Amount of Endowment Tax Liability Expected for 25 Elite US Universities

[Anonymous]

Anonymous wrote:The article gives us, essentially, a Top 25 list of schools with over 3,000 students based on objective criteria (endowment per student):

1) Harvard
2) Yale
3) Princeton
4) Stanford
5) MIT

6) Notre Dame
7) U Penn
8) Northwestern
9) WashUStL
10) Duke

11) Vanderbilt
12) Johns Hopkins University (JHU)
13) Dartmouth College
14) Brown
15) Emory

16) Rice
17) U Chicago
18) Columbia
19) U Richmond
20) Cornell

21) Carnegie Mellon University (CMU)
22) Colgate University
23) U Tulsa
24) College of the Holy Cross
25) Wesleyan University

Of course, several schools with an enrollment below 3,000 students are also powerhouses in terms of endowment per student; such schools include Amherst College & Williams College among others, but won't be subject to the endowment tax due to the small size of their respective students bodies.

U Tulsa an anomaly

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If one's tuition is paid by a scholarship fund or by a grandparent, that student still receives a tuition bill and statement showing that the student's tuition has been paid.

The regulations provide that if one’s tuition is paid by an outside scholarship fund, that student would be “tuition-paying,” but not if institutional funding pays for the tuition.

Thank you for this response. Can you cite a source for this definition ? I understand that you referenced "the regulations", but I did not see such a definition in The Big Beautiful Bill, although, admittedly, my read was fairly quick & focused on the one section.

Someone posted them above, in a link on the first page. They are also quoted above.

Those are the regs that the IRS previously adopted. The regulations are still in force with these statutory amendments unless the IRS changes the regs, which they would need to do after notice and comment and would need to explain why the record warrants a change.

Happy to answer any other administrative law questions. This is what I do for a living.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If one's tuition is paid by a scholarship fund or by a grandparent, that student still receives a tuition bill and statement showing that the student's tuition has been paid.

The regulations provide that if one’s tuition is paid by an outside scholarship fund, that student would be “tuition-paying,” but not if institutional funding pays for the tuition.

Thank you for this response. Can you cite a source for this definition ? I understand that you referenced "the regulations", but I did not see such a definition in The Big Beautiful Bill, although, admittedly, my read was fairly quick & focused on the one section.

The regulations are the IRS’s regulations from October 2020 for this specific tax. The BBB did not introduce a new tax, it just changed the rates and thresholds. The tax already existed and therefore the IRS regulations on this tax already exist.

https://www.taxnotes.com/research/federal/treasury-decisions/irs-publishes-final-regs-on-college-endowment-excise-tax/2d2bc

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't understand how any of this is constitutional. We have one man making all these capricious decisions regarding various individual universities. There's no method or system. Just whims and enemies.

Very banana republic.

Well this one is a tax on investment income passed by Congress so unfortunately it is very constitutional.

Ultimately I think Princeton and Dartmouth will escape through the tuition-paying threshold, and MIT and Rice might too. For the dozen or so others that this applies to, they will manage their investment income to reduce the tax burden. But even then it isn’t large. For example, even before taking steps to optimize tax efficiency, these tax estimates are generally less than one percent of these schools’ total endowments (~0.5 percent in many cases).

Sorry to repeat my question, but what is the definition of a tuition paying student for purposes of the excise tax on educational institutions endowment income ?

Are students who receive financial aid of any type which covers at least 100% of tuition "tuition paying students" ? I would argue that they are since tuition is still paid on their behalf even though through a financial aid fund. Accordingly, schools cannot escape the 3,000 tuition paying students threshold as easily as several posters have asserted.

All of this is in the comments above. A student whose entire tuition and fees are covered by scholarships or grants provided by the university or a federal, state, or local government is not tuition paying. Therefore they don’t count toward the 3,000 threshold.

Thank you, but I am still searching for the source. I have read & reread Sec 70415 of the One Big Beautiful Bill and am not finding any such definition. However, I did find section (h) within Sec 70415 which authorizes the establishment of rules to prevent educational institutions from restructuring endowment funds to reduce or eliminate value of/and assets "subject to the tax imposed by this section". This leads me to question whether educational institutions can alter the student count for purposes of the 3,000 tuition paying students. A concise source could address my concern.

