Reply to How Princeton is Getting Around the Endowment Tax

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Princeton makes financial aid changes presumably to get it to fewer than 3,000 “tuition-paying” students.

https://www.princeton.edu/news/2025/08/07/princeton-enhances-financial-aid-again-it-welcomes-class-2029-which-includes[/quote]

[b]If the administrations top "targets" start adjusting to avoid being taxed I expect the IRS regs to get reinterpreted to cut off the easy paths out of taxation. A few schools could just eliminate tuition but that isn't feasible for most.[/b] I suspect longer term "tuition paying" will be replaced with a strict size limit which protects Hillsdale but cuts off the avoidance opportunities for the Ivy schools. Top SLACs are going to win big as this shakes out as they are resource rich, not dependent on federal money, and are effectively shielded because of the republican desire to protect Hillsdale at all costs.   [/quote]

Second bolded sentence is why the first probably won’t happen. Only a few schools can do this. That, and the IRS already was challenged on this previously during the public consultation process in 2020 and would likely lose the ensuing lawsuit since they are on record defending the current approach, without a good legal rationale for changing course now. [b]Congress could have taken “tuition-paying” out of the legislation, but didn’t.[/b][/quote]

The current approach isn't the previous approach which was solely based on endowment size. It may be similar but it isn't the same and is open to revisiting from a regulatory standpoint. More important is the simple fact that this administration doesn't care, they want to punish. Harvard can do anything that Princeton does to get around the tax and I'm not buy the idea that the buffoons in the Whitehouse will meekly allow workarounds. They will aggressively work to ensure punishment.

[/quote]

The approach is exactly the same. They just increased the thresholds and the tax rates. It was previously 500 “tuition-paying” students and they increased it to 3000 “tuition-paying” students. Tuition-paying was in the previous legislation and the relevant IRS interpretation and regulations (since the legislation didn’t define what that meant) have been in place since 2020.

Note that endowment per student for calculating the tax bracket is based on total students, not just tuition-paying ones. So the legislation could have also just set the size thresholds in terms of “students.” But it didn’t. Congress set it in terms of “tuition-paying” students. And the IRS defined it differently in the legally-binding regulations, noting specifically that it relates to tuition “payment,” not just a student who gets charged tuition. They even acknowledged that schools could get below the threshold by increasing full scholarships and decreasing partial ones. If they try to change it now after Congress reaffirmed “tuition-paying” in another bill, they will almost certainly lose.

Harvard can’t do the same thing. It is way too big with way too many paying students, especially in the grad programs.[/quote]

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