Congressional Republicans are trying to pay for Trump’s proposed tax cuts by punishing top college donations. The university warns that the measures put financial aid at risk.
Who will benefit from President Trump’s “big and beautiful bill”?
The nation’s wealthy Americans will benefit from the Trump administration’s “big beautiful bills,” but the poorest will be left behind.
The spending bill passed in the U.S. House of Representatives will increase the taxes paid by the wealthiest private universities on the benefits of donor investment, mobile advocates say “woke up” the school reins, but critics say it hurt the poorest students the most.
Snagged between President Donald Trump’s massive tax and spending bill, which was passed slightly by the House on Thursday, is a proposal by which some universities pay taxes on investment returns of 1.4% to 21% at some of the nation’s most elite universities.
The measure, part of a bill headed for the Republican-controlled Senate, is seen as another front in Trump’s attacks on elite universities, which he calls overrun by left-wing extremist thinking and is a cradle of anti-American and anti-Semitic movements. On Thursday, the Trump administration revoked its ability to register Harvard international students, saying the university was illegal.
“If it’s too long, universities are being treated beneficially from tax laws while ignoring taxpayer interests,” said Jason Smith, a Missouri Republican and chairman of the House Ways and Means Committee, shortly after the committee passed the bill. A fact sheet released by Smith said the tax was “liable by elite universities operating like a woken up, major companies and other tax-free entities.”
Premier University says that most donations are attached to specific projects that donors require. So if they spend more money on taxes, they cannot make up for it from their contributions. Instead, they spend less elsewhere.
Stanford University spokesman Luisa Rapport said the proposed tax hike will “directly reduce financial aid for undergraduate students, support for faculty and graduate students, and funding for research programs.”
MIT spokesman Kimberly Allen said the proposal was “basically taxes on national research and student aid, and MIT alone would cut hundreds of millions of dollars from its budget each year.”
Excellence, at-risk access
During Trump’s first term, the current 1.4% tax was levied on schools with contributions of more than $500,000 per student. That is, the size of the donation divided by the number of full-time students.
In 2023, 56 private schools paid their taxes, with receipts general of around $380 million, according to the IRS.
Under the new proposal, schools with a per-student contribution of more than $2 million will pay 21%. International students do not count as their denominator under the bill. This means that schools with students of a large population will be punished, like many elite universities that Trump has targeted.
Schools with per student contributions of between $1.25 million and $2 million will be taxed 14%. Schools with per-student contributions between $750,000 and $1.25 million will be taxed 7%. Additionally, those who donate between $500,000 and $750,000 per student will be subject to 1.4% tax.
The American Council of Education, a 1,600-member higher education lobbying and advocacy organization, has been fighting the donation tax since it was first created. Steven Bloom, who specializes in council tax issues and donations, said the new proposal would “take a very bad tax policy passed in 2017, making it more expensive and complicated.”
Philip Levine, a professor of economics at Wellesley College, estimates that the new tax will cost elite universities such as Harvard, Yale, Stanford, MIT and Princeton between $400 million and $850 million a year.
Levine said that despite the highest tuition prices, elite Ivy League schools with large donations can offer large financial aid packages to children from poor backgrounds.
“These are institutions that can provide excellence and access to low-income students,” Levine said. “Both of these are at risk in the presence of large donation taxes.”
Laura Wirick, managing principal at Meketa Investments, is a consulting firm that advises donations on how to allocate money, and said that if the highest proposed tax rate of 21% passes, it may not push money out of elite schools as donors.
