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Tax Regime of Higher Education and Nonprofits Set to Change

May 15, 2025 |
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Tax Regime of Higher Education and Nonprofits Set to Change
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On May 12th 2025, the House Ways and Means Committee released its budget proposal that includes major tax changes that, if passed, would apply to many endowments and foundations as described below. This article is part of our Commonfund Institute series spotlighting the most pressing policy issues facing endowments and foundations today, with two prior releases1 as well as a January 2025 policy outlook webinar, What Endowments and Foundations Should Know.

Higher Education Endowment Tax

The long-standing tax exemption on endowment investment income was an acknowledgement of the public good provided by these resources – for example, nearly half of higher education endowment spending funds financial aid. But the tides have turned. In 2017, the Tax Cuts and Jobs Act (TCJA) implemented a 1.4 percent tax on net investment income3 for the narrow subset of private colleges and universities with assets over $500 thousanbd per student, which, as of 2023, applied to 56 institutions.

The latest proposal released by House Republicans would represent a regime change and a dramatic departure from the current financial model of higher education institutions. The proposed tax rates would increase the TCJA rate by up to 15-fold, with the brackets spanning the current 1.4 percent of net investment income for private institutions with $500 thousand - $750 thousand in endowed assets per student, 7 percent for those with funds between $750 thousand - $1.25 million per student, 14 percent for those with funds between $1.25 million -$2 million per student, and up to 21 percent for those with $2 million or more in endowed assets per student.2 The chart below presents the most recent data from the 2024 NACUBO-Commonfund Study of Endowments, illustrating the number of institutions that would be categorized within each proposed tier. 

CHT-Number-Insitutions

Taxes on Private Foundations

Among other changes to the charitable sector, the House bill proposes an increase in the tax on net investment income for certain private foundations. The tiers proposed are as follows:

  • Less than $50 million remains at 1.39 percent (note: this is the current excise tax rate on net investment income of private foundations)
  • Between $50 million and $250 million: 2.78 percent
  • Between $250 million and $5 billion: 5.00 percent
  • More than $5 billion: 10.00 percent

As our partners at the Council on Foundations aptly summarized: “Increasing taxes on private foundations means fewer dollars to charitable organizations, from food pantries to disaster relief groups.” You can find their analysis and list of related resources here.

Governance and Investment Implications

Boards and investment committees will need to conduct a thorough assessment of their investment policies and strategies, including asset allocation, rebalancing, and spending, as well as various liquidity scenarios. For those facing immediate tax and budget implications, difficult decisions will likely have to be made – institutions impacted by funding cuts this year have already seen sweeping changes, from mass layoffs and program cuts to major portfolio shifts to bolster liquidity. Beyond tax changes, strategic governance and leadership frameworks (such as Commonfund’s Crisis Playbook) can help institutions navigate the breadth of shifts and challenges facing these segments.

Commonfund Institute will continue to monitor these developments and provide resources to you and your institution. To receive these updates, please subscribe to our Insights blog.

To learn more about developing a crisis framework and the most important investment decisions facing nonprofit institutional investors, register to join us for the upcoming Investment Stewardship Academy, a 3-day intensive training for fiduciaries being held at Yale University from June 8-11th. 

Investment Stewardship Academy Join this three-day program designed for institutional investors who are responsible for stewarding long-term capital.  

 

  1. Policy Areas Impacting Endowments and Foundations Today; 5 Policy Areas Impacting Endowments and Foundations Today
  2. The current and proposed taxes apply to private institutions with more than 500 FTE students and exempts qualified religious institutions.
  3. *NII = Cash Dividends + Interest Income + Rental Income + Realized Short- and Long-Term Capital Gains + Royalties
Amanda Novello

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Amanda Novello

Senior Policy and Research Analyst

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.