It appears Northwestern University may have to pay a new federal tax on college endowments, while the levy is expected to hit the University of Chicago.

As part of the tax bill approved by Congress this week, the investment income from private college endowments will be subject to a 1.4 percent tax, if the endowment adds up to more than $500,000 per full-time student.

Northwestern, with 17,385 full-time students last year and an endowment valued at just under $10.5 billion as of midyear appears likely to be hit by the tax. It’s endowment per full time student is roughly $604,000.

The University of Chicago, with 13,902 full-time students and an endowment valued at $7.8 billion is also likely to have to pay the tax. It’s endowment per full-time student is roughly $561,000.

The most reports have assumed that count of students used for the tax law will be based on full-time students. If instead it’s based on full-time equivalent students — giving partical counts to part-timers — Northwestern and U of C would be closer to escaping the tax.

And, of course, if stock market returns falter and endowment values decline, they could also escape the tax.

Both schools definitely would have been hit if the $250,000 per student limit proposed in an earlier version of the bill had been adopted.

Other tax bill provisions that colleges feared — including taxation of graduate student tuition waivers, employer reimbursement for tuition and tuition benefits for faculty and staff — were all cut from the final version of the bill, which President Trump is expected to sign by early next month.

Bill Smith is the editor and publisher of Evanston Now.

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  1. A good and long awaited tax

    It’s about time some politicians had the gumption to tax these universities with billions in endowments and inflated tuition. Now our state elected leaders need to consider taxing these universities as well since Illinois is in the worst fiscal condition in the nation. 

    1. A terrible tax

      This isn’t gumption, it’s political bias. Republicans are taxing universities because they think they’re too liberal. Would you support Democrats imposing a tax exclusively on rich churches because they think they’re conservative? Instead of taxing nonprofit corporations, Illinois should be taxing for-profit corporations now that Republicans have given them a massive tax cut.

      The new endowment tax is based on full-time equivalent students, so the U of Chicago will be very close to the line, and with 4400 part-time students, Northwestern will be fairly close. Also, since the endowment tax doesn’t define students, Northwestern could offer some free classes to local residents to make them “students” in order to avoid the tax.

    2. Endowment expenditures

      Rather than tax college endowments to fund Trump’s deficit and Madigan’s patronage army, a better approach might be to place nonprofit endowments under private foundation rules requiring annual expenditures of 5% of assets. Such a plan would keep endowment expenditures directed entirely to the needs of each charitable mission. 

  2. Northwestern Endowment Tax

    Could Northwestern donate $61,001 per student from their endowment to an Evanston non-profit with the caveat being the funds are used for Evanston resident quality of life?  This would lower their endowment per student amount to just under the taxable amount per student AND it would benefit both Evanston and Northwestern to have the funds spent in locally.  No sense in letting the spending decisions for the revenue be done outside of town…

    1. Great Idea
      Would the funds be used to lower property taxes and fees or would the Evanston city council use on some new schemes?

  3. Attack On Education

    This is clearly an authoritarian regimes attack on education. Everyone should be very worried including the citizens and public officials of the City of Evanston. How will a family feel when their students scholarship gets taxed as income and the student is held personally responsible? Same with advanced degrees for our best young minds? This is coming or may be already here with the new bill. Only the wealthy will be able to afford an education for their child. This isn’t a horror movie, this is the new reality in America.

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