Thank you to all who reply.

[Anonymous]

Thank you !

I was writing while you were posting the answer.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I dont know why they don't stop charging tuition. Or move the FA limits up to 500k HHI and 3mm assets. so only 20% pay tuition.

Princeton probably will, at least to get the number of tuition-paying students below 3,000. They aren’t that far off already.

To make this work many schools on this list will have to abandon need-blind in making admissions decisions. Even the top schools need tuition revenue. Each school will need to figure out if its bottom line or net revenue is better if: 1) decrease the number of students, 2) increase the number of students on full aid for tuition and fees, or 3) pay the endowment tax.

This is a win for the enrollment management companies and their algorithms.

This is why it makes sense in Princeton’s case though. About 3200 grad students, most of whom are PhDs or Wilson school students that go for free, and of 5700 undergrads, 62% of them are getting aid that on average is more than tuition. They can easily push below 3000 tuition payers if they aren’t already there.

There may be some others like Dartmouth. Probably will be much harder for schools that are bigger or reliant on MBA, JD, and other grad programs for revenue.

You are neglecting a crucial concern: What is the definition of "tuition paying students" ? Are students with grants--either/or based on merit or financial need--tuition paying students ?

When a law is enacted/changes, regulations follow to smooth out the ambiguities. When the regs fail to do that, litigation eventually follows and the courts fix the ambiguities.

[Anonymous]

Anonymous wrote:

Anonymous wrote:The article gives us, essentially, a Top 25 list of schools with over 3,000 students based on objective criteria (endowment per student):

1) Harvard
2) Yale
3) Princeton
4) Stanford
5) MIT

6) Notre Dame
7) U Penn
8) Northwestern
9) WashUStL
10) Duke

11) Vanderbilt
12) Johns Hopkins University (JHU)
13) Dartmouth College
14) Brown
15) Emory

16) Rice
17) U Chicago
18) Columbia
19) U Richmond
20) Cornell

21) Carnegie Mellon University (CMU)
22) Colgate University
23) U Tulsa
24) College of the Holy Cross
25) Wesleyan University

Of course, several schools with an enrollment below 3,000 students are also powerhouses in terms of endowment per student; such schools include Amherst College & Williams College among others, but won't be subject to the endowment tax due to the small size of their respective students bodies.

U Tulsa an anomaly

How so? It's just a list of the wealthiest schools over 3,000 students. By Top 25, PP obviously meant wealthiest, because that's what this list is.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:If one's tuition is paid by a scholarship fund or by a grandparent, that student still receives a tuition bill and statement showing that the student's tuition has been paid.

The regulations provide that if one’s tuition is paid by an outside scholarship fund, that student would be “tuition-paying,” but not if institutional funding pays for the tuition.

Thank you for this response. Can you cite a source for this definition ? I understand that you referenced "the regulations", but I did not see such a definition in The Big Beautiful Bill, although, admittedly, my read was fairly quick & focused on the one section.

The regulations are the IRS’s regulations from October 2020 for this specific tax. The BBB did not introduce a new tax, it just changed the rates and thresholds. The tax already existed and therefore the IRS regulations on this tax already exist.

https://www.taxnotes.com/research/federal/treasury-decisions/irs-publishes-final-regs-on-college-endowment-excise-tax/2d2bc

(OP here.)

Again, thank you for posting your response and the link to the relevant taxnotes !!!

[Anonymous]

U Tulsa is a great school with respect to academics and with respect to opportunities for students.

[Anonymous]

(OP again.)

The IRS clarified that the law refers to "tuition paid" rather than to "tuition charged" for purposes of determine the 3,000 tuition paying students threshold.

[Anonymous]

What's stopping a university from splitting on paper into multiple universities each with slightly under 3000 tuition paying students to avoid the tax?

[Anonymous]

Anonymous wrote:What's stopping a university from splitting on paper into multiple universities each with slightly under 3000 tuition paying students to avoid the tax?

Are you asking why Harvard University won’t become Harvard University of Art, Harvard University of sciences, Harvard University of __ with an enrollment cap of 3000 at each university? Seems like a nightmare to coordinate and run, and you’d lose some control.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What's stopping a university from splitting on paper into multiple universities each with slightly under 3000 tuition paying students to avoid the tax?

