After a narrow party-line vote in the House Thursday, President Trump signed off on his signature legislation, a sprawling, expensive domestic-policy bill, by his self-imposed July 4 deadline.
To fund the extension of roughly $3.8 trillion in tax cuts made during Trump’s first term, the bill will add $3.3 trillion to the national debt over the next decade while making steep cuts to Medicaid and other social services. Low-income Americans will be especially hard-hit, analyses show.
The bill contains some bitter pills for higher ed, too: an increased excise tax on the endowment income of wealthy colleges, penalties for institutions that fail to deliver an earnings bump to their graduates, and the elimination of Grad PLUS loans.
But while advocates for the sector and its students decry those provisions, they may have dodged more damaging bullets. Republicans passed the bill through the reconciliation process, with the Senate making significant changes to the version first approved by the House before sending it back to the lower chamber Tuesday for a final vote. In many cases, the Senate softened provisions in the House bill that had raised alarms across the sector. The Senate retained the House’s broad plan to raise the endowment tax, for example, but it limited the extent of the hike and opened up loopholes for small institutions.
There are still a lot of concerns about the Senate bill, but they did far less to hurt low-income students than what the House would have done.
The Senate bill passed only after a day and a half of floor debate, with Vice President JD Vance casting a tie-breaking vote after three Republican senators joined all Democrats in voting against it. The vote in the closely divided House was similarly tight — 218 to 214 — with Republicans working through Wednesday night to win over members of their ranks who had objected to the bill’s deep Medicaid cuts and its expansion of the national debt. Again, all Democrats voted against the measure, including the House Minority Leader, Hakeem Jeffries, who delivered an hours-long speech delaying the final vote.
Here are the bill’s key ramifications for higher ed:
The Endowment Tax: Less Harsh, With More Loopholes
The bill increases the tax on the endowments of some wealthy colleges, but the Senate version Trump signed is less harsh on institutions than the House version, and a couple of carve-outs affect who may have to pay.
The current endowment tax, enacted in 2018, applies to colleges whose endowments amount to $500,000 per full-time equivalent student (FTE). The net income investment the affected colleges gain each year from their endowments is taxed at a flat rate of 1.4 percent. Only 56 institutions paid the tax in 2023, according to the Internal Revenue Service. The tax does not apply to public colleges, and private colleges with 500 or fewer students are exempt.
The Senate version of the budget bill expands the tax based on the size of private institutions’ endowments and enrollment. Colleges whose endowments amount to between $500,000 and $750,000 per student will still be assessed a 1.4-percent tax. Colleges with endowments of $750,000 to $2 million per student will face a 4-percent tax, and those with endowments above $2 million per student will be taxed at 8 percent. The House version of the bill had asked for higher taxation rates, up to 21 percent.
The Senate bill also expands protection from the tax for smaller colleges, which lobbied hard for such consideration, by raising the enrollment exemption from 500 students to 3,000 students. That’s good news for small, wealthy institutions such as Grinnell College, which has an endowment of $2.67 billion and enrolls about 1,750 students. Grinnell has paid the tax at 1.4 percent since it was introduced, and it would be taxed at 8 percent under the new formula, but for the exception. (A Grinnell spokesperson said the college’s leaders are still reviewing the legislation.)
While the House version of the bill had made religious institutions exempt, the Senate version does not. That carve-out was struck down by the chamber’s parliamentarian, who decided whether each provision met the strict requirements for inclusion in a reconciliation bill, which only requires 51 votes to pass.
The endowment tax is widely unpopular among higher-education leaders. Many leaders and advocates consider the tax a way for Republicans to punish wealthy colleges by threatening core activities such as conducting research and providing student financial aid. Last year colleges spent on average about half of their annual endowment-income draws on the latter, according to an annual survey conducted by the National Association of College and University Business Officers and the Commonfund Institute.
