The wealthiest universities' endowment tax rate just jumped from 1.4% to 8%
Summary
The 2025 reconciliation law replaced a flat 1.4% tax on university endowment investment income with a three-tier structure topping out at 8% for the richest schools. About 20 universities are expected to owe the tax in 2026, and the wealthiest among them — Harvard, Yale, Princeton, Stanford, and MIT — could each pay north of $1 billion over five years.
Follow the rate
The tax applies to private, tax-exempt colleges with at least 3,000 tuition-paying students and endowment assets above $500,000 per student — both thresholds tightened by the same law that raised the rates (the student-count floor alone rose from 500 to 3,000). What used to be a single flat rate for every school above that line is now three separate brackets.
View data as table
| $500K-$749K per student | 1.4% | excise tax rate on net investment income |
|---|---|---|
| $750K-$1.99M per student | 4% | excise tax rate on net investment income |
| $2M+ per student | 8% | excise tax rate on net investment income |
Schools in the bottom bracket — $500,000 to $749,999 per student — still pay the old 1.4% rate. But schools with $2 million or more per student now pay 8%, nearly six times the previous flat rate. Harvard, Yale, Stanford, Princeton, and MIT are all expected to land in that top bracket in 2026. The Joint Committee on Taxation projects the rate overhaul will raise about $761 million in net additional federal revenue over 10 years — real money, but a fraction of what individual top-tier schools now owe in a single year.
The same system, counted in one school's bill
A tax bracket is an abstraction until it lands on a real budget. For the handful of schools in the top tier, the new rate is not a rounding error.
View data as table
| Harvard | $368M | estimated first-year tax bill |
|---|---|---|
| Yale | $280M | estimated first-year tax bill |
| Princeton | $217M | estimated first-year tax bill |
| Stanford | $202M | estimated first-year tax bill |
Harvard's estimated first-year bill alone, $368 million, is nearly half the entire law's projected 10-year net revenue gain. Yale, Princeton, and Stanford each face bills in the $200-280 million range, and the American Enterprise Institute projects that Harvard, Yale, Princeton, Stanford, and MIT could each pay more than $1 billion apiece over five years. Several of these schools have already cited the tax among the reasons for hiring freezes and budget cuts announced in the months since the law passed. Fewer than 30 institutions nationwide meet both the asset and enrollment thresholds today, though endowment growth outpacing enrollment growth could pull a few more — Cornell, Carnegie Mellon, and Holy Cross among them — over the line within five years.
The takeaway
- The rate didn't just rise — it became progressive. A flat 1.4% tax is now a three-tier structure that reserves its steepest rate, 8%, for a small number of the wealthiest schools per student, not endowment size alone.
- A handful of schools carry almost the entire tax. Fewer than 30 universities meet both thresholds, and just five of them — Harvard, Yale, Stanford, Princeton, and MIT — could each owe more than $1 billion over five years.
- The federal revenue gain is modest; the institutional impact isn't. $761 million in projected 10-year federal revenue is small by federal budget standards, but it's already reshaping hiring and spending decisions at the individual universities paying it.
Tax-tier figures reflect the law as enacted; individual school liabilities are estimates based on publicly reported endowment and enrollment data and may differ from what schools actually remit. The $761 million revenue estimate is the Joint Committee on Taxation's projected net change versus prior law, not the tax's total collections.
Sources
- Faegre Drinker, "College and University Endowment Tax in the OBBBA" — the three-tier rate structure and eligibility thresholds. faegredrinker.com
- NACUBO, "Major Reconciliation Bill Becomes Law, With New Policies and Taxes for Higher Education" — summary of the law's higher-education tax provisions. nacubo.org
- American Enterprise Institute, "How Much Will Universities Pay in Endowment Tax?" — the ~20-institution estimate for 2026 and per-school first-year tax bill projections. aei.org
- CNBC — the 8%-tier school list (Harvard, Yale, Stanford, Princeton, MIT) and 4%-tier schools. cnbc.com
- Christian Science Monitor — universities' responses to the tax hike, including hiring freezes and budget cuts. csmonitor.com
- PBS News — reporting on hiring freezes and potential financial-aid cuts tied to the tax. pbs.org
- Tax Notes Federal — the Joint Committee on Taxation's $761 million 10-year revenue estimate. taxnotes.com
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Since 2018, a small number of wealthy private universities have paid a flat 1.4% excise tax on their endowment investment earnings. Starting with tax years after December 31, 2025, that flat rate is gone — replaced by a structure that scales sharply with how much money a school has piled up per student.