Thursday, May 24, 2018
Bloomberg, Facing First Tax on Endowments, Colleges May Be Set to Dodge It:
Private colleges facing a new endowment tax may “behave strategically” to avoid paying it, according to a study published Thursday by a senior researcher at the Federal Reserve Bank of Cleveland [College Endowments].
Schools may increase enrollment — or give the appearance of doing so by changing the way they measure it — to reduce their endowment-per-student ratio to miss the tax threshold set by Congress, wrote economist Peter Hinrichs. Those colleges with low enrollment may reduce it in order to stay below 500 students to avoid the tax.
College endowments hold $567 billion in assets as of June 30. The tax would hit about 30 schools with at least 500 tuition-paying students and with assets of $500,000 per student. The list of schools is unclear because the Internal Revenue Service hasn’t yet issued details about how students or endowments will be counted, among other factors. ...
At least one school, Berea College, is exempt because the law was modified to apply to only schools with 500 tuition-paying students. Berea students don’t pay tuition, as they are all low-income students who hold jobs to defray costs.
Schools that meet the cutoff of $500,000 of endowment per student include Princeton University with a $24 billion fund and Williams College with $2.5 billion.
Other schools expected to pay the tax include large research universities such as Harvard and Yale and small liberal arts colleges including Grinnell and Swarthmore.