The Endowment Tax Is Now Hitting Aid Budgets

For the past year, the endowment tax has been a policy story. Starting this fall, it's a money story.

The One Big Beautiful Bill Act replaced a flat 1.4% excise tax on private university net investment income with a tiered structure based on endowment assets per enrolled student.¹ The top tier — 8% — applies to schools with more than $2 million in assets per student. That bracket includes Harvard, Yale, Stanford, and MIT. The new rates took effect January 1, 2026; for universities whose fiscal years begin July 1, the first full tax payments at the elevated rates are due this fall.

What the dollar amounts look like

Estimates from the American Enterprise Institute put Harvard's annual bill at $368.2 million, based on its $53 billion endowment.¹ Yale expects to pay more than $300 million per year — a figure that Yale's own leaders have said exceeds the university's entire annual budget for undergraduate financial aid, according to reporting by Higher Ed Dive.²

Princeton presents a notable exception. The One Big Beautiful Bill Act raised the enrollment threshold for the tax from 500 students to 3,000 students. Princeton's undergraduate enrollment is below 3,000, which means the university is expected to be exempt from the tax for the fiscal year starting July 1, 2026.¹

What schools are cutting — and what they're protecting

The schools hit hardest are making real trade-offs, and not all of them are cutting financial aid first.

Stanford announced a $140 million operating budget reduction that includes 363 layoffs and a hiring freeze.³ Stanford's stated priority: protect financial aid for undergraduates and doctoral students while reducing costs elsewhere. The university is deferring capital projects and cutting administrative programs to absorb the impact.

Harvard has implemented a university-wide hiring freeze. Administrators have said the university faces up to $1 billion in combined annual revenue risk from the endowment tax and ongoing federal research funding cuts.³ Harvard has not announced reductions to undergraduate financial aid.

Yale expects layoffs. It has not announced changes to its undergraduate financial aid program, but the gap between its estimated $300 million tax bill and its current aid budget is narrow enough that it is a question applicants should ask directly.²

A university's historical generosity on financial aid is not a guarantee of what it will offer for 2027-28. If you've modeled your cost around a specific school's aid reputation, verify current commitments — not data from before the endowment tax took effect.

What this means if you're applying now

The schools most affected are also among the most generous. Harvard, Yale, Stanford, and MIT have historically offered strong need-based aid, often meeting 100% of demonstrated need without loans. That reputation is still real, but budget pressure is real too.

Some concrete steps before you commit:

Ask about current-year commitments. Request confirmation that the school's financial aid budget for 2026-27 and 2027-28 is funded at the same level as prior years. A school that is proud of its generosity will say so directly.

Check your offer against the net price calculator. If the financial aid offer you receive is lower than what the net price calculator projected, file a financial aid appeal. Schools under budget pressure may still honor appeals, especially with documented changes in family circumstances.

Consider the enrollment threshold. A smaller elite school like Williams or Swarthmore, or a school where undergraduate enrollment is close to 3,000, may face a different tax exposure than Harvard or Stanford. Some schools will be at the 4% rate, not 8%, depending on endowment size per student.

Three questions to ask any school with a large endowment before May 1: Is your institutional financial aid budget protected for the full four years of enrollment? Has your net-price guarantee or four-year cost estimate been updated to reflect the new endowment tax? Is my specific scholarship from institutional operating funds, or from a named endowment that may be taxed differently?

The core issue is that the tax creates real pressure on the institutions that have set the standard for need-based generosity. Stanford's choice to absorb the impact through layoffs rather than aid cuts shows it can be done. Whether that approach holds through year two and three of the tax — while federal research funding cuts and enrollment pressures also build — is the open question families applying for fall 2027 admission should be tracking.

For a broader picture of how financial pressure is reshaping higher education right now, see our overview of college budget cuts this year. If you're evaluating schools based on financial aid generosity, our guide to colleges with the best financial aid includes schools that meet full demonstrated need. Parents thinking through the full cost picture should read our college costs for parents guide before comparing offers. And if you're weighing how much borrowing is reasonable, our guide on how much student debt is too much gives you a concrete framework.

The 2027-28 FAFSA opens October 1 — two weeks away. Filing early matters most for state aid, which is awarded first-come, first-served in many states. Knowing your options across multiple schools is the only way to make a real comparison when offers come in.

Footnotes

1. American Enterprise Institute. (2026). How Much Will Universities Pay in Endowment Tax? https://www.aei.org/education/how-much-will-universities-pay-in-endowment-tax/ ↩ ↩² ↩³

2. Higher Ed Dive. (2026). Yale expects layoffs as leaders brace for $300M in endowment taxes. https://www.highereddive.com/news/yale-university-expects-layoffs-endowment-tax/807107/ ↩ ↩²

3. PBS NewsHour. (2026). College endowment tax is leading to hiring freezes and could mean cuts in financial aid. https://www.pbs.org/newshour/education/college-endowment-tax-is-leading-to-hiring-freezes-and-could-mean-cuts-in-financial-aid ↩ ↩²