Trump administration levies higher taxes on large university endowments
What exactly does a 20 billion dollar endowment mean for Notre Dame? Under newly-established federal tax rules, it now means paying Washington 50 million dollars a year.
The passage of the One Big Beautiful Bill (OBBB) in July, the first budget reconciliation measure backed by both President Trump and House and Senate Republicans, brought significant changes to the taxation of university endowments.
Prior to the passage of the OBBB, a 1.4 percent excise tax was applied to the net investment income of large private college endowments under the 2017 Tax Cuts and Jobs Act. This tax applied initially to schools with at least 500 tuition-paying students and an endowment of at least 500,000 dollars per student.
The OBBB replaced the flat tax system with a tiered system based off of a per-student adjusted basis with three rates of 1.4 percent, four percent, and eight percent. At the same time, the minimum student count for eligibility has been raised to 3,000, and the scope of taxable income has been broadened to include categories such as student loan interest and royalty earnings. In other words, the few universities with the largest endowment will see the largest rise in taxes. Only three universities fall into the top bracket. With a student-adjusted endowment of approximately 1.4 million dollars per student, Notre Dame will pay within the four percent tax bracket.
While the exact purpose of the increasing taxes on private colleges remains somewhat unclear, the Joint Committee on Taxation estimated that the revised endowment excise tax will generate an additional 761 million dollars in federal revenues over ten years. Congressional Republicans have framed the measure as one way to help offset the estimated 4.5 trillion dollar reduction in federal revenues caused by extending provisions of the 2017 tax law.
When asked about the potential motives for the increased endowment tax, Sherif Girgis, Professor of Law at Notre Dame, told the Rover, “The tax seems to be less about raising revenue than about sticking it to universities that politicians or the public increasingly see as forces of ill and as hoarders of their wealth and high tuition revenue.”
Under the new tiered system, endowments will be taxed on a per-student adjusted basis at the following rates: 1.4 percent for endowments of at least 500,000 dollars but less than 750,000 dollars, four percent for endowments in excess of 750,000 dollars but less than two million dollars, and eight percent for endowments in excess of two million dollars per student.
Notre Dame briefly secured hope for relief when an earlier draft of the bill, passed in the House on May 22, exempted religiously affiliated institutions from the tax. That exemption was later stripped from the final legislation, leaving Notre Dame’s nearly 20 billion dollar endowment fully subject to the new requirements. Under Senate rules, even if Notre Dame were to pursue such an exemption in the future, the measure would likely fall outside the scope of budget reconciliation and therefore require 60 votes to survive a point of order. Such a threshold would be hard to meet and likely to fail.
Notre Dame Professor of Law Lloyd Hitashi Mayer noted that, in addition to reconciliation issues addressed by the Senate parliamentarian during the passage of the bill, “there are also potential constitutional issues—for example, in Texas Monthly v. Bullock, the Supreme Court struck down a tax exemption for religious entities over secular ones. A secular university could have standing to challenge such an exemption in this case as well.”
The permanence of this tax structure carries long-term implications for higher education. In the past, once enacted, investment income taxes have proven durable. Mayer added that the tax on private foundations passed in 1969 remains in place more than 50 years later. Notre Dame and other elite universities may now face a similar reality.
Asked to comment on the precedent for federal involvement in how private universities manage their wealth, Richard Garnett, Paul J. Shierl Professor of Law, said, “The federal government has long done all kinds of things that affect universities’ spending and investment decisions. This particular move, I suspect, will incentivise universities to spend down endowments and to raise funds in new ways.” Some scholars speculate that universities may raise tuition further in reaction to the additional tax burden.
Based on Notre Dame’s 2024 Statement of Cash Flows, this translates into a projected 50 million dollars increase in annual tax obligations, equal to about a 2.5 percent reduction in its current operating budget. This tax increase will take effect in the taxable year of 2026. University officials have expressed disappointment at the loss of threshold protections, but emphasised forward-looking guidance on the institution’s long-term financial stability.
Notre Dame’s 2024 financials underscore that resilience. Despite an operating cash flow deficit of 177.8 million dollars, financing activities such as borrowing, investment flows, and donor contributions produced a net cash increase of 9.9 million dollars. Net assets increased by nearly 1.8 billion dollars, reflecting the investment performance and philanthropic support. While the university spent more than 215 million dollars on capital projects in 2024, it has announced no plans for new construction projects over the next 12 months. Simultaneously, the university announced a staff hiring freeze and an overall budget decrease of 2.5 percent.
For now, university leaders stress that day-to-day operations, including financial aid, faculty hiring, and student services, remain secure. The projected 2.5 percent budget adjustment is notably lower than the five percent reduction initially proposed when the legislation was still under debate.
Jakob Hansen is a junior studying abroad at Trinity College Dublin, where he’s discovering that the luck of the Irish doesn’t extend to Notre Dame’s endowment tax. Tell him what you think at jhansen8@nd.edu.
Photo Credit: Notre Dame Investment Office
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