How wealthy universities are adapting to a steep endowment tax hike

Princeton University President Christopher Eisgruber has repeatedly lobbied members of Congress to prevent a tax increase on college and university endowments. Instead, when the One Big Beautiful Bill Act was passed last summer, Princeton became one of the few schools whose endowment taxes skyrocketed.

Now, President Eisgruber is preparing his institution for change by preparing to pay an endowment tax of 8 percent on net investment income next year, up from 1.4 percent. He has asked department heads to make budget cuts and says more could be coming. He announced this month that over the next decade, Princeton expects to lose $11 billion in endowment investment revenue.

“Princeton will continue to evolve, but in the future it will more often need to do so through efficiency and substitution rather than addition,” Mr. Eisgruber wrote to the Princeton community Feb. 2, in his “State of the University” letter.

Schools expected to pay the highest new endowment tax rate include elite universities with billion-dollar endowments, such as Harvard, Princeton, the Massachusetts Institute of Technology, Stanford and Yale. Leaders of these schools and other institutions facing smaller but significant tax increases are taking steps now to prepare for the coming fiscal impact. Actions include cutting places in doctoral programs and shrinking campus libraries.

Universities are making these adjustments as the Trump administration continues its wide-ranging efforts — through lawsuits and the suspension of federal research funding — to reshape university culture so that it is, as government officials describe it, more receptive to conservative viewpoints and more oriented toward professional education.

Lynn Cooley, dean of Yale University’s Graduate School of Arts and Sciences, says her school is cutting doctoral programs across the board by lowering admissions goals in response to the upcoming tax.

She fears that “fewer discoveries will result” and that “fewer curious, creative and motivated young people will have access to the education necessary to conduct rigorous research that will benefit lives across the region, the country and the world,” Dr. Cooley wrote in an email to the Monitor.