🎙️ New College Affordability Changes: Endowment Tax Hikes, Pell Grant Rules & Cost of Attendance Overhaul
In a rapidly shifting higher education landscape, the latest wave of proposed federal policy changes is poised to impact colleges and families alike. On a recent episode of College! The Podcast, hosts Matt Carpenter and Peg Keough broke down a series of sweeping proposals from the Department of Education and the U.S. Congress. These changes could dramatically affect how colleges are taxed and how they calculate costs, as well as who qualifies for crucial financial aid like the Pell Grant.
In this blog, we’ll walk you through the key takeaways from that discussion, and what these changes could mean for families planning for college.
1. Proposed Tax Hike on College Endowments
Currently, colleges with endowments exceeding $500,000 per student pay a modest 1.4% tax. A new proposal aims to increase that tax to a staggering 21%. This change would not only drastically raise the tax rate but also remove international students from the endowment-per-student calculation—meaning more colleges would qualify for taxation.
Peg Keough explained the implications: “This is a massive increase. Schools that didn’t fall under the tax before could suddenly be hit with it.” The goal, in theory, is to incentivize colleges to increase their class sizes and become less exclusive.
Matt Carpenter supported the spirit of the change. “These institutions function like billion-dollar corporations—and yet they don’t pay taxes. If this encourages them to serve more students instead of boasting about rejection rates, that’s a step in the right direction.”
2. Vague Language on Nonprofit Status
More controversially, the same proposal includes provisions to revoke a college’s nonprofit status if it’s deemed a “supporter of terrorism.” However, this classification relies heavily on the judgment of the Secretary of the Treasury, and the language in the proposal is alarmingly vague.
Peg emphasized the danger: “This flips the legal standard on its head. The government makes an accusation, and the college must prove its innocence. That’s a slippery slope that could lead to misuse of power.”
Both hosts urged caution. While ensuring student safety and civil rights is essential, giving one political office unchecked authority raises First Amendment concerns.
3. Taxing Colleges on Intellectual Property
Another proposal would tax the investment income from a college’s intellectual property—like patents, copyrights, and even branding assets such as logos and school names. These are currently exempt from taxation.
Matt likened this to the recent NIL (Name, Image, Likeness) rule changes for student-athletes: “If colleges are making huge sums from branding and media, should some of that be taxed—especially if it’s not going back into student support?”
However, Peg noted that many institutions use that revenue to fund scholarships. For example, UNC Chapel Hill has stated that profits from branding help fund student aid. Taxing those funds could reduce available scholarships and hurt students directly.
4. New Cost of Attendance Calculation Requirements
One of the more confusing proposals mandates that colleges calculate and report the “median cost of college” by individual academic programs. That includes estimating costs separately for nursing, business, liberal arts, and potentially even more granular majors.
As Peg pointed out, “How do you break that down? Business itself includes marketing, finance, accounting—it gets complex fast.”
Matt added, “We already have chaos around financial aid award letters. Now we’re going to make cost estimates even more complicated? That’s a recipe for more confusion, not less.”
While the intent may be to provide transparency, both hosts agreed that it risks overwhelming families with too much data—further complicating the already opaque college cost landscape.
5. Controversial Changes to Pell Grant Eligibility
Perhaps most troubling are changes to how students qualify for a full Pell Grant. Under new rules, students must take at least 15 credit hours per semester to receive the maximum grant. That’s up from the current threshold of 12 credits, which is considered full-time.
Peg highlighted how this could backfire: “Many families tell their kids to start slow with 12 credits—especially if they have learning differences or are adjusting to college life. This new rule punishes them.”
Matt echoed those concerns, citing students with ADHD, dyslexia, or other learning needs, and students working full-time while attending school part-time. “These are the students we should be supporting, not pushing out of the system,” he argued.
The hosts agreed that a better solution would be to introduce accountability through academic performance—like maintaining a minimum GPA or attendance—rather than penalizing students based solely on course load.
Final Thoughts: Accountability Is a Two-Way Streak
Both Matt and Peg emphasized the need for balance. Yes, institutions and students should be held accountable, but that accountability must be practical and equitable. As Peg noted, “Congress needs to engage experts in the field before implementing these massive changes. Otherwise, the unintended consequences could be devastating.”
And in true College! fashion, they’re ready to help: “Just roll out our position paper. We did your homework for you,” Matt joked.
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