition faster than inflation or meet lower asset-based thresholds.
David Joyce
Representative
OH-14
The Higher Education Accountability Tax Act increases the excise tax on the investment income of private colleges and universities while lowering the asset threshold to include more institutions. Additionally, the bill introduces a penalty tax for schools that increase their net price for students at a rate faster than inflation. These measures aim to hold private institutions more accountable for their financial practices and tuition costs.
Private College Tax Hikes: New Bill Targets Endowment Gains and Tuition Spikes Starting 2025
The Higher Education Accountability Tax Act aims to curb rising tuition costs by hitting wealthy private colleges where it hurts: their investment portfolios. Starting in the 2025 tax year, the bill would hike the base excise tax on university investment income from a modest 1.4% to a substantial 10%. It also introduces a penalty tax for schools that hike their 'net price'—the actual cost students pay after grants—faster than the rate of inflation, and it lowers the wealth threshold for the tax, bringing many more mid-sized private colleges into the IRS's crosshairs.
Widening the Tax Net
Currently, only the wealthiest schools are subject to an investment tax, but this bill changes the math. By lowering the asset threshold from $500,000 to $250,000 per full-time student (SEC. 2), the legislation effectively casts a wider net. For a school with 2,000 students, having a $500 million endowment used to be the trigger; now, a $250 million endowment could get them taxed. This means schools you might not consider 'Ivy League' status—think regional private colleges—could suddenly face a 10% bill on their investment gains, potentially tightening their operational budgets or affecting their ability to fund new campus projects.
The Inflation Penalty Box
The bill introduces a 'net-price-increase' penalty designed to protect students' wallets. If a school’s average net price for first-time, full-time undergrads grows faster than the Consumer Price Index over a three-year window, they trigger an additional tax (SEC. 2). Imagine a student whose tuition and fees, minus their scholarship, was $20,000 last year. If the school raises that cost by 8% while inflation is only at 3%, that institution is flagged. While the bill uses a placeholder for the exact penalty rate, the intent is clear: use the tax code to pressure administrators into keeping price hikes below the cost of living.
Real-World Trade-offs
For a family planning for college, this could mean more predictable tuition bills if schools scramble to avoid the penalty. However, the 10% tax on investment income is a significant jump that applies regardless of tuition behavior. Because many private colleges rely on endowment earnings to fund financial aid packages, there is a practical concern that a higher tax bill for the school could ironically lead to less aid for students. The bill’s success hinges on whether schools choose to cut costs to stay under the inflation cap or simply pass the new tax burden onto students through other fees not covered by the 'net price' definition.