Republicans consider eliminating tax-free scholarships and taxing college endowments. (Getty Images)

As part of ongoing discussions about slashing federal spending, Republican lawmakers in the US House of Representatives are considering proposals that could significantly impact higher education funding. Among these proposals is the elimination of tax-free status for scholarships, which has been a cornerstone of financial aid for college students. The change would create new financial burdens for students and families who rely on this assistance to cover the ever-increasing cost of tuition.
The move comes as part of broader efforts by Republicans to fund tax cuts introduced during President Donald Trump’s first term, with higher education facing the brunt of potential budget cuts. The proposed measures are still under discussion, but they are gaining traction as legislators look for ways to reduce federal spending, despite concerns from higher education advocates about their long-term consequences.
Tax-free scholarships at risk
Currently, scholarships and fellowships used for tuition and related expenses are exempt from taxes. This tax-free status has helped make higher education more accessible to millions of students across the country. However, the proposal now being considered by the House GOP could change that, forcing students to pay taxes on the financial aid they receive. This could increase the overall cost of attending college and put additional pressure on families already struggling with rising tuition costs.
As reported by the Associated Press, the tax changes could affect millions of students who rely on scholarships to fund their education. While tax-free scholarships have long been a cornerstone of federal support for higher education, these new measures could place a significant financial burden on students who are already facing the challenge of paying for college.
Impact on university endowments
Alongside the proposal to tax scholarships, House Republicans are also considering a sharp increase in the tax rate applied to college endowments. Currently, some private nonprofit universities are required to pay a 1.4% tax on income from their endowments. This policy generated about $244 million in revenue in 2022, according to data from the Tax Cuts and Jobs Act. Under the new proposal, lawmakers suggest raising the tax rate to 14% and expanding its scope to include more universities.
The proposed changes to endowment taxes are seen as a way to generate more revenue from wealthy institutions while increasing the financial burden on colleges with large endowments. Critics argue that this move could have unintended consequences, particularly for smaller universities that rely on their endowments to fund scholarships and financial aid programs.
What this means for students and higher education
If these proposals move forward, students and their families could face an uphill battle in managing the costs of higher education. As Craig Lindwarm, senior vice president of governmental affairs at the Association of Public and Land-Grant Universities, noted, such tax changes could undo progress made in making college more affordable.
“These proposals would likely increase costs on students and families, reversing some of the positive trends we’ve seen in making public university tuition more manageable,” Lindwarm said, as quoted by the Associated Press.
While the fate of these proposals remains uncertain, they signal a significant shift in how US lawmakers view the funding of higher education, and could alter the landscape of college affordability for years to come.