Congress Taxes School Endowments However Nonetheless Sends Them Monetary Support — That Makes No Sense

Harvard College sits on an endowment (PDF File) value roughly $56.9 billion. That’s greater than the GDP of over 100 nations. But within the 2024-25 tutorial yr, Harvard college students nonetheless obtained over $14.4 million in need-based federal grants and one other $5.3 million in non-need-based assist, in response to its personal Widespread Knowledge Set submitting. 

Harvard isn’t alone. Yale, with a $41.1 billion endowment, Princeton at $36.4 billion, Stanford at $37.6 billion, and MIT at $24.6 billion all take part in Title IV federal scholar assist applications. These faculties obtain Pell Grants, Federal Supplemental Instructional Alternative Grants (FSEOG), federal work-study funds, and course of billions in federal scholar loans for his or her college students.

The endowment tax signed into regulation on July 4, 2025, as a part of the One Large Stunning Invoice Act, is a step in the appropriate course. However it doesn’t go far sufficient.

The federal authorities ought to cease giving Title IV monetary assist (together with Pell Grants and federal scholar loans) to schools which might be sitting on large endowments producing funding income. If a university has the sources to fund each scholar’s schooling from its personal endowment returns, American taxpayers shouldn’t be subsidizing it.

And each greenback in monetary assist funds spent at these wealth faculties is a possible greenback that could possibly be spent at a university that basically wants the funds: assume state or neighborhood faculties that ship optimistic scholar outcomes however could lack that further funding.

The Numbers Do not Add Up

The dimensions of amassed wealth in American larger schooling is staggering.

Greater than 80 faculties and universities have endowments exceeding $1 billion. This consists of not simply non-public elite establishments but additionally large public college techniques. The College of Texas System holds $47.5 billion. Texas A&M holds $20.4 billion. The College of Michigan holds $19.2 billion. The College of California system holds $19.1 billion.

Amongst non-public establishments, the numbers are much more hanging when considered per scholar. Harvard, Yale, Princeton, Stanford, and MIT every have endowments above $2 million per scholar. One other 18 establishments exceed $1 million per scholar. These faculties collected billions in funding returns in 2024 alone, rising their wealth whereas concurrently accepting federal taxpayer {dollars}.

Critics of endowment reform typically level out that a lot of this wealth is “restricted” by donor needs – going in the direction of a constructing or a sure faculty’s dean’s wage. However the knowledge tells a distinct story.

About 40% of upper schooling endowment property are topic to everlasting restrictions, 30% are quickly restricted, and roughly 29% are quasi-endowment—which means the establishment itself selected to set the cash apart and might select to spend it in another way.

At Harvard, unrestricted funds account for about 20% of its endowment. That’s nonetheless roughly $10 billion in unrestricted funds alone – greater than the overall endowment of most universities in America.

The New Endowment Tax Is A Begin, However Not Sufficient

The One Large Stunning Invoice Act launched a tiered endowment tax that changed the flat 1.4% excise tax that had been in impact since 2017.

The brand new charges are based mostly on endowment {dollars} per scholar: 1.4% for establishments with $500,000 to $750,000 per scholar, 4% for $750,000 to $2 million per scholar, and eight% for these exceeding $2 million per scholar.

The tax applies to personal establishments with not less than 3,000 tuition-paying college students, greater than 50% of whom are within the U.S., and not less than $500,000 in endowment per scholar.

Yale’s president estimated the college can pay roughly $280 million within the first yr beneath the brand new charges. Harvard, with the most important endowment, will seemingly pay much more. 

Taxing endowment revenue is an inexpensive coverage. However taxation alone doesn’t tackle the core absurdity: that these similar establishments proceed to obtain federal scholar assist. Yale college students nonetheless obtained practically $19 million in Federal assist, if you mix each the scholar and dad or mum grants and scholar loans.

The tax says, “You will have an excessive amount of cash, so we’ll take a minimize.”

The smarter coverage says, “You will have an excessive amount of cash, so use your individual sources to assist your college students.”

And when you see the numbers, it is arduous to disregard. Yale is aware of that their households obtained $19 million in assist (together with $6 million in scholar loans) – understanding full nicely they’ve a lot in extra funds they will pay $280 million in taxes. If they will not make the appropriate choices for his or her households, the federal government ought to.

We “Means Check” Individuals For Many Social Applications — Why Not Faculties?

The US operates roughly 80 means-tested federal applications, spending over $1 trillion yearly on advantages for low-income Individuals.

