Tax Reform and Higher Education in 2025

Federal tax policy plays a crucial role in shaping higher education, influencing everything from student financial aid to institutional funding.

As Congress considers major tax reforms this year, lawmakers have an opportunity to advance policies that support students, families, and institutions. This page explores how the tax code affects higher education, what’s driving the push for reform in 2025, and how targeted tax policies can help higher education build America.

Higher Education and the Tax Code

The U.S. tax code contains key provisions that help students and families access postsecondary education. Taken together, these policies form a “three-legged stool” that advance three important goals: 1) encourage saving for higher education; 2) help students and families pay for college; and 3) assist with the repayment of student loans. This framework is essential to expanding access to higher education, particularly for low- and middle-income students and families.

The tax code also contains provisions that support colleges and universities in their educational and research missions. Tax-exempt status allows institutions to focus on their educational, research, and public service missions, while the tax treatment of nonprofits helps finance these missions.

The tax code also incentivizes charitable giving, which provides vital funding for student aid, groundbreaking research, and campus programs. Private donations work in concert with federal and state investments in financial aid to ensure students can access higher education regardless of their socioeconomic status.

How Higher Education Builds America

Higher Education Boosts Individuals

A college degree continues to be the best ticket to a better, more prosperous life. Research shows that individuals with degrees tend to earn substantially more during their lives than those without degrees. Studies also show that people with college degrees report higher career satisfaction, health, and overall happiness.

Access to postsecondary education—and the benefits that come with a degree—is a hallmark of our nation’s diverse system of higher education. While work to expand opportunities to meet the needs of students continues, education beyond high school has only become more widely available to all who choose to pursue it. Nontraditional students—who now make up the majority of undergraduates—are a key part of this evolving landscape.

Higher Education Strengthens Communities

Colleges and universities—whether research institutions, liberal arts colleges, regional universities, public or private, religious or secular, two-year or four-year—play a vital role in building America and addressing national needs. Beyond the personal benefits of earning a degree, higher education strengthens the workforce, fosters civic engagement, and drives economic growth. College graduates are more likely to vote, volunteer in their communities, and contribute more in taxes.

Institutions of all sizes conduct groundbreaking research in science, medicine, artificial intelligence, and advanced manufacturing—advancing innovation, economic prosperity, and national security. As anchors in their communities, colleges and universities provide essential benefits that enhance the well-being and vibrancy of their states and local economies.

This page is regularly updated. Last revised: April 22, 2025.

Higher Education Association Tax Coalition: Who We Are

American Association of Community Colleges

American Association of State Colleges and Universities

American Council on Education

Association of American Medical Colleges

Association of American Universities

Association of Catholic Colleges and Universities

Association of Governing Boards of Universities and Colleges

Association of Jesuit Colleges and Universities

Association of Public and Land-grant Universities

College and University Professional Association for Human Resources

Council for Advancement and Support of Education

Council for Christian Colleges & Universities

National Association of College and University Business Officers

National Association of Independent Colleges and Universities

Advocacy Resources: Higher Education and the Tax Code

General

Tax and Finance
American Council on Education

Comments to the House Ways and Means Committee on 2025 Tax Reform (PDF)
American Council on Education | Oct. 15, 2024

The 2025 Tax Debate: All About That Base(line)
Bipartisan Policy Center | Jan. 15, 2025

Higher Education Builds America

Talking Points from the Higher Education Association Tax Coalition

Higher Education as a Public Good (PDF)
Higher Education as a Private Good (PDF)

Education for What (PDF)
Gallup and Lumina Foundation | 2023

Education Pays (PDF)
College Board Research | 2023

University Research
Association of American Universities

New Legislation and Research Reaffirm the Importance of Regional Public Universities for Local Economies
The Brookings Institution | Nov. 18, 2022

Higher Education Contributes to a Strong Economy
Association of Governing Boards of Universities and Colleges | June 6, 2019

Tax Reform in 2025

Expiring Provisions and Budget Reconciliation

Without congressional action, many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that directly affect individuals will expire on Dec. 31, 2025. Members of Congress and President Trump have made clear that extending the expiring provisions—and possibly considering broader reforms of the tax code—is a top priority.

The president and Republican leaders in Congress have signaled they will pursue tax reform through budget reconciliation, a fast-track process that allows the Republican-led majorities in Congress to pass a bill without Democratic support, bypassing the usual 60-vote threshold. However, reconciliation comes with strict rules, including the Byrd Rule, which limits the inclusion of policies that do not directly impact federal revenue or spending. Provisions that do not meet these requirements can be challenged and removed unless 60 senators vote to keep them.

Extending the expiring provisions will be expensive—the Congressional Budget Office estimates approximately $4.6 trillion over the next decade. President Trump may also push to enact certain tax-related campaign promises, like no taxes on tips. Republican leaders may need to make changes to the current $10,000 cap of the State and Local Tax Deduction (SALT) to garner key votes to pass the tax bill. Simultaneously, lawmakers who are reluctant to add to the federal deficit will push for significant spending cuts—some of which will be controversial—as part of the tax reform effort.

