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How Much Are Most Colleges Paying in Endowment Tax?

By Rick Seltzer

Colleges and universities generally aren't happy about the endowment tax, but many are paying less than the tens of millions of dollars reported by the country's wealthiest universities, a review finds. And even those ultra-wealthy universities might end up paying substantially less.

It has been more than two years since President Trump signed into law a controversial new tax on net investment income at wealthy colleges and universities — the so-called endowment tax. Since then, a few large universities have made headlines as they for the first time reported eight-figure endowment tax liabilities. Stanford University received attention for its $42.9 million estimated tax liability last week. A few months earlier, Harvard University grabbed headlines with a $37.7 million tax bill.

Spending from endowments has inched up in recent years, according to NACUBO data, even though long-term capital market assumptions suggest investors should expect lower returns in the future than what they’ve experienced in the past.

Spending has increased most notably at small and midsize institutions, said Debashis Chowdhury, president and an investment consultant at Canterbury Consulting, in an email. But reported returns for institutions of different sizes suggest returns were clustered relatively narrowly in recent years.

Only 46 out of 780 NACUBO respondents reported an endowment value of more than $500,000 per full-time-equivalent student in 2019, Chowdhury pointed out. “So that is less than 6 percent of the overall universe subject to that new tax,” he said. “Maybe that’s the story.”


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