Trump Signs Spending Package Into Law, Imposing 8% Tax on Harvard’s Endowment Income

President Donald Trump signed into law a sweeping tax and spending package that significantly raises the federal excise tax on Harvard’s endowment income on Friday — a move that could cost the University more than $200 million a year.

The legislation, dubbed the “One Big Beautiful Bill,” raises the endowment tax rate from 1.4 percent to as high as 8 percent for the wealthiest private colleges and universities. The top rate applies to institutions with more than $2 million in endowment assets per domestic, tuition-paying student — a threshold Harvard exceeds by a wide margin.

The signing caps years of sustained political pressure targeting Harvard’s wealth. Since the tax was first enacted in 2017, lawmakers — primarily Republicans — have floated increasingly aggressive proposals to rein in what they characterize as excessive, untaxed endowment gains at elite universities. Until now, none had passed a chamber-wide vote.

The bill’s passage is not Harvard’s worst-case scenario — the 8 percent tax is less than half the rate originally proposed by the House. But under the new law, Harvard could still see a fivefold increase over its current tax burden under the 1.4 percent rate, which was set to expire at the end of this year.

With more than $2.9 million in endowment assets per student and a total endowment of more than $53 billion, Harvard is expected to fall into the highest tax bracket. The tax applies not to the endowment’s total value, but to its annual investment income — which totaled $2.5 billion in fiscal year 2024.

The change is expected to significantly strain Harvard’s finances. Endowment distributions made up 37 percent of the University’s operating revenue in fiscal year 2024 — the largest single funding source. Because nearly 80 percent of the endowment is restricted by old agreements and donors’ conditions, the tax burden will fall heavily on the small portion of flexible funds used for core expenses like financial aid, faculty salaries, and research.

A Harvard spokesperson did not respond to a request for comment on how the University plans to adjust to the new tax burden. Possible responses could include cutting expenditures through layoffs or program reductions, reducing the annual endowment draw, or reallocating unrestricted funds away from long-term initiatives.

Schools at Harvard have also been examining how to free up restricted funds since well before Trump took office. And in 2020, under financial pressure from the Covid-19 pandemic, Harvard made 3 percent of restricted funds available for immediate use.

The new tax takes effect immediately and will apply to the current fiscal year, which began on July 1.

The legislation — a controversial omnibus package including Medicare cuts, bans on funding for gender-affirming care and Planned Parenthood, and expanded military spending — passed the House on Thursday by a 218-214 margin, with only two Republicans voting no. It cleared the Senate on Tuesday in a 51-50 vote, with Vice President JD Vance casting the tie-breaking vote. Trump signed the bill at a ceremonial Independence Day event at the White House on Friday, flanked by senior Republican lawmakers and top administrative officials.

Though the final version represents a compromise from the original House proposal, which sought a 21 percent top tax rate, the bill still introduces a substantial, and lasting, federal intervention into Harvard’s finances.

It includes a tiered structure: 8 percent for endowments over $2 million per student, 4 percent for those between $750,000 and $2 million per student, and 1.4 percent for those between $500,000 and $750,000. Institutions are only subject to the tax if they enroll at least 3,000 tuition-paying students, at least half of whom must reside in the U.S.

Harvard is one of a small number of institutions — alongside Yale University, Princeton University, Stanford University, and the Massachusetts Institute of Technology — that will face the highest tax rate under the law.

Harvard officials have long argued that taxing endowment earnings could undermine core academic priorities, including financial aid, research, and faculty support. Harvard spent $230,000 on federal lobbying in the first quarter of 2025 — its largest quarterly total since 2008 — with $90,000 paid to Ballard Partners, a prominent lobbying firm with close ties to the Trump administration.

Much of Harvard’s lobbying activity focused on endowment taxation, student aid, and research funding, according to federal disclosures.

Earlier versions of the legislation would have excluded international students from the per-student endowment calculation — a change that would have sharply increased the apparent wealth of institutions, like Harvard, with large foreign student populations. Because Harvard is already in the highest tax tier, the provision would not have altered what it owed. It was ultimately removed by the Senate following procedural challenges under the rules of budget reconciliation.

The legislation marks yet another nightmare scenario for Harvard officials, who have scrambled for months to put out political fires in Washington. Since April, the University has faced mounting pressure from both Congress and the White House — including the freezing of nearly $3 billion in federal research funding, threats to revoke its tax-exempt status, and repeated efforts to block its ability to enroll students supported by foreign governments.

But among the barrage of attacks, the endowment tax has been a chronic source of concern. At a faculty meeting in April 2024, Harvard President Alan M. Garber ’76 described the prospect of a higher endowment tax as “the threat that keeps me up at night.”

The tax hike has long been a policy priority for Republican lawmakers, who have accused elite universities of amassing untaxed wealth while receiving generous federal support. Vance — then a senator from Ohio — introduced legislation in 2023 to increase the endowment excise tax to 35 percent and eliminate several tax benefits for wealthy institutions as part of a broader push to “hold elite institutions accountable.”

On the campaign trail, Trump repeatedly championed an endowment tax hike as a way to punish elite institutions like Harvard. In a 2023 video, he vowed to fund a new online “American Academy” using money from taxing, fining, and suing wealthy schools, directly citing pro-Palestine protests at Harvard.

The endowment tax is just one of several provisions in the nearly 940-page bill with implications for Harvard. The legislation eliminates the federal Grad PLUS loan program and caps Parent PLUS loans at $65,000 per student — changes that could reduce access to graduate education and limit borrowing options for low-income families. It also consolidates student loan repayment plans and eliminates key borrower protections, including deferment for economic hardship and unemployment.

The bill also ties access to federal student aid to graduates’ earnings. Under the new accountability framework, programs whose graduates earn less than the median income of a high school graduate risk losing federal loan eligibility.

Those provisions are scheduled to take effect beginning July 1, 2026.

—Staff writer Dhruv T. Patel can be reached at dhruv.patel@thecrimson.com. Follow him on X @dhruvtkpatel.

—Staff writer Grace E. Yoon can be reached at grace.yoon@thecrimson.com. Follow her on X @graceunkyoon.