Some colleges have billion-dollar endowments - and now the GOP wants to tax them for it

AP Photo/Steve Helber

It's a big change from the current system. Liberty University's 2017 graduation is pictured.

• House GOP leaders released sweeping tax legislation on Thursday.
• Colleges and universities will pay a 1.4% excise tax on their endowment investment income if the "Tax Cuts and Jobs Act" is passed.
• It's a big change from the current system, where college endowments are not taxed.

College and university endowments will be taxed under the proposed "Tax Cuts and Jobs Act," released by House GOP leaders Thursday.

Under the proposed sweeping legislation, private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Small colleges will be exempt from the tax.

That's a big change from the current system, where colleges aren't taxed on their endowment earnings because they're nonprofit institutions.

It's a benefit some higher-education experts have argued should be reevaluated, as universities can grow their endowments with the help of in-house private equity managers - sometimes by huge margins. President Donald Trump also previously criticized colleges on the issue. "Universities get massive tax breaks for their massive endowments," Trump said last year.

For fiscal year 2017, college endowments with more than $500 million had a median investment gain of 13.3%. For endowments of all sizes, that gain was 11.3%

The top 10 university endowments by size hold an unbelievable amount of wealth. Harvard University's endowment had an 8.1% increase in 2017, bringing it to $37.1 billion. Yale University had an 11.3% increase, bringing it up to $27.2 billion.

Colleges and universities will likely balk at such requirements, as it collectively places billions of dollars of endowment funds at stake.

When similar proposals have been mentioned in the past, colleges have pushed back.

"University endowments pay for student financial aid; faculty salaries and benefits; much of the research, teaching and learning they all do; and the infrastructure that makes it all possible, including libraries, computers, museums, and lab equipment," a spokesperson from Harvard told Business Insider in 2015.