Small colleges face severe tax hikes under new endowment tax proposal

In the United States, a tax and spending bill passed by the House of Representatives on May 22, 2025, proposes significant tax increases for colleges and universities based on their endowment earnings. While wealthy institutions like Harvard and Princeton are commonly highlighted, the bill also threatens smaller liberal arts colleges, which could see their tax burdens skyrocket. A substantial number of these colleges, particularly those with fewer than 2,500 students, are poised for tax increases that could multiply their current tax commitments by 10 to 15 times due to the new graduated tax structure. Under the proposed law, the tax on endowment earnings, currently set at 1.4% for certain private colleges with substantial endowments per student, would potentially rise to as high as 21% for schools with an endowment of at least $2 million per student. Institutions with endowments ranging from $500,000 to $750,000 would retain the current rate. This new structure could significantly broaden the pool of colleges affected by the taxes, especially by excluding foreign and undocumented students from enrollment figures, which results in more colleges being liable for the taxes and facing heightened rates. Several notable small colleges have identified their projected tax increases as a critical concern. For example, Amherst College in Massachusetts could see a tax increase of over $50 million, while Williams College may see its annual tax bill rise from approximately $3.7 million to more than $37 million. Other institutions such as Wellesley College, Grinnell College, and Bowdoin College are expected to pay dramatically increased taxes as well, posing a significant financial strain on these institutions, many of which have limited resources. The implications of these tax increases extend beyond mere numbers; they threaten hundreds of millions of dollars in financial aid for students. In response, colleges are ramping up lobbying efforts to either diminish the impact of these tax hikes or secure a more favorable application of exemptions based on religious affiliations. As the Senate begins reviewing the bill, the outlook is bleak for many small colleges, which feel that their finances, and consequently their ability to provide quality education, are at risk in what the Trump administration has called a stance against 'woke' higher education.