Some lawmakers, however, believe elite colleges hoard their wealth and saddle their students with loan debt. According to a statement to The Chronicle from Rep. David Joyce, a Republican from Ohio: “It is past time to hold them accountable.”
The Senate version of the bill is much better for colleges than the House version, said Brian Flahaven, vice president for strategic partnerships at the Council for Advancement and Support of Education, but “it’s a net negative for higher education.” The number of colleges that will be subject to the tax may shrink, thanks to the expanded exception for smaller institutions, he said. But some wealthy colleges will be taxed at a rate nearly 500 percent higher than the previous rate, affecting their ability to support the research and financial aid for which the funds were donated.
The expanded tax will affect more institutions and cost them more money, but it could have been worse. Some early proposals — including a bill introduced in 2023 by Vance, then an Ohio senator — had called for a top endowment-tax rate as high as 35 percent. The Senate’s version of the bill also allows colleges to count their international students toward their enrollment totals for the purposes of calculating eligibility for the tax. Earlier versions had proposed excluding international students, which would lead to more colleges with large international populations paying the tax.
College leaders have been doing a lot of quick math in recent weeks, sorting out whether they will be subject to the different proposed versions of the new tax. There will be more math down the road, as some institutions figure out how to adapt to the hit to their annual endowment draw, which typically supplements their operating budgets.
Student-Lending Changes Could Have Been Bigger
Lobbyists for the sector and student advocates had expressed deep concerns about the House bill’s changes to financial aid, which struck many as seismic. The Senate bill mitigates many of those fears.
Senators abandoned a House plan to eliminate subsidized federal undergraduate loans. Also out: a House provision that would have required students to take 30 credit hours per academic year to receive the maximum Pell Grant award, and 15 credit hours to be eligible for Pell Grants at all. Community colleges were particularly panicked about the provision.
Other measures in the House bill were shot down by the Senate parliamentarian, the American Council on Education noted, including restrictions on student-aid eligibility for immigrant students and an attempt to apply revised student-loan programs to current borrowers.
Still, the Senate followed through on key tenets of the House’s plan to remake student aid. Grad PLUS loans, which allow graduate and professional students to borrow unlimited amounts, will be eliminated. (Parent PLUS loans, which do the same for parents of undergraduates, will be capped at levels somewhat higher than the House had put forth.) The demise of the 20-year-old Grad PLUS program, and another provision capping loans for graduate and professional students at $100,000 and $200,000, could have a profound impact on students considering graduate education and the colleges that serve them, The Chronicle’s Dan Bauman reported.
After some last-minute wrangling, a plan to make Pell Grants available for short-term work-force training — a rare element of the House bill with bipartisan support — survived the Senate. The parliamentarian had rejected the expansion, but senators sidestepped that ruling by limiting the new work-force Pell Grants to accredited institutions, according to Inside Higher Ed.
“There are still a lot of concerns about the Senate bill, but they did far less to hurt low-income students than what the House would have done,” said Jonathan Fansmith, senior vice president for government relations and national engagement at the American Council on Education.
A Different Spin on ‘Skin in the Game’
The Senate kiboshed a controversial risk-sharing plan introduced in the House bill, which would have forced colleges to kick money into a new pot of federal aid when their students defaulted on federal-loan repayment. Instead, it offered an alternative approach with roots in the gainful-employment rule, a cornerstone of the Obama administration’s accountability efforts.
The Senate-passed plan yanks federal-loan eligibility from programs that fail to deliver an earnings bump to their graduates. Senators tweaked the details in the days leading up to Tuesday’s vote so colleges would be judged on the earnings of their graduates, not dropouts.
Even as it assailed the bill’s budget-busting impact, the philanthropic company Arnold Ventures praised the Senate’s more-tempered versions of lending caps and accountability measures. “Provisions to cap graduate lending and hold programs accountable for poor performance are important steps forward,” Kelli Rhee, president of Arnold Ventures, said in a statement.
