Congress targeting the Ivy League hurts low-income college students more | Opinion
New federal legislation released recently in Congress would raise taxes on colleges and universities’ endowments significantly — some would face rates up to 21%. Proponents of those plans want these tax increases for three main reasons: They want to pay for future income tax cuts. They want colleges to reduce costs — and some want to punish the left-leaning Ivy League. Unfortunately for taxpayers and college students everywhere, these new taxes as written will achieve none of those goals.
Instead of burdening rich and famous colleges, the tax would wind up costing the low- and middle-income students at small schools with far less familiar names and a lot less money.
While Harvard, Columbia, the University of Pennsylvania and others with big names and even bigger endowments would undoubtedly be hit by the tax hike, so too would small colleges in reliably red states. Some of these small schools are even examples of the little guy rising up through the embrace of free markets. Business professors at McPherson College in Kansas help students manage an investment portfolio of over $300,000 as part of their transformative entrepreneurship program. Berry College in Georgia is home to a farm where students work to produce Angus beef. These colleges and more would face a tax meant for Harvard, not liberal arts colleges in rural communities.
And the worst part? The tax proposal would do little to solve the policy problems it aims to fix. Taxing universities to pay for trillions of dollars in tax cuts is a bit like diving into the couch cushions for change to pay for a brand-new Rolls Royce.
Most important, the tax — as written — would make college more expensive, not less. Like taxes on a for-profit business or tariffs on imported goods, an endowment tax hike would cascade down to the consumer. A college or university’s endowment — its investment portfolio — earns money that the institution uses in a variety of ways, such as financial aid. Dividends from the school’s stock portfolios and private equity investments pay the bills of students who cannot afford the full sticker price for college. If you take money from those endowment earnings for a tax, you reduce the money available to students.
This isn’t a tax on endowments. It’s a tax on students.
Degree the best pathway to middle class
The sticker price of higher education already places it just out of reach for many families. But few students at the wealthiest institutions actually pay that price. An endowment tax increase means colleges and universities would reduce aid or increase tuition to cover it, and our research shows that, in some cases, it has already started under the existing tax. When colleges have to pay 10 times the tax they were paying — or more — students from low- and middle-income backgrounds will feel the consequences most profoundly.
An increased tax also strikes at the heart of the promise of higher education. A post-secondary degree of some kind is the single most common factor in individuals moving from low income to the middle class. They buy a home, start a family, build a stronger economy and community — and they pay taxes. When institutional financial aid runs out and the costs of higher education continue to rise, this pathway to the middle class is all but closed.
When we teach public policy classes, we tell students that good governments tax the things they want to discourage, and provide incentives for the things that provide a public good. A much better endowment tax would raise significant revenue and discourage wasteful spending while also rewarding colleges who make the student experience affordable. Instead, we should tax waste and incentivize affordability.
Lawmakers should consider policy that offers incentives for increasing financial aid and educational access. While no tax is preferable, giving universities tax credits equal to the amount of financial aid given, or exempting portions of the endowment dedicated to financial aid, are much better policies than the ones currently proposed. Tying financial incentives to increased financial aid or educational access would be a more effective way to ensure that endowment dollars benefit students. A dollar-for-dollar tax credit for financial aid expenditures would actually force colleges and universities to tackle the affordability problem and reward colleges that do what they are supposed to do: Spend in support of their students.
An endowment tax increase targets famous, well-funded universities and misses. It hits students and families who depend on financial aid — and the smaller, less-wealthy colleges working hard to provide it.
This story was originally published June 10, 2025 at 7:07 AM.