University investment taxes primarily pertain to the taxation of endowment income for certain private nonprofit colleges and universities. These taxes were introduced as part of the 2017 Tax Cuts and Jobs Act (TCJA) and designed to target institutions with significant endowment assets.

Endowments are typically used to supplement tuition and fees; support research, public service, and other institutional activities; and provide a financial cushion against cyclical pressures and revenue disruptions.

Unlike university endowments, private foundations are also subject to an excise tax on their net investment income, but the rate is generally 2%. Private foundations are funded by a single or small group of donors, whereas university endowments accrue from multiple sources over time.

The 2017 TCJA imposed a 1.4% excise tax on the net investment income of certain private nonprofit colleges and universities. This tax applies to institutions that:

• Enroll at least 500 students.
• Have endowment assets exceeding $500,000 per student.
• The $500,000 threshold is not indexed for inflation, meaning it remains static over time.

In 2022, this tax raised $244 million from 58 institutions. These institutions represent a small subset of the approximately 1,600 private nonprofit and 700 public four-year institutions in the U.S.

While U.S. higher education institutions collectively hold over $500 billion in endowment wealth, approximately 23 institutions hold 50% of these assets. This concentration of wealth has made these institutions the primary targets of the tax.

2025 Update: Under the One Big Beautiful Bill Act, universities with large endowments face a higher tax on their investment income. The new law applies to private non-profit institutions of higher education that enroll at least 3,000 students—up from the previous threshold of 500 students. It sets new tax rates on net investment income at three different tiers:

• Endowments between $500,000 and $750,000 in assets per student will be taxed at the current rate of 1.4 percent.
• Endowments between $750,001 and $2 million per student will be taxed at a rate of4 percent.
• Endowments above $2 million per student will be taxed at a rate of 8 percent. This falls in between private foundations, which pay 1.39 percent, and corporations, which pay 21 percent.

The tax on endowment income has sparked debates about equity and the role of wealth in higher education. Critics argue that the tax disproportionately affects institutions with large endowments, while proponents see it as a way to ensure these institutions contribute to public revenue.