President Donald Trump’s massive tax and spending package collects large taxes on universities with the largest donations. The school warns that financial aid may be at risk.
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Scripps News
WASHINGTON – Harvard University has become President Donald Trump’s favorite punch bag, and the massive tax and spending bill he signed on July 4th is about to hit Ivy League schools once again.
The law has raised the tax on donations from the richest universities in the United States from 1.4% to 8%. Harvard has already been cut off from billions of federal funds since Trump took office and is one of a handful of schools struggling with new tax burdens.
“If this donation income is taxed, there are billions of dollars that could enter the government,” Education Secretary Linda McMahon told CNBC in May. “I think the public will look at it and say that it might be a rational approach.”
As a result of the policy shift, campuses in Cambridge, Massachusetts could lose hundreds of millions of dollars a year. A Harvard spokesman declined to comment specifically on the new tax hike.
As the bill worked through Congress, university affordability advocates and some students expressed concern that taxation on fund funds, often used to support financial aid, would ultimately harm low-income students. (A university donation is the aggregation of donated assets invested by the university to support its mission, according to the U.S. Council of Education.)
Some people called this measure the “scholarship tax.” A 2024 survey by the National Association of Colleges and College Business Officers showed nearly half of the $30 billion that schools spent on financial aid that year.
By some estimates, Harvard is one of about half a dozen universities affected by the more sudden donation tax. Some of those piercing schools have already spoken about budget cuts.
Yale University President Morley McInnis said on July 3 that her Ivy League campus will be forced to pay an estimated $280 million a year for taxes. That number will likely increase in the next few years, she said.
She warned that the university will face “difficult choices” in the coming months.
“The impact of this tax will be felt far beyond our campus and homeland,” she said in an official statement. “Taxing universities undermine life-saving medical breakthroughs, life-changing innovations, and education and research that drive economic growth in communities across the country and around the world.”
How will the new donation tax work?
In 2017, Congress passed a law that created a 1.4% tax on net return on investment from certain university contributions.
However, excise tax did not apply to all universities. It only affected schools where per student contributions exceed $500,000. Qualified schools also had to register more than 500 students paying tuition fees.
Then, in May, the House GOP committee lifted the ante as part of an effort to file a request for President Trump to pass groundbreaking laws.
The committee passed measures that created the new structure and levied a tax of up to 21% on schools like Harvard. Harvard’s total contribution is valued at over $50 billion.
Senate Republicans were nearly medium in size than their House counterparts, and eventually became silenced by the law. Specifically, we reduced the highest tax rate to 8%. After transfers from religious and conservative universities, they also exempted dozens of schools with fewer than 3,000 students.
The new 8% donation tax rate affects only some of the most selective universities in the country, including Princeton University and the Massachusetts Institute of Technology. Meanwhile, the 4% rate applies to other universities with a donation value per student between $750,000 and $2 million. (Forbes estimates it is lower than the 12 schools in that bracket.) The current 1.4% tax remains the same in schools with students between $500,000 and $750,000 adjusted.
The so-called “one big, beautiful bill,” Including loan cuts for graduate students and Medicaid could also lead to more belt strengthening and budget cuts on university campuses.
Zachary Schermele is an education reporter for USA Today. You can contact him by email at zschermele@usatoday.com. Follow him on X at @Zachschermele and follow Bluesky at @Zachschermele.bsky.social.
