Princeton recently waived tuition for most students from families making up to $250,000 a year. Reporting in The Daily Princetonian suggests that this move may have removed the university from the One Big Beautiful Bill Act’s endowment tax rolls.
Although Republicans created the tax on endowments in 2017 and increased it for many institutions last year as little more than a way to stick a thumb in the eye of elite colleges, they may have inadvertently created an incentive for Princeton to expand access and diversity on its campus by exploiting a new tax loophole.
This is the kind of tax evasion we should all get behind.
We’re members of a student-driven organization that pushes elite colleges and universities to be more accessible to ordinary Americans, so it feels odd to praise Princeton for possibly avoiding a tax on its over $36 billion endowment. It feels even stranger to praise anything about legislation that is a giant tax giveaway to the wealthy that guts a range of social services.
Yet the Republicans’ endowment tax revealed a useful lesson: It seems possible to push wealthy colleges like Princeton to enroll more working- and middle-class students. They surely need that push, because our most prestigious universities enroll a larger share of rich students now than they did in the 1980s. Congress should devise a smarter endowment tax to reward the country’s most exclusive colleges for better serving the American public.
In 2017, a Republican-controlled Congress imposed a 1.4 percent tax on the investment earnings of private colleges and universities with endowments worth more than half a million dollars per student. There was an exemption to any college that enrolled fewer than 500 tuition-paying students. The exception applied to Berea College in Kentucky, whose senator Mitch McConnell was then the majority leader. It was good policy for Berea to have been exempted, since it uses its more than $1 billion endowment to be tuition free for all of its students, 96 percent of whom are from lower-income households.
Republicans, however, betrayed the spirit of the Berea exemption after intense objections in 2025 from liberal arts colleges, religious schools and Hillsdale College, which has strong ties to the Trump administration. Congress increased the endowment tax rates, but it also raised the enrollment ceiling for the exemption to 3,000 tuition-paying students, which means that several dozen institutions with multimillion- and even multibillion-dollar endowments will actually stop paying the tax this year.
These colleges are not being rewarded for being generous like Berea; they are being rewarded simply for being small. If anything, the higher threshold gives dozens of liberal arts colleges a good reason to maintain their exclusivity.
Princeton seems to have effectively become small by being more generous. In January, the managing director of the Princeton University Investment Company reportedly told attendees at a closed-door event that the school expects to stop paying the federal endowment tax. This is most likely thanks to the university’s new policy, which waives tuition for students from the 90 percent of American households that make less than a quarter-million dollars a year.
Princeton is not alone in its expansion of financial support to families with incomes in the $200,000 to $300,000 range. In the past year, the University of Chicago, Yale and Swarthmore have all announced hefty fee waivers. The problem is that we have no idea how many students will actually benefit. The promise of free tuition, even for selective colleges, is no doubt a smart marketing move. But until these schools enroll many more working and middle class students, those who actually qualify for aid, it is hard to see it as much more.
The additional $44 million Princeton was expected to spend on financial aid last school year is a fraction of the over $200 million it was projected to owe under the tax every year. Even if this move is entirely self-serving, the effect will not be. Princeton will surely need to enroll classes that are majority working- and middle-class every year in order to avoid the endowment tax.
That incentive does not exist for wealthy institutions that enroll fewer than 3,000 students, like Grinnell College (endowment value: nearly $3 billion) and Caltech (about $4.5 billion). Nor does it exist for ones with many more students than Princeton, like Harvard (about $57 billion) or Stanford (over $40 billion), which essentially could get under the tax’s enrollment threshold only by eliminating tuition for a large proportion of its students, including many rich ones.
A smarter tax would give many more institutions the chance to make a choice: either use their endowment to increase access and diversity, or pay the tax to offset the cost of hoarding opportunity for the wealthy.
A better designed tax would apply to schools with endowments worth more than $500,000 per student, regardless of enrollment size, but the rate they pay would go down, potentially to zero, as they increase their share of students from the bottom 80 percent of income and provide them enough financial aid to avoid debt. Institutions would be rewarded, as well, for rejecting unfair admissions practices like legacy and donor preferences, and increasing their share of community college transfers. Every dollar the tax raises should go straight to community colleges and regional public universities — the schools most American college students attend — where the real problem is making sure students have the financial and academic support they need to graduate.
We want many more elite colleges to be subject to the tax, but we also want to give them more ways to get out of it by making a genuine commitment to access. The endowment tax needs a bigger net with more ways out.
While the Trump administration has fomented and exploited popular resentment of elite colleges for its own ideological ends, wanting to make elite colleges look less like country clubs and more like the country shouldn’t be a partisan issue. If anything, shared mistrust of elite colleges provides a rare opportunity to work across the aisle.
Americans don’t have to choose between an assault on higher education and a status quo built to serve a privileged few. A better, bipartisan endowment tax that rewards access and affordability and sends revenue to the colleges that do the most good is a way out of that false choice and a step toward repairing higher education’s broken social contract with the nation.
James S. Murphy is a senior fellow at Class Action, a student-driven nonprofit reimagining the role of elite colleges and universities in society. Ryan Cieslikowski is a recent Stanford graduate and the director of Class Action.
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