This bill increases the excise tax on private college and university investment income from 1.4% to 10% and lowers the asset per student threshold from $500,000 to $200,000.
Michael Lawler
Representative
NY-17
The "Endowment Accountability Act" increases the excise tax on private college and university investment income from 1.4 percent to 10 percent. It also lowers the asset-per-student threshold for defining applicable educational institutions from $500,000 to $200,000. This change is set to take effect for taxable years starting after the Act's enactment.
Endowment Accountability Act Hikes Taxes on University Investment Income: Rate Jumps from 1.4% to 10%
The "Endowment Accountability Act" is pretty straightforward: it jacks up the excise tax on investment income for many private colleges and universities. Instead of the current 1.4% tax rate, these institutions would be looking at a 10% rate on their investment earnings. This change kicks in for taxable years starting after this bill becomes law (SEC. 2).
Cash Flow Crunch?
The bill also changes which schools have to pay this tax. Right now, it only applies to institutions with assets over $500,000 per student. The new law lowers that threshold to $200,000 per student. This means a lot more schools, including smaller colleges, will be on the hook for this increased tax. For instance, a college with an endowment of $20 million and 100 students would not be affected. But one with an endowment of $20 million and 50 students, the endowment per student would be $400,000, making that institution now subject to the tax.
Real-World Ripple Effects
So, what does this mean in practice? Imagine a university that relies on its endowment investments to fund scholarships or keep tuition down. A 10% tax on those investment earnings means less money available for those purposes. The school might have to make tough choices: raise tuition, cut programs, or reduce financial aid. It's not just the big-name, mega-endowment schools that could feel this; smaller institutions with tighter budgets could be hit even harder.
The Big Picture
This bill is presented as a way to hold private colleges accountable for how they manage their endowments. While the increased tax revenue could be used for things like public education or reducing other taxes, there's no guarantee in the bill's text (SEC. 2). It's also worth noting that colleges might look for ways to restructure their investments to minimize their tax burden. Whether this bill actually leads to more "accountability" or just creates new financial headaches for colleges (and potentially students) is something to watch closely.