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Press Release

College endowments and the new tax law: Cleveland Fed economist

Making sense of the questions surrounding the half-trillion dollar industry

Quick Take

  • The new tax law includes a 1.4 percent tax on the investment income of certain institutions.
  • The number of institutions impacted will depend on specifics around implementation; inflation rates, changes in endowment values, and the strategic response of colleges could all play a role.

Among the provisions signed into law within the Tax Cuts and Jobs Act lies a new 1.4 percent tax on the investment income of private colleges and universities enrolling at least 500 students and with assets of at least $500,000 per student.

Federal Reserve Bank of Cleveland senior research economist Peter Hinrichs hits the books and examines data on the value of endowments of four-year colleges and universities in the US from 2004 to 2016. Hinrichs tracks an aggregate endowment value of $260 billion in 2004, through dips during the Great Recession, to a total of more than $540 billion today.

Through an examination of the Integrated Postsecondary Education Data System (IPEDS), Hinrichs zeroes in on enrollment, endowment value per student, and other questions around the specifics of how the tax law will be implemented and in what way it could impact institutions.

“The new tax on college endowment earnings will affect a relatively small number of colleges for now, although the exact number will depend on implementation details, the overall rate of inflation, changes in real endowment values, and any strategic responses on the part of colleges,” says Hinrichs.

For more information, read Peter Hinrichs’ Economic Commentary College Endowments here.

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell,, 513.455.4479