On May 22, the U.S. House of Representatives passed President Donald Trump’s spending bill, “One, Big, Beautiful Bill,” which includes a provision for a progressive endowment tax on private colleges and universities. If signed into law, the bill will impose a 21% endowment tax on Stanford.
An endowment is a pool of donated funds and invested assets that generate income to ensure long-term financial stability. The impact of this progressive tax depends on the size of a university’s endowment after adjusting for the number of enrolled students. For institutions with an endowment of $500,000 to $750,000 per student, the endowment tax will remain at the current 1.4%. Institutions with $750,000 to $1.25 million dollars per student will see a tax increase up to 7%.
With an endowment of over $2 million per eligible student, Stanford is one of few universities in the highest tax bracket, along with Harvard, Yale, Pomona, MIT, Caltech, Juilliard and others.
The Stanford endowment is managed by the Stanford Management Company (SMC). Established in 1991, the SMC is responsible for the merged investment pool, which includes the endowment, real estate and other assets.
As of August 2024, Stanford’s endowment totaled $37.6 billion, with an annual payout of about $1.8 billion. Endowment income represented 20% of the University’s funding for the 2024-2025 fiscal year. About 75% of the endowment is reserved for the University’s 9,100 endowed funds, which finance specific outputs.
According to political science lecturer Simone Paci, the change could represent a roughly $750 million tax annually, a significant decrease in the annual operating budget of the school.
In an email to the Daily, University spokesperson Luisa Rapport wrote that the “endowment tax being proposed will reduce funds available for financial aid for future students, support for faculty and graduate students, and funding for research programs.”
About two-thirds of financial aid comes from the endowment, amounting to $459 million, or 5% of University spending, in the 2024-2025 fiscal year.
Rapport further cautioned that the proposed tax would weaken universities across the country and “diminish the nation’s capacity for leading research and innovation.”
The endowment tax represents a continuation of Trump’s adversarial policy towards higher education. Republican Ways and Means Committee Chairman Jason Smith praised the tax, saying “it finally holds elite, woke universities and nonprofits accountable.”
Non-profit universities generally qualify as tax-exempt under the U.S. Internal Revenue Code (IRC) Section 501(c)(3). As a result of this designation, university endowments have historically remained untaxed.
During his first administration, President Trump passed the “Tax Cuts and Jobs Act” (TCJA), an overhaul of the U.S. tax system. In addition to lowering the corporate tax rate and increasing the Childhood Tax Credit (CTC), the TCJA introduced a tax on endowments of universities with more than 500 students enrolled.
The TCJA endowment tax was 1.4% of investment gains for universities with endowments exceeding $500,000 per student enrolled. In 2023, 53 universities met the endowment tax requirements and paid a total of about $380 million altogether.
The initial endowment tax experienced bipartisan pushback. In 2018, Maryland Representative John Delaney introduced a bill called “Don’t Tax Higher Education,” which would amend the IRC to prevent universities from being taxed on investment income. While Democrats and Republicans signed on as co-sponsors, the bill did not receive enough support to move forward.
The comprehensive spending bill is expected to face significant challenges in the Senate.