Congress raises tax on college endowments, but students may pay the bill
H.R. 1006 — Higher Education Accountability Tax Act · Filed by David Joyce (R-OH) · 1 cosponsor · Introduced Feb 5, 2025 · Referred to committee
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What it does
This bill increases the federal excise tax on investment income earned by private colleges and universities from 1.4% to 10%, with an additional penalty rate of 20% for institutions that have raised their net tuition prices faster than inflation over the prior three years. It also lowers the asset threshold that triggers the tax from $500,000 to $250,000, bringing more institutions under the tax. The changes take effect for tax years beginning after December 31, 2024.
Why we flagged it
The bill's operative mechanism is a straightforward increase in an existing excise tax on private college endowments, with a penalty tier for institutions raising net prices faster than inflation. It is a tax policy amendment, not a regulatory or appropriations measure.
What the text implies
- Colleges may respond by raising tuition on all students (including those not receiving aid) to offset the tax, potentially worsening affordability for middle-income families.
- The 20% penalty rate for net-price-increase institutions creates a strong incentive to freeze or cut net prices, but does not prevent absolute price increases—only those exceeding inflation.
The full analysis lists 4 implications of this text.
Who it affects
The bill targets price increases at private colleges, which could incentivize cost restraint and benefit students facing rising tuition. However, the tax may be passed through to students via higher fees, reduce institutional financial aid, or force cuts to academic programs and services—offsetting the intended accountability benefit.