Swarthmore and Bryn Mawr exempt from federal tax on endowments, while Penn faces increased tax burden due to new budget legislation.

In a significant development for small private colleges, Swarthmore and Bryn Mawr Colleges recently benefited from a legislative change that exempts institutions with 3,000 or fewer students from the federal excise tax on endowment earnings. This tax, originally enforced in 2017 under the previous Trump administration, imposed a 1.4% levy on the endowment returns of eligible private colleges, impacting their financial viability and capacity to support student programs and financial aid.

Both colleges have previously felt the financial burden of this tax. Swarthmore, with a robust endowment of .7 billion, reported paying around million in the 2024 fiscal year, while Bryn Mawr, which has an endowment of .2 billion, paid approximately 3,000. The recent exemption allows these institutions to redirect their financial resources primarily toward student support, as the earnings from these endowments heavily contribute to their operating budgets. For instance, at Bryn Mawr, endowment earnings effectively fund nearly 40% of its annual expenses.

Advocacy from a coalition of 25 small liberal arts colleges, including the two mentioned, has played a pivotal role in securing this exemption. The impact of this tax is felt more acutely among smaller colleges, which often rely heavily on endowment income to maintain their financial aid programs. The president of Bryn Mawr noted that the exemption will enable the college to focus its resources on student needs, further enhancing accessibility to education for families from diverse economic backgrounds.

Contrastingly, larger institutions such as the University of Pennsylvania will see a tax increase, now paying 4% under the new legislative framework. This raises concerns for Penn, which has an endowment of .3 billion and faces additional financial strains from cuts in research funding from the National Institutes of Health.

The revised tax structure comprises three tiers based on student enrollment and endowment size, significantly altering the landscape for college financial management. Smaller colleges, like Swarthmore and Bryn Mawr, now have more flexibility to support their educational missions without the immediate pressures of federal taxation on endowment earnings.

However, other elements of the new law have created apprehension among educators, notably the elimination of Graduate Plus and capped Parent Plus Loans. This could lead to increased reliance on private financing options for students, potentially discouraging enrollment due to more stringent loan approval processes.

As small colleges reassess their budgets in light of this recent legislative victory, they remain vigilant regarding ongoing financial challenges in the higher education sector, emphasizing their commitment to maintaining accessible education amidst shifting fiscal landscapes.