These applications span each space of life: Medicaid for healthcare, SNAP for meals help, Part 8 vouchers for housing, Non permanent Help for Needy Households (TANF), the Earned Revenue Tax Credit score, and Supplemental Safety Revenue, amongst dozens of others.

Each one in all these applications requires candidates to show they lack enough sources earlier than receiving assist. A household incomes an excessive amount of can’t get Medicaid. A family with too many property could also be denied SNAP advantages.

The precept is easy: authorities sources ought to go to those that want them, to not those that can afford to assist themselves.

But we apply no equal customary to the establishments that obtain federal scholar assist. Harvard, with $56.9 billion in endowment property, receives the identical kind of Title IV funding as a neighborhood faculty with no endowment and a scholar physique that’s overwhelmingly low-income.

A regional state college serving first-generation college students will get the identical class of federal Pell Grant funding as Princeton, which is sitting on $3.75 million per scholar.

If a household incomes $200,000 a yr can’t get meals stamps, why can a college sitting on $53 billion get Pell Grant cash?

Federal Support Ought to Go To Each College students AND Faculties Who Really Want It

The Pell Grant program disbursed $36.6 billion to 7.2 million recipients within the 2024-25 award yr. The most particular person Pell Grant was $7,395.

That is the first federal grant program for low-income college students and it faces a projected $11.5 billion shortfall. On the similar time, Pell {dollars} are flowing to college students at faculties that might simply exchange each greenback of federal assist with institutional cash.

Think about what redirecting these funds may accomplish. The federal grants going to college students on the 23 faculties with over $1 million in endowment per scholar may as a substitute be routed to neighborhood faculties, regional public universities, and traditionally Black faculties and universities (HBCUs)—establishments that serve the scholars who need assistance essentially the most and have the fewest institutional sources to supply it.

Simply trying on the knowledge for these few faculties – implementing these proposals would shift over $100 million in monetary assist to schools that want it.

The federal assist being despatched to those establishments is a rounding error on their steadiness sheets. However for a neighborhood faculty struggling to maintain its doorways open, those self same federal {dollars} are the distinction between providing courses and chopping applications.

The Proposal: Ban Title IV for Endowment-Wealthy Faculties

Congress ought to move laws prohibiting establishments from collaborating in Title IV federal scholar assist applications (together with Pell Grants, Federal Supplemental Instructional Alternative Grants, federal work-study, and federal scholar loans) if the establishment’s endowment generates a internet funding revenue in any given fiscal yr AND the establishment meets sure endowment-per-student thresholds.

An affordable threshold may mirror the present endowment tax brackets. Any non-public establishment with greater than $500,000 in endowment per scholar that generates a revenue on its investments ought to be required to interchange federal scholar assist dollar-for-dollar with institutional assist.

You don’t want taxpayer cash to coach your college students—use your individual.

This isn’t about punishing these faculties. It’s about allocating scarce federal sources the place they’re really wanted.

Faculties like Harvard, Yale, Princeton, and Stanford already present beneficiant institutional monetary assist. They’ve the infrastructure and the property to cowl each greenback of federal assist their college students at present obtain. In lots of circumstances, they already complement federal assist with their very own funds anyway.

For college students at these establishments, the transition could be seamless. The varsity merely replaces the federal Pell Grant with an institutional grant of the identical quantity. The scholar’s value doesn’t change.

What adjustments is that federal {dollars} (your tax {dollars}) go to college students at faculties that genuinely want the assistance.

What Are The Objections?

This proposal will little question draw sharp criticism from college directors.

In speaking with some business insiders, the three strongest counter-arguments deserve a dialog.

“Title IV Support Is a Scholar’s Cash—You’re Punishing College students, Not Faculties”

The commonest objection I heard is that Pell Grants and federal loans observe the scholar, not the establishment. Below this view, a low-income scholar admitted to Harvard has the identical authorized proper to a Pell Grant as one attending a neighborhood faculty.

Proscribing Title IV at rich faculties, the argument goes, strips a federal profit from the scholars this system was designed to serve.

This sounds persuasive till you take a look at the maths. Harvard’s 2024–25 Widespread Knowledge Set reveals it already offers $249.5 million in institutional grants to undergraduates. Changing $14.5 million in federal grants (about 5.8% of what Harvard already spends on assist) is trivial.

