Update on Endowment Tax Legislation

Dear Campus Community Members,

Last week, President Trump signed into law H.R. 1, a massive federal tax and spending bill that will have far-reaching implications, many of which policymakers and analysts are still debating. My purpose in writing is to update you on how this new law affects the tax on college and university endowments and share some positive developments on this front for Swarthmore and other small colleges. 

As I’ve stated in the past, the endowment tax was enacted in 2017. The formula used resulted in about 55 colleges and universities paying a 1.4% tax on endowment earnings. For Swarthmore, that translates to an average of approximately $2 million per year. Earlier this year, the House passed a version of H.R. 1 that would have raised that amount to roughly $20 million — or even $30 million — a year. Though the Senate ultimately proposed more modest increases, their initial version of the bill would still have significantly expanded Swarthmore’s tax burden.

When I last wrote to you on this topic, I shared that members of our senior staff and others were working to influence the final language around changes to the endowment tax with the goal of minimizing its negative impact on Swarthmore. We partnered with other small colleges facing similar challenges. We met with lawmakers and their respective staffs in Washington, D.C. We held information sessions with you and alumni and conducted numerous media interviews to help the broader public understand the critical role our endowment plays in our ability to carry out our mission.

I have no doubt that these efforts contributed in some way to the fact that the final legislation signed by the president exempts small colleges with fewer than 3,000 students from the tax. In other words, not only will Swarthmore avoid paying an increased tax, but, beginning in 2026, the College will be exempt from paying the 1.4% tax that we’ve been subject to the past several years. Setting aside all of the other aspects of the bill, this is a successful outcome for us. I am grateful that members of Congress recognized the important role endowments play at small colleges such as Swarthmore.   

With that said, we must remain diligent. The endowment tax in the final bill represents a substantial increase for many other colleges and universities, and while the bill exempts Swarthmore from the tax for now, Congress could revisit the exemption in subsequent legislation at any time. We will plan accordingly, including by continuing to work with lawmakers to reinforce the ways students benefit from our endowment. 

In May, the Board postponed adopting a full annual operating budget to better understand how the endowment tax and other federal actions might affect the College’s finances. With the endowment tax settled, at least for now, the Board will return to the budget discussion in September better positioned to weigh its implications alongside other financial pressures facing the College, such as those related to enrollment, financial aid, and research funding.

Beyond the endowment tax, we — and higher education broadly — continue to face a range of other challenges from federal actions, from the safety and security of our community members who are not U.S. citizens, to academic freedom and inquiry, to our ability to cultivate a diverse and inclusive community. As we move forward, we will hold true to the guiding principles I shared with you this spring: 

  • We will continue to hold paramount the safety and well-being of our students, faculty, and staff members.
  • We will defend academic freedom and the rights of individuals to engage in research, creative pursuits, and the exploration and interrogation of new ideas and perspectives without fear of punishment or retribution.
  • We will continue to foster a diverse and equitable community, recognizing that engaging with people who hold different ideas, identities, and backgrounds advances academic excellence, enriches our experiences, and broadens our perspectives.
  • We will continue to comply with the law and do so without preemptively adhering to changes in federal policy that undermine our mission.

Thank you for your attention to these matters. I know we will continue to discuss these and other issues this academic year. In the meantime, I hope you can find time for some rest, restoration, and joy with family, friends, and loved ones this summer. 

My best, 

Val