Fed’l endowment tax discussion worries some Indiana colleges
The Trump Administration’s plan to heavily tax some private university endowments under the sweeping “One Big Beautiful Bill Act” is largely crafted to target the elite schools, such as the Ivy Leagues . . . but other colleges fear they could be swept in too, including a few Indiana institutions.
National political media picked up a trend of an uptick in university lobbying (and lobbying spending) in the nation’s capital since President Donald Trump (R) took office. Of particular interest is the emergence of small liberal arts colleges around the country hiring their own lobbyists for the first time, as some of these small private schools may be affected by the latest policies largely aimed at the Ivy Leagues, including the federal endowment tax changes.
Wabash College – sometimes referred to as the “Harvard of the Midwest” – secured an outside lobbyist for the first time ever, retaining Barnes & Thornburg (which has handled legal work for the school) to lobby for the small school on the Hill in Washington.
The latest version of the massive tax package passed by the U.S. House early Thursday morning (in a nail-biting 215-214 vote) creates a new tiered system for taxes on private university endowments, starting at the current rate of 1.4% for universities that meet the threshold of a $500,000-$750,000 endowment spend per student to as high as 21% for a student-adjusted endowment above $2 million.
Wabash sits just on the cusp of the $500,000 threshold, which is a little too close for comfort in President Scott Feller’s eyes, as Trump and GOP lawmakers in Washington this year began looking at significant changes to the federal endowment tax. President Feller tells us he fears Wabash, which boasts around 800 students and relies heavily on its endowment for student aid, could be swept up in the fallout of the anti-higher education rhetoric.
Talk of potentially expanding the endowment tax threshold to below $500,000, or raising the lowest rate to higher than 1.4%, was the main driver for Wabash to want to “tell its story” on Capitol Hill.
“We’ve heard numbers like 14%, 21%, even 33-35%, and so for a college like Wabash, a rate like that, once we passed that $500,000 per student threshold, would have been devastating,” President Feller details. “So, we really needed to tell that story. We, in particular, felt that our story might be different from the more elite institutions that have endowments in the 10s of billions of dollars.”
The number of schools subject to the tax varies annually, depending upon factors such as student enrollment and the size of their endowments. In 2023, only 56 institutions paid the tax currently in place since 2017, contributing a total of $381 million, according to Internal Revenue Service data.
Just three schools, to our knowledge, in Indiana fall under the endowment tax, based on how large their endowments are – the University of Notre Dame, DePauw University, and Earlham College. But Notre Dame and Earlham are exempt from paying the tax because of a carve-out in the legislation for religious schools.
Since endowments can fluctuate, Wabash could soon pass the $500,000 threshold, so it was in the college’s best interest, Dr. Feller explains, to advocate for itself.
The debate over the endowment tax is unfolding alongside broader tensions between the Trump Administration and higher education institutions. As we have been detailing, the administration has cut billions in grant funding to universities, citing concerns over diversity, equity and inclusion programming as well as antisemitism on campuses.
Some of those sentiments crossed over to the state level as well. Back in Hoosier country, at least Indiana’s public universities are taking some hits legislatively. As you may know, public higher education institutions took a haircut in the coming state budget and saw a swath of new higher ed-related laws dealing with tenure reviews and new degree graduation thresholds as a means to cut back on degree programs in the state.
With all that in context, President Feller divulges to your favorite education newsletter, “I’ve chosen to be much more active in government relations work this year.”
He continues, “You know, I think larger institutions tend to have a more robust governmental relations, who are out there telling their story, and they’re telling their story to, obviously, to elected officials, but also to policy makers in the State House or at the Federal level. And I have felt that us not telling our story puts us at peril.”
You should note that Governor Mike Braun (R) and Attorney General Todd Rokita (R) are Wabash alums.
Under the latest “One Big, Beautiful Bill,” the New York Times estimates that roughly 58 colleges and universities could be affected by the new endowment tax tiers, and nine schools, including Harvard University and Yale University, would be subject to the highest tax tier of 21 percent.
As we mentioned, among those 58 schools the Times expects to fall under the tax is DePauw University. The university sits just within the $500,000 threshold, reporting a $660,000 per student endowment, according to the Times.