My proposal requires dollar-for-dollar substitute, so no scholar loses a single greenback. A scholar receiving a $7,395 Pell Grant at Harvard would as a substitute obtain a $7,395 institutional grant from Harvard. The scholar’s internet value doesn’t change. What adjustments is that federal {dollars} cease flowing to a college with $53.2 billion in property.

The “scholar cash” framing additionally ignores the truth that it is really the federal government’s cash, and it isn’t flowing to the place the cash may do extra good. Solely about 16% of scholars at highly-endowed non-public universities obtain Pell Grants. At neighborhood faculties, that determine generally exceeds 50%. 

Redirecting those self same federal {dollars} means reaching 3 to 4 instances extra low-income college students per greenback spent. The Pell Grant program faces a projected $11.5 billion shortfall – this isn’t about taking advantages away from college students, it’s about stretching restricted federal sources additional.

“Elite Faculties Are Engines of Social Mobility—Don’t Discourage Low-Revenue College students from Attending”

A extra nuanced objection attracts Mark Kantrowitz’s insights into undermatching – the place low revenue college students are already under-applying to selective faculties. Eradicating federal assist may create a psychological barrier: even when the college replaces the {dollars}, the sign is that the federal authorities doesn’t assist low-income college students attending elite faculties.

However the knowledge really undermines this argument greater than it helps it. At Ivy Plus faculties, extra college students come from the highest 1% of the revenue distribution than from all the backside 50%. Youngsters from the highest 1% are 77 instances extra prone to attend an Ivy Plus faculty than kids from the underside 20%.

The “mobility price” (which measures what fraction of a faculty’s complete scholar physique are bottom-to-top success tales) is definitely highest at mid-tier public establishments like CUNY campuses, California state faculties, and College of Texas faculties. These are the colleges this proposal would redirect federal funds towards.

Sure, elite faculties are efficient for the few low-income college students who get in. However the federal authorities will get way more mobility per greenback on the public establishments that serve the overwhelming majority of low-income college students.

If Harvard can seamlessly exchange a $7,395 Pell Grant with a $7,395 institutional grant (which it demonstrably can based mostly on it is steadiness sheet) there is no such thing as a sensible barrier to a low-income scholar attending. The FAFSA course of doesn’t change for the scholar. The varsity merely funds the award itself.

“This Units a Harmful Precedent—Authorities Will Weaponize Scholar Support Towards Universities”

The third objection I heard is political: that giving the federal government a brand new lever to limit Title IV based mostly on institutional traits opens the door to politically motivated restrictions. And the federal government is already attacking admissions insurance policies and extra.

This argument conflates goal monetary standards with political focusing on. Means-testing based mostly on endowment-per-student ratios is not any completely different in precept from means-testing people based mostly on revenue—one thing the federal authorities already does throughout 80-plus applications spending over $1 trillion yearly. The edge is monetary and quantifiable, not ideological.

The slippery slope concern additionally ignores that the federal government already units a number of monetary benchmarks that decide Title IV eligibility.

Faculties should preserve acceptable cohort default charges, meet monetary duty requirements, and adjust to ROI guidelines. Faculties that fail these benchmarks lose entry to federal assist. 

Including a monetary capability take a look at for establishments with monumental wealth is in line with current apply.

If something, a transparent statutory threshold based mostly on endowment-per-student protects faculties higher than the present surroundings, the place Harvard noticed 350 federal analysis grants frozen or terminated by govt motion in 2025 with none outlined monetary standards in any respect. 

A clear, legislated customary is the alternative of weaponization – it’s rule of regulation.The issue is that schools do not need to admit what this rule will do: it can encourage faculties to start supporting college students financially. One thing the present faculty tuition disaster has failed at.

Let’s Ship Monetary Support {Dollars} To The place They’re Really Wanted And Cease Giving Handouts To Rich Faculties

The American social security internet is constructed on a easy thought: assist goes to those that want it.

We don’t give unemployment advantages to billionaires. We don’t give meals help to households incomes six figures. We don’t give Medicaid to individuals with complete non-public insurance coverage. But we give federal scholar assist to establishments with extra wealth than most nations.

The brand new endowment tax is a begin. It acknowledges that these establishments have amassed wealth that ought to be contributing extra to the general public good. However taxing the endowment whereas concurrently sending federal monetary assist {dollars} again to the identical faculties is contradictory. 

Congress ought to take the following logical step: means-test faculties the identical approach we means-test Individuals. In case your endowment is producing income, use that cash in your college students.

Let federal monetary assist cash move to the colleges and college students who really need it. 

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