Which LACs get to pay higher tax? Wesleyan? Colgate? Would it be worthwhile them cutting back to 2999 students to save on tax?
Depends on how they define âtuition payingâ. Iâm sure there are plenty of kids at both places who qualify as 100% need.
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Iâve not seen anything to suggest that type of nuance in this policy. And NACUBO uses all students for its per-capita calculation.
Wesleyan is right on the knifeâs edge in terms of endowment per student, according to NACUBOâs 2024 data. Because Wes has grad students, one answer might be expanding that population a little to nudge back under the 500K per capita cut off.
The current endowment tax only includes âtuition paying studentsâ in the calculation. Not sure if that will persist/be the case in the big beautiful bill.
Section 4968(b)(1) defines the term âapplicable educational institutionâ as an eligible educational institution (as defined in section 25A(f)(2)) that, during the preceding taxable year, had at least 500 tuition-paying students, more than 50 percent of whom were located in the United States, that is not a state college or university as described in the first sentence of section 511(a)(2)(B), and that had assets (other than those assets used directly in carrying out the institutionâs exempt purpose) the aggregate fair market value of which was at least $500,000 per student of the institution.
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Thatâs relevant as far as the rate at which a specific college would be assessed tax-wise. The threshold question would be whether or not Wesleyan and Colgate meet the enrollment definition which according to the source quoted above, does have a bit of nuance in its wording. I mean, this bill is the ultimate shape-shifter and who knows what the exact wording it will have by the time it reaches the presidentâs desk. I just look at the phrase, âtuition-payingâ and see a loophole big enough through which to drive a Subaru.
The irony here is that prior to this latest iteration of the endowment tax, it would have been to Wesleyanâs advantage to inflate its enrollment in order to qualify for the lowest possible tax rate which is based on endowment per student. But with this latest enrollment threshold, the strategy then becomes to minimize its tuition-paying enrollment.
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Will need to see further regulatory or instructional clarification on what âtuition-payingâ means. I am guessing Congress was not thinking of distinguishing the count based on net tuition after financial aid/merit awards. They probably were just excluding students who were on gap years or others who were perhaps auditing classes and not paying anything.
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The other thing they could have said was âfull-time equivalentâ or FTE which, I think, everyone would have been familiar with.
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That leads to the interesting question of how you count part time students, or schools where the student selects courses and pays by the credit hour. FTE would be a pain to calculate and monitor. I think they mean to count 2 part time students as 2 as long as they owe tuition (whether or not the net payment is 0 after aid).
Replacing part-time students with half the number of full-time students might be another way to go.
Iâm guessing they didnât intend it either, but assuming this language is in the final legislation, schools can reasonably interpret it to mean what it says. The IRS can interpret it some other way, but if the best reading of the statute is that âtuition-payingâ means paying tuition, then a different interpretation will not hold up if challenged by the universities.
Frankly, it may be possible for Dartmouth and Princeton to escape the endowment tax due to this language. If they donât already have fewer than 3000 âtuition-payingâ students, they could easily get there by changing their admissions and/or aid policies going forward.
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Itâs definitely an odd turn of phrase, if your presumed audience is the MAGAverse. I mean, people are either paying or nonpaying. There are clear consequences for being one or the other.
The IRS issued this detailed guidance for the current endowment tax:
I donât have time to unpack it all, and there could be some guidance that superseded this. And of course things could change still with the new bill.
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Thanks!
Fascinating stuff. Makes for great summertime reading. LOL. But I believe the answer is buried at the bottom of page 11 and continues on the top of page 12:
Accordingly, a student will be considered a tuition-paying student
for purposes of section 4968 if payment of any tuition or a fee is required for the
11
enrollment or attendance of the student for courses of instruction after the application of
any scholarships offered directly by the institution or work study program operated
directly by the institution.
Bold type added.
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So according to this, if a university gives a grant to a student in the amount of tuition, that student is not âtuition-paying.â So Princeton or Dartmouth just have to start giving a few more students such grants, et voila âŠ
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Every once in a while, a law means what it actually says. 
And I know Princeton is wealthy, but do they really have a thousand students who are close to being on full scholarship? Magaworld would have a collective coronary.
EDIT: At 5700 undergraduates, Princeton would have to find full scholarships for almost 3000 students.
Full tuition⊠Not full cost of attendance.
Currently, 22% Princeton students are Pell eligible and receive a full ride: students whose family makes up to 100k also receive a full ride. 70% receive financial aid and I think full tuition is covered up to 180k income (couldnât find confirmation, could be higher).
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In the section of the IRS guidance I quoted above, they specifically define tuition as not including fees for books, food and rooming. So, Princeton is cool 
Yes, that was my point: generous full need universities will be fine due to that definition - as long as itâs not modified again.
I donât see anything in the text which excludes graduate students from the calculation of students. If graduate students are also counted SLACs are going to be the only ones able to escape this.
Professional students, yes. Not sure how many students pursuing doctorates pay tuition.