DePauw, so far, has not taken the Wabash approach in hiring its own outside lobbyist, but is working with a group of small colleges to lobby lawmakers. Earlham College would also fall under the tax, as its per student endowment sits within the lowest threshold at $655,000, according to the college’s website, but for the religious exemption the Quaker school enjoys.
The Independent Colleges of Indiana generally lobbies on behalf of the state’s independent institutions and works with their outside lobbyists, if they have them. ICI partners with the National Association of Independent Colleges & Universities to lobby on federal issues. ICI President Dottie King – herself the former president of St. Mary-of-the-Woods College – tells us she is unaware of any other increased lobbying efforts from members . . . and did not divulge further what ICI is doing in terms of following the latest endowment tax developments.
Nationally, according to POLITICO, at least five of U.S. News & World Report’s top 20 liberal arts colleges recently hired lobbyists for the first time, including Williams College, Pomona College, Claremont McKenna College, Davidson College, and Washington and Lee University.
However, some of the smaller colleges with religious affiliations could see some reprieve, as the bill, as it passed the House, exempts religious colleges from the endowment tax, as it did in 2017 when the current 1.4% tax went into effect. But what exactly qualifies a school as “religious” seems to be a little unclear.
This carveout notably saves Notre Dame from paying the endowment tax. Notre Dame’s $17 billion endowment is the nation’s ninth-largest among universities and would put the South Bend Catholic institution in the highest tier to be taxed at 21% in the “One Big, Beautiful Bill.” That would hike Notre Dame’s annual tax to almost $3.6 billion.
Perhaps such an exemption can be viewed as deliberate, as a way to protect Notre Dame specifically, since it’s the only religious school that could be pulled out from the same tax category as the Ivy League schools.
As the Boston Globe Editorial Board writes this week, “if there were any example of the naked politics behind it, one only has to look at a proposed new tax exemption for religious colleges – a carveout that could save the University of Notre Dame from paying the endowment tax.”
However, Notre Dame, as of late, hasn’t exactly been exempt from scrutiny from the Trump Administration, nor Indiana Republicans. In March, we told you the U.S. Department of Education launched an investigation into Notre Dame and 51 other universities, accusing the schools of using “racial preferences and stereotypes in education programs and activities.”
And just last week, Attorney General Rokita sent a letter to Notre Dame questioning the university’s DEI policies and practices. He suggests those policies, as espoused in the university’s Notre Dame 2033: A Strategic Framework, may potentially violate federal and state civil rights laws and the terms of the university’s nonprofit status. General Rokita states that the policy in question suggests “that Notre Dame may treat students, prospective students, faculty, staff, and job applicants differently based on race or ethnicity; employ race in a negative manner when making admissions or hiring decisions; or utilize racial stereotyping.”
With that in mind, Notre Dame’s favor among conservative policymakers could be faltering a little, and the university appears to be somewhat aware of that. WVPE 88.1 FM in South Bend, back in April, reported “Notre Dame is especially worried about a proposal to dramatically increase the endowment tax.”
Notre Dame in the first quarter doubled its lobbying expenditure on Capitol Hill, too, compared to its Q1 spending in 2024. The university spent $110,000 on lobbying in Q1 of 2024 and spent $210,000 in Q1 this year – the most it has ever spent in a single quarter, according to its first quarter lobbying report.
One of the specific lobby topics noted in the filing is the “proposed endowment tax provisions and related issues,” along with various research and student aid issues.
On the endowment tax issue, Notre Dame tells us in a statement:
From its founding, the University of Notre Dame has been animated by its distinctive mission as a Catholic university. We rely on the generous support of donors to advance this distinctive mission, with more than 40 percent of the University’s endowment going toward need-based student financial aid. Another 40 percent provides vital support for faculty positions and research centers and institutes tasked with addressing some of humanity’s most pressing challenges. We are grateful that Congress has recognized the unique and important contributions of faith-based institutions like ours, and we look forward to working with members as the current legislation moves forward.
The “One Big Beautiful Bill Act” next heads to the U.S. Senate to be scrutinized. Considering how narrowly it squeaked by the House, you can likely expect more changes to it before the measure crosses the finish line in the other chamber. Senate Republicans are already “vowing they will make changes,” Politico reports Thursday.
While the endowment tax is just one piece of the massive tax and spending bill, more tweaks could be ahead.