Top Public Policy Issues Facing Governing Boards in 2025–2026:
Federal Tax Legislation

A leaked internal reconciliation document from the House Budget Committee included dozens of potential tax offsets, spending reductions, and potential new tax cuts—each with their estimated revenue gains or losses—that could be seriously considered in a 2025 budget reconciliation package.³ Some options in the document may be adopted, others dismissed, and others modified significantly during bill markup. Not a total surprise to higher education’s advocates, colleges and universities would be directly affected by several of the listed tax offsets that the House Budget Committee suggested for consideration by the House Ways and Means Committee.

Most notable is raising tenfold the current 1.4 percent excise tax on the net investment earnings of dozens of private colleges and universities with endowments above $500,000 per student. The excise tax, enacted in 2017, does not apply to public colleges’ endowments or those of private religious institutions such as Brigham Young University. In fiscal year 2023, it generated approximately $380 million from the endowments of 56 private colleges and universities with assets exceeding the threshold—an amount that represented a relatively small portion of overall IRS tax collections but a notable expense for the affected institutions. That money flows into the general U.S. Treasury. More than 140 institutions have $1 billion or more in their endowments, but most do not cross that $500,000-per-student threshold. That trigger and the tax rate both could change. Some Republican lawmakers have proposed increasing taxes on large endowments, citing concerns about ideological bias at certain institutions and how they have addressed incidents of anti-Semitism, particularly in the context of campus responses to the conflict between Israel and Hamas in Gaza. One of three bills introduced by Sen. Tom Cotton (R-AR) proposed imposing a one-time, 6 percent tax on the corpus of the biggest endowments, which would raise billions of dollars to support Israel and Ukraine, and to help secure the southern border. Vice President J.D. Vance, as a senator in 2023, pushed for a 35 percent tax on endowment earnings. Senate Democrats, then the majority, quickly shelved those bills, but they are now the minority.

Efforts to repeal the excise tax on endowments never gained enough support to pass in the previous Congress. Now, the affected institutions, along with others in the higher education community, are working to address proposals that could further impact endowments. The outcome in the House might depend on whether enough Republicans from districts where the affected colleges and universities are located vote against raising the 1.4 percent excise tax. With the slimmest majority since 1931, House Speaker Mike Johnson (R-LA) can only afford to lose a handful of votes. Could the tax migrate to public colleges and universities and their affiliated foundations? Although it appears unlikely at this point, some advocates for public institutions continue to speculate that it could. In any case, the higher education community has remained steadfast in opposition to the endowment tax as it affects Ivy League institutions and other private institutions, from Harvard with its $53 billion endowment to small Carleton College with an endowment of $1 billion, which paid $1 million in taxes last year from its endowment—money that could have paid for ten full scholarships for needy students, President Alison Byerly noted in a Washington Post column.⁴

The House Budget Committee’s reconciliation document includes a proposal to tax all scholarships and fellowships, including Pell Grants, which is projected to generate $54 billion in revenue over 10 years. The potential change could increase the cost of attending college and graduate school for many students.⁵ It also includes elimination of the American Opportunity and Life-Long Learning Tax Credits (two tax benefits that enhance college affordability), and elimination of the deduction for interest on student loans. Also of interest to higher education are possible changes to the current $10,000 ceiling on the deduction for state and local taxes, and the potential elimination of the tax exemption for interest earned on tax-exempt bonds, which could affect the attractiveness of bonds issued by and on behalf of higher education institutions and raise borrowing costs for campus construction and renovation.

The House Budget Committee’s document includes a proposal to end the tax-exempt status of nonprofit hospitals. If that proposal becomes part of a final tax bill, it will have a large impact on academic health centers and university-affiliated teaching hospitals, subjecting them to federal taxes at the corporate rate.

Could the implications extend beyond nonprofit hospitals? Last November shortly after the election, the House of Representatives passed the “Stop Terror-Financing and Tax Penalties on American Hostages Act,” which was presented as a measure to prevent terrorism. Many charities and nonprofit organizations already observe post-9/11 laws preventing work with terrorist groups. If the House bill is re-introduced, some organizations have expressed concern that its provisions could impact their operations or raise questions about their activities and speech protections.⁶

In the case of colleges and universities, there is concern that if student groups receiving institutional funds show support for foreign entities designated as terrorist organizations (such as Hamas), then the secretary of the U.S. Treasury could potentially hold institutions accountable and they could face the loss of their tax-exempt status. Similarly, if a university funds a joint international research project—say with Chinese scholars—could the university come under scrituny? In the 118^th Congress, the Senate Democratic majority did not take up the House-passed terror-financing bill. In the 119^th Congress, the future remains uncertain.

Amid ongoing discussions about higher education tax policy in the 119th Congress, government relations staff at institutions and higher education associations have indicated they will continue to engage with lawmakers to shape legislation, aiming to avoid provisions they view as potentially detrimental while supporting tax policies that benefit students and institutions.

Higher education advocates, along with the wider nonprofit community, will urge tax committees to restore a deduction for charitable contributions, including those to colleges. Fewer than 10 percent of tax filers itemized their returns after the TCJA’s passage in 2017 and its doubling of the standard tax deduction for individuals and families. A proposed, new, non-itemizer deduction, championed by Senator James Lankford (R-OK) would allow taxpayers to deduct gifts up to one-third of the standard deduction, $15,000 for individuals and $30,000 for married couples. In contrast to the large gifts sought by institutions, the deduction would enable college and university advancement teams to seek more modest contributions from recent graduates and younger alumni. Support for the deduction in the last Congress was bipartisan in both the House and Senate, likely driven in part by recent data showing a decline in the numbers of individuals and families making charitable gifts.⁷ After a good year in the stock market, the Council for Advancement and Support of Education reported that giving to U.S. colleges and universities continued to be strong, at $61.5 billion in the year ended June 30, 2024, up 3 percent after adjustment for inflation. There was also a 7.5 percent increase in gifts by alumni, which totaled almost $13 billion. But the largest share comes from foundations, which contributed $20 billion. Close to half the money raised supports student financial aid, and gifts covered 10 percent of institutions’ total expenditures.⁸ Still, many nonprofits—not just colleges and universities—express concern that the number of small donors is decreasing and they are more dependent on big gifts. When the University of Cincinnati and UC Health closed a capital campaign in 2024 that raised $2.2 billion over five years from 165,000 donors, 92 percent of the gifts were under $1,000.⁹

Higher education advocates will also support an increase in employer education assistance, Section 527 of the tax code. The program allows employees to receive up to $5,250 a year tax-free for education-related expenses provided by their employers. The $5,250 limit has been fixed for decades. In addition, advocates are expected to continue efforts to expand the current income-tax exclusion for tuition, fees, and books to also include living expenses—particularly for recipients of Pell Grants—even as discussions continue around potential changes to the tax treatment of scholarships and fellowships.

• How might changes to the federal tax code that impact status for tax-exempt bonds affect borrowing costs for our institution or for system institutions?
• How might changes to the federal tax code around student scholarships and fellowships affect undergraduate and graduate students at our institution or at system institutions?
• How might restoration of the charitable deduction for taxpayers who do not itemize their taxes affect our fundraising efforts? Did gifts decrease when the deduction was eliminated? Would they increase now?
• How would changes to the applicability or amount of endowment taxes affect our institution or foundation?