Are you asking why Harvard University won’t become Harvard University of Art, Harvard University of sciences, Harvard University of __ with an enrollment cap of 3000 at each university? Seems like a nightmare to coordinate and run, and you’d lose some control.

Presumably they could operate like the Claremont colleges or Cambridge.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't understand how any of this is constitutional. We have one man making all these capricious decisions regarding various individual universities. There's no method or system. Just whims and enemies.

Very banana republic.

Well this one is a tax on investment income passed by Congress so unfortunately it is very constitutional.

Ultimately I think Princeton and Dartmouth will escape through the tuition-paying threshold, and MIT and Rice might too. For the dozen or so others that this applies to, they will manage their investment income to reduce the tax burden. But even then it isn’t large. For example, even before taking steps to optimize tax efficiency, these tax estimates are generally less than one percent of these schools’ total endowments (~0.5 percent in many cases).

Sorry to repeat my question, but what is the definition of a tuition paying student for purposes of the excise tax on educational institutions endowment income ?

Are students who receive financial aid of any type which covers at least 100% of tuition "tuition paying students" ? I would argue that they are since tuition is still paid on their behalf even though through a financial aid fund. Accordingly, schools cannot escape the 3,000 tuition paying students threshold as easily as several posters have asserted.

All of this is in the comments above. A student whose entire tuition and fees are covered by scholarships or grants provided by the university or a federal, state, or local government is not tuition paying. Therefore they don’t count toward the 3,000 threshold.

Thank you, but I am still searching for the source. I have read & reread Sec 70415 of the One Big Beautiful Bill and am not finding any such definition. However, I did find section (h) within Sec 70415 which authorizes the establishment of rules to prevent educational institutions from restructuring endowment funds to reduce or eliminate value of/and assets "subject to the tax imposed by this section". This leads me to question whether educational institutions can alter the student count for purposes of the 3,000 tuition paying students. A concise source could address my concern.

Thank you to all who reply.

This may be a barrier to universities splitting endowment funds for multiple separate specialty schools.

In short, don't piss off the Big Guy.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't understand how any of this is constitutional. We have one man making all these capricious decisions regarding various individual universities. There's no method or system. Just whims and enemies.

Very banana republic.

Well this one is a tax on investment income passed by Congress so unfortunately it is very constitutional.

Ultimately I think Princeton and Dartmouth will escape through the tuition-paying threshold, and MIT and Rice might too. For the dozen or so others that this applies to, they will manage their investment income to reduce the tax burden. But even then it isn’t large. For example, even before taking steps to optimize tax efficiency, these tax estimates are generally less than one percent of these schools’ total endowments (~0.5 percent in many cases).

Sorry to repeat my question, but what is the definition of a tuition paying student for purposes of the excise tax on educational institutions endowment income ?

Are students who receive financial aid of any type which covers at least 100% of tuition "tuition paying students" ? I would argue that they are since tuition is still paid on their behalf even though through a financial aid fund. Accordingly, schools cannot escape the 3,000 tuition paying students threshold as easily as several posters have asserted.

All of this is in the comments above. A student whose entire tuition and fees are covered by scholarships or grants provided by the university or a federal, state, or local government is not tuition paying. Therefore they don’t count toward the 3,000 threshold.

Thank you, but I am still searching for the source. I have read & reread Sec 70415 of the One Big Beautiful Bill and am not finding any such definition. However, I did find section (h) within Sec 70415 which authorizes the establishment of rules to prevent educational institutions from restructuring endowment funds to reduce or eliminate value of/and assets "subject to the tax imposed by this section". This leads me to question whether educational institutions can alter the student count for purposes of the 3,000 tuition paying students. A concise source could address my concern.

Thank you to all who reply.

This may be a barrier to universities splitting endowment funds for multiple separate specialty schools.

In short, don't piss off the Big Guy.

Although I don’t want to understate Trumps vindictiveness, I think this is less about pissing him off and more about paying for his tax cuts by passing burden onto middle class families and working class families. Schools will have to increase full pay kids and cut scholarships to pay these taxes. So it helps rich families, who don’t care about the cost and can’t get their kids in more easily. It’s basically moving higher ed back to the 1940s when these schools were basically all rich kids. Unfortunately, we don’t have the manufacturing jobs to simply all the rest of the kids nowadays.