Emory braces for a big tax increase on endowment after Trump bill

Emory, which paid roughly $9 million last year for the “endowment tax,” expects its rate will triple to 4%. An analysis from the American Enterprise Institute estimates that Emory will pay $26 million next year and nearly $150 million over five years.

The Atlanta university uses its endowment to finance research, fund scholarships for low-income students and provide health care at community hospitals across Georgia. Emory’s endowment is valued at about $11.5 billion, the largest private university endowment in the state.

“When a nonprofit private university is taxed, the people who suffer are those we serve,” two university officials wrote last week in a brief outlining how the tax increase would impact the school. “One of Emory’s most essential engines, the endowment quietly powers progress that reaches far beyond our campuses and health care facilities.”

Emory’s healthcare system includes more than 3,800 physicians at nearly 600 provider locations statewide.

Some small private universities like Berry College in Rome have caught a break; after previously paying 1.4%, they’ll no longer be taxed on their endowment thanks to the U.S. Senate making an exemption for schools with less than 3,000 full-time students.

Large university endowments have come under increased scrutiny in recent years, particularly from Republicans. As a U.S. senator in 2023, now Vice President JD Vance proposed a bill to increase the endowment tax to 35%. And in May, Republicans on the House Ways and Means Committee voted for a rate as high as 21%. The measure, they said, would “hold woke, elite universities” to account by “ensuring they can no longer abuse generous benefits provided through the tax code.”

Endowments are a collection of funds a university uses to fulfill its long-term educational mission, providing financial stability when other revenue sources fluctuate, such as enrollment or state funding. Most of those funds, however, are restricted. “Donors will give them to a university for a specific purpose, and they cannot legally be spent freely,” said Sara Partridge, associate director for higher education policy at the Center for American Progress.

Emory’s endowment consists of over 2,400 individual endowed funds, each with a particular purpose. For instance, the donations may be designated for a professorship, to build a new library or support an academic department.

But much of the money is earmarked for students. A 2024 analysis by the National Association of College and University Business Officers found the largest share of endowed funds, 48%, went to financial aid. Colleges with large endowments tend to offer generous financial aid packages for low-income students. With an increased tax, Partridge said schools will have fewer resources to help students who can’t afford the full cost of attendance.

Donors may be less willing to give money, fearing the tax could increase in the future. “If you’re giving money for a scholarship and the proceeds get taxed, it means there’s just less money for that scholarship,” said professor Robert Kelchen, who researches higher education finance at the University of Tennessee.

The Internal Revenue Service does not specify what funding source universities must use to pay the tax. But whether schools pull the money directly from the endowment or elsewhere in their operating budget, “they draw from the same general pool of resources that allow the university to educate students, conduct research, and offer services to surrounding communities, both now and in the future,” said Partridge.