Higher Education Tax Policies Under Consideration

Congressional Republicans are considering changes to the tax code that could negatively impact students, institutions, and the broader higher education sector. The House Ways and Means Committee has drafted tax legislation to be included in the broader reconciliation bill, Click here to see a summary of the major higher ed tax provisions in the following areas:

Saving and Paying for College
Charitable Giving and Philanthropy
Energy and Sustainability

Advocacy Resources: Tax Reform in 2025

2017 Tax Reform and Higher Education
American Council on Education

WCEY Guide to Washington in 2025 (PDF)
Washington Council Ernst & Young

Budget Reconciliation, Simplified
Bipartisan Policy Center | Aug. 28, 2024

Saving and Paying for College

While there is no substitute for federal student aid, the tax code also helps expand access to postsecondary education, particularly for low- and middle-income students. However, Republican lawmakers are making changes to several tax benefit that helps students afford college.

One major proposal would modify employer provided educational assistance (see 26 U.S.C. § 127) by making permanent the student loan repayment benefit available to employers to offer their employees.

At the same time, other important tax reforms, such as repealing the taxability of Pell Grants, are not currently being advanced. Eliminating taxes on Pell Grants would simplify the tax code and improve access for low-income students.

Advocacy Resources: Saving and Paying for College

Talking Points from the Higher Education Association Tax Coalition

Other Resources

Charitable Giving and Philanthropy

Overview

Philanthropy plays a vital role in helping colleges and universities achieve their teaching, research, and public service missions. Endowments and other charitable donations support student financial aid, faculty, libraries, laboratories, student services, and other critical education-related activities.

The House Ways and Means Committee have proposed provisions that will impact these resources, some of which that help and some which will cause significant harm making it harder for institutions to assist students and strengthen their programs. In particular, the Ways and Means Committee has proposed a damaging new four-tiered tax rate system for the so-called “endowment tax” based on an institution’s per student endowment value which will be imposed on certain private colleges and universities.

Enacted in 2017, this tax is an unprecedented and damaging policy which takes money directly away from student financial aid, teaching, and innovative research. Currently, about two-thirds of endowment spending supports financial aid and academic programs. Increasing and expanding the tax in the way proposed by the Ways and Means Committee will have a devastating impact on U.S. competitiveness by undermine the ability of colleges and universities to support financial aid and pursue new breakthroughs in science and technology that strengthen our nation.

In addition, the Ways and Means Committee proposed to reinstate and make permanent a charitable deduction for non-itemizers.

House Ways and Means Committee Tax Proposal (with 10-year savings)

Modify the<br>Estate Tax

Increase the Estate Tax Cap ($212 billion): The federal estate tax applies to estates that exceed a certain value. Charitable donations are among the tax’s allowable deductions, which generates significant charitable giving. The Ways and Means Committee has proposed increasing the exemption to an inflation-indexed $15 million. This proposal this would reduce the incentive for high-net-worth individuals to give to charity, reducing charitable contributions.

Increase and Extend<br> Endowment Tax

Extend the Endowment Tax (H.R. 8913) ($275 million): This bill would extend the endowment tax to more institutions by broadening the base of how the tax is calculated. It does so by excluding non-U.S. citizens and permanent residents from the endowment-per-student calculation, extending the tax to approximately 10-15 institutions not currently covered by it.

Advocacy Resources: Charitable Giving and Philanthropy

Summary: Recent Endowment-Related Bills (PDF)
Higher Education Association Tax Coalition

Understanding College and University Endowments (PDF)
American Council on Education | Oct. 23, 2024

An Overview of College and University Endowments (PDF)
American Council on Education | Oct. 23, 2024

Overview of the Charitable Act (S. 317, H.R. 601) (PDF)
Council for Advancement and Support of Education (CASE)

2024 NACUBO-Commonfund Study of Endowments

Talking Points: Endowments (PDF)
Higher Education Association Tax Coalition

Letter on the University Accountability Act and the Protecting American Students Act (PDF)
American Council on Education | July 8, 2024

Final Regulations on College Endowment Excise Tax (PDF)
Federal Register | Oct. 15, 2020

Charitable Giving Coalition

CASE Insights on Voluntary Support of Education, 2024 Key Findings
CASE | March 20, 2025

Why the College Endowment Tax Doesn't Make the Grade
The Washington Post | Jan. 20, 2025

No, Endowments Are Not the Answer to Federal Attacks on Higher Ed
Higher Education Today | April 22, 2025

Energy and Sustainability

Colleges and universities, early leaders in promoting green infrastructure, have long been committed to helping build sustainable communities. The Inflation Reduction Act included an array of tax credits that help institutions advance their campus climate initiatives and investments, as well as join global efforts to combat climate change.

The Ways and Means Committee tax proposal made significant changes to portions of the Inflation Reduction Act, stripping institutions of vital resources, which will result in lost American jobs and make communities and our nation less resilient.

House Ways and Means Committee Tax Proposal (with 10-year savings)

Modify and/or Repeal Green Energy Tax Credits ($500 billion): The Inflation Reduction Act (IRA) established Elective pay energy tax credits (also known as “direct pay”) that benefit tax-exempt organizations like colleges and universities for investing in an array of renewable energy technology projects, including solar, wind, geothermal, energy storage, infrastructure upgrades, and electric vehicles. Ways and Means has proposed to repeal and/or modify an array of clean energy tax provisions in the IRA.