Navigating New Financial Pressures: The One Big Beautiful Bill Act’s Endowment Tax Reform and Its Impact on Higher Education 

Logan Caudill^[1] logancaudill114@gmail.com

The One Big Beautiful Bill Act (Pub. L. No. 119-21, 119^th Congress, 2025)), a sweeping budget reconciliation measure, imposes significant changes to higher education financing through Section 70415, which amends Internal Revenue Code section 4968 to impose a tiered excise tax on private colleges’ net investment income.^[2] This provision, effective for tax years after 2025, could reshape university budgets, impacting academic programs, student services, and organizations like fraternities and sororities.^[3] This article explores the reforms’ implications and offers guidance for navigating its effects.

The revised tax structure replaces the flat 1.4% excise tax on endowments exceeding $500,000 per student with escalating rates: 1.4% for $500,000 to $749,999 per students, 4% for $750,000 to $1,999,999, and 8% for $2,000,000 or more.^[4] It expands the tax base to include student loan interest and certain royalty income.^[5] Affected institutions, including approximately twenty-one (21) private colleges with large endowments, face reduced investment returns, which may further strain budgets.^[6]

For higher education, this tax could lead to tuition hikes, cuts to academic programs, or reduced funding for student services, such as mental health resources or diversity initiatives.^[7] A 2025 analysis by the American Council on Education estimates that top-tiered institutions could lose millions annually, prompting cost-saving measures.^[8] For student organizations, including fraternity and sorority life, this may translate to increased scrutiny from financially strained universities.^[9] Institutions may impose higher facility fees, reduce support for chapter housing, or tighten compliance requirements under laws like the Stop Campus Hazing Act, as resources for oversight dwindle.^[10]Fraternities and sororities, like all student organizations, could face new costs to maintain operations, particularly at private colleges like those targeted by the tax.^[11]

To adapt, university administrators should advocate for endowment tax relief through higher education coalitions, while organization leaders can collaborate with student affairs offices to understand budget shifts.^[12] Organizations should review their financial plans to anticipate potential cost increases and strengthen compliance to avoid potential penalties during heightened oversight.

In conclusion, the endowment tax reform under the One Big Beautiful Bill Act signals new financial realities for private colleges, with ripple effects for student organizations. Proactive engagement with administrators and robust financial management can help these student organizations navigate these changes.^[13] Be sure to consult with legal and financial advisors to prepare for evolving campus dynamics.

[1] Logan is a second-year law student at Northern Illinois University College of Law who interned with Manley Burke this past summer.

[2] Pub. L. No. 119-2 (2025).

[3] Id.

[4] Id. § 70415 (amending 26 U.S.C. § 4968 (a)-(b)). Institutions with fewer than 3,000 tuition-paying students are exempt from the tax.

[5] Higher Education Act of 1965, 20 U.S.C. § 108711 (2018); One Big Beautiful Bill Act, H.R. 1, 119^th Cong. § 70415 (2025).

[6] Details and Analysis of the One Big Beautiful Bill Act, Tax Found. (2025).

[7] Tax Reform and Higher Education in 2025, Am. Council On Educ. (2025).

[8] Id.

[9] Id.

[10] Stop Campus Hazing Act, Pub. L. No. 118-173 (2024).

[11] See Tax Found., supra note 6.

[12] See Am. Council on Educ., supra note 7.

[13] See id.