In a move stirring debate in the world of higher education, a recent federal spending bill backed by the Trump administration proposes significant changes to how universities are taxed, dramatically increasing taxes on wealthy universities’ endowments while offering large exemptions for religious colleges. The legislation, introduced amid escalating tensions between the Trump administration and Harvard University, is reshaping the financial landscape for American colleges and universities.
Rising Tensions with Harvard
The Trump administration has intensified its conflict with Harvard University over allegations of divisive policies and perceived bias. As part of this ongoing dispute, the administration froze approximately $2.3 billion in federal grants and contracts to Harvard, including a $100 million cut to research and training agreements. This freeze significantly impacts Harvard’s federal funding, adding to concerns about the university’s financial stability.
Further escalating the situation, the Department of Homeland Security (DHS) revoked Harvard’s authorization to enroll international students, citing compliance issues. However, a federal judge temporarily blocked this action, allowing Harvard to continue enrolling international students pending further review.
The “One Big Beautiful Bill Act” and Endowment Tax Hikes
Amidst this backdrop, the Trump administration has introduced the “One Big Beautiful Bill Act,” a broad federal spending measure with several provisions impacting education. One of its most notable features is the proposed tax hike on endowment income for wealthy universities.
Currently, large universities with endowments above a certain threshold pay a 1.4% tax on their net investment income. The new bill seeks to increase this tax dramatically to 21%, a move that would hit elite institutions such as Harvard, Yale, and Princeton the hardest. Experts estimate this change could cost these universities hundreds of millions of dollars annually, forcing many to reconsider their investment strategies and funding allocations.
This tax hike is presented as a way to make wealthy universities contribute more to the public good, addressing long-standing criticisms about the growing wealth gap in higher education. Still, many critics argue it unfairly targets certain institutions and could lead to reduced financial aid and research funding.
Religious Colleges Exempted
Perhaps the most controversial element of the bill is its carve-out exemption for religious colleges. While large secular universities face this steep tax increase, religious institutions are spared from the higher endowment tax. This exemption has sparked accusations that the administration is favoring colleges aligned with its ideological beliefs.
Religious colleges, many of which have smaller endowments and different funding structures, stand to benefit from this exemption. Supporters argue this provision protects religious freedom and supports institutions that might otherwise struggle with increased tax burdens.
Opponents counter that exempting religious colleges creates an uneven playing field, undermining fairness in higher education funding and potentially encouraging the politicization of financial policy.
Broader Implications for Higher Education
If passed, this spending bill will reshape the financial environment for many universities across the United States. Elite secular universities may see their endowment income substantially reduced, potentially impacting scholarships, faculty hiring, and research programs.
Meanwhile, religious colleges could gain a financial advantage, enabling them to expand or invest more aggressively. This shift may influence student enrollment patterns and institutional priorities over time.
The bill is currently under review by the Senate, where lawmakers from both parties are debating its merits and potential consequences.