Higher Education Accountability Tax Act

Bill Number

H.R. 1006

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-02-05: Referred to the House Committee on Ways and Means.

Last Updated

2025-05-05T14:59:15Z

AI-Generated Summary

Purpose

The Higher Education Accountability Tax Act aims to increase financial accountability for private colleges and universities by raising the excise tax on their investment income (endowments). It targets institutions with large endowments and those that raise student costs faster than inflation, encouraging more affordable education pricing.

Key Provisions

• Tax Rate Increase: The excise tax rate on net investment income for qualifying private colleges and universities rises from 1.4% to 10%.
• Tiered Rate for Price Increases: Institutions defined as "net-price-increase" face a higher 20% tax rate. These are schools where the "net price" (average cost after grants and scholarships) for first-time, full-time undergraduate students has increased faster than the Consumer Price Index (a measure of inflation) over the prior three taxable years.
• Expanded Scope: The tax now applies to more institutions by lowering the endowment threshold from $500,000 to $250,000 in assets per student (for schools with at least 500 tuition-paying students).
• Effective Date: Changes apply to taxable years beginning after December 31, 2024.

Significant Changes to Existing Law

• Under prior law (Section 4968 of the Internal Revenue Code), only a flat 1.4% tax applied to private nonprofit colleges and universities with endowments exceeding $500,000 per student.
• This bill introduces a tiered system based on tuition pricing trends, which did not exist before, and halves the asset threshold to include smaller-endowment schools previously exempt.
• The definition of "net price" now explicitly includes all first-time, full-time undergraduates (not just aid recipients), broadening the calculation.

Potential Impacts

• On Government Agencies: The Internal Revenue Service (IRS) will handle increased tax collection and enforcement, potentially boosting federal revenue from endowments but requiring updates to reporting forms.
• On Citizens: Students and families at affected institutions may see indirect effects, such as moderated tuition hikes to avoid the higher tax tier, though larger schools could pass costs through higher fees or reduced aid.
• On International Relations: Minimal direct impact, though foreign students (who contribute to enrollment) might face higher effective costs if U.S. private colleges adjust pricing.

Main Stakeholders Affected

• Private Colleges and Universities: Especially those with endowments over $250,000 per student (e.g., Ivy League and similar institutions), facing higher taxes that could strain budgets and influence investment or spending decisions.
• Students and Families: Particularly undergraduates at these schools, who may benefit from incentives to control net price increases but could experience changes in financial aid or program offerings.
• Taxpayers: Gain from increased federal revenue, which could fund public programs, though the focus is on private sector accountability.

Notable Legal, Constitutional, or Political Implications

• Legal: Amends the tax code without altering nonprofit status requirements; relies on existing definitions from the Higher Education Act for "net price," ensuring consistency but potentially inviting IRS audits on pricing data.
• Constitutional: No apparent challenges, as it targets tax-exempt entities' investment income, a permissible congressional power under the 16th Amendment (income tax authority).
• Political: Promotes "accountability" for high college costs, appealing to concerns over affordability, but could spark debate on federal overreach into private education finances or unintended effects on academic freedom and research funding.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Joyce, David P. [R-OH-14]

Cosponsors (1)

Rep. Malliotakis, Nicole [R-NY-11]

Recent Actions

• 2025-02-05: Referred to the House Committee on Ways and Means.
• 2025-02-05: Introduced in House
• 2025-02-05: Introduced in House

Bill Versions

• Higher Education Accountability Tax Act — issued 2025-02-05 — PDF (3 pages)