U.S. Rep. Dave Joyce (R-OH) on Feb. 5 sponsored legislation that would force private colleges and universities to commit a larger share of their endowment spending to financial aid for students.
“Institutions are making record profits and exacerbating the student debt crisis with rising tuition costs,” Rep. Joyce said. “Instead of pushing students to take out more loans in response to inflation and rising tuition costs, we should look to the elite universities that are profiting off their students rather than working to make education more affordable.”
The congressman introduced the Higher Education Accountability Tax (HEAT) Act, H.R. 1006, alongside original cosponsor U.S. Rep. Nicole Malliotakis (R-NY), to amend the Internal Revenue Code of 1986 to modify the excise tax on investment income of private colleges and universities, according to the Congressional Record bill summary.
Specifically, H.R. 1006 would increase the 1.4-percent endowment excise tax to 10 percent for qualifying universities, and increase the number of universities required to pay the tax, revising the tax to apply to institutions with $250,000 or more in endowment assets per student (expanded from the current threshold of $500,000 per student).
Additionally, the legislation would increase the tax rate to 20 percent for institutions increasing tuition by more than the rate of inflation, according to a bill summary provided by Rep. Joyce’s staff.
For the current 1.4-percent tax to apply, the college or university must be private, must have at least 500 students who paid tuition during the prior taxable year (and more than 50 percent of those students must be located in the United States), and must have assets not used directly in carrying out the institution’s exempt purpose with a fair market value equal to at least $500,000 per full-time student, the summary says.
The HEAT Act, said Rep. Joyce, would hold universities accountable for their contribution to the national student debt crisis, requiring them to pay a higher annual tax on their large endowment profits. “Students have been shouldering this burden for far too long, and it’s about time colleges step up to the plate,” he said.
A small number of colleges and universities in the United States have accumulated significant wealth in the form of endowments, the summary states, and because these institutions are public and private nonprofit charitable enterprises, donations to their endowments are not taxed and the assets grow free of taxes.
In 2017, Congress created an exception to this practice, imposing a tax on the endowment earnings of a small number of private nonprofit colleges and universities. H.R. 1006 would increase this tax.