Which Colleges Will Have to Pay Taxes on Their Endowment? Your Guess Might Not Be Right

Richard Rubin and Andrea Fuller:

The Juilliard School, New York’s magnet for aspiring artists, is bracing for a 1.4% tax on income from its $1 billion endowment. Three miles away, Columbia University and its $10 billion endowment will remain untouched for now.

A college-endowment tax, enacted in December in the Tax Cuts and Jobs Act signed by President Donald Trump, is causing confusion and frustration at schools across the country, which rely on the previously tax free-earnings when setting their budgets.

Small liberal arts colleges will likely be hit disproportionately because many have sizable endowments but limited enrollment. The tax applies only to private schools with at least 500 students and at least $500,000 of investments per student.

The change was driven by congressional Republicans, who say colleges building up large, tax-favored endowments should use more of that money to reduce tuition and support low-income students.

Schools have protested the move, saying they often use endowment earnings to provide financial aid and warning that diverting funds to pay the new tax will only make it harder to do what GOP lawmakers want.

The Cooper Union for the Advancement of Science and Art in New York hopes to eventually resume letting students attend without paying tuition, a century-old tradition it abandoned under financial stress in 2014. The college, which expects to pay the tax, currently covers half-tuition for all undergraduates.