Impact of the One Big Beautiful Bill Act on Colleges
Introduction
Despite the approval of the One Big Beautiful Bill Act by President Trump on July 4th, certain colleges won’t face an increased endowment tax next year. This tax and spending bill, while raising the endowment tax significantly for many institutions, offers an exemption to schools with fewer than 3,000 tuition-paying students.
Exemption for Smaller Colleges
The College, benefiting from this exemption, avoids a hefty 4% tax on its endowment. In the bill, non-exempt schools with endowments between $750,000 and $2 million per student face this rate. With an endowment averaging $1.8 million per student, the College is thankfully exempt for now. Currently, it endures a 1.4% tax, a far cry from what could have been a drastic increase.
Previous Concerns and Lobbying Efforts
Earlier drafts of the bill were more severe. A version from the House of Representatives suggested a 14% tax on the College’s endowment. Predictably, this raised significant concerns. In June, the College estimated needing to slash $30 million from its operating budget next year, nearly 10% of its planned expenditure.
To address these challenges, the College enlisted two lobbying firms to advocate against the endowment tax hike. President Maud S. Mandel confirmed this proactive step. The New York Times highlighted Hillsdale College’s lobbying for the small-colleges exemption. This effort succeeded following a Senate parliamentarian ruling against an exemption for religious schools due to rule violations.
Financial Precautions and Adjustments
Although the College dodges an immediate tax hike, financial adjustments remain necessary due to broader shifts in policy. The College plans to extend its Ad Hoc Financial Planning Group. Inclusive discussions will engage the entire campus community to face future uncertainties.
Expected impacts include a potential $6 million loss from reduced federal research grants and financial aid. Capital projects and the operating budget could see a 3% cost increase. A budget document suggests possible responses to upcoming challenges: hiring freezes, reduced capital renewal spending, and cuts to budgets for dining and academic departments.
Implications for Larger Institutions
Other prestigious universities like Yale, Harvard, and Princeton weren’t as fortunate. Their per-student endowments exceed $2 million, subjecting them to an 8% endowment tax. Yale’s president has estimated this might cost the university $280 million next year.
New Legal Challenges
Despite dodging the tax hike, the College faces additional legal challenges. A new rule prevents schools from accepting grants from the National Science Foundation and National Institutes of Health if they promote diversity in violation of federal antidiscrimination laws. Consequently, the College paused its grant applications to assess compliance with this requirement.
Conclusion
The College’s leadership, including President Maud S. Mandel and others, continue monitoring this evolving situation. Updates shall emerge as new developments occur. Stay tuned for further insights on how these changes may unfold.
