Columbia University’s tax escape sparks new questions about student aid stability

As elite institutions brace for shifting financial ground under the reformed endowment tax system, Columbia University has, for now, narrowly avoided a direct hit. But the implications for students, especially those reliant on financial aid, may still be far from settled.Columbia Spectator, the university’s student-run publication, reveals that Columbia is likely to fall below the new taxable threshold established under the “One Big Beautiful Bill” signed into law by President Donald Trump on July 4. The legislation, passed along party lines, recalibrates how large university endowments are taxed and redefines student eligibility metrics used to determine a university’s tax burden.Columbia's projected exclusion from the revised 1.4% endowment tax is rooted in its endowment-to-student ratio, which currently stands at approximately $470,000 per student.

That figure places the institution just beneath the $500,000 taxable benchmark established by the bill. However, the exclusion may not hold if enrolment patterns or investment returns shift in future years.While the university may have sidestepped an immediate financial penalty, education economists and financial aid experts warn that the broader impact of the bill could ripple through student funding models.

The policy that nearly caught Columbia

The restructured tax system, which will take effect in 2026, introduces a tiered model that taxes endowments based on their size per eligible student. Institutions with between $500,000 and $750,000 in endowment per student will face a 1.4% tax. Those with larger endowments will face steeper rates, up to 8% for universities like Harvard and Yale, where endowment values exceed $2 million per student.For Columbia, the risk of crossing the threshold remains.

If international students were excluded from its student count, as one earlier version of the bill proposed, its ratio would jump to nearly $681,000 per student. That change alone would have rendered the university taxable under the new law. While the final bill did not exclude international students after a Senate procedural ruling, experts believe similar proposals could resurface in future legislative cycles.According to Columbia Spectator, Columbia had 14,043 international students enrolled in fall 2024, one of the highest numbers in the Ivy League.

Why students should still be watching

Although Columbia has not yet issued a public statement on the matter, faculty and policy experts are raising concerns about how even near misses like this could affect student resources.Judith Scott-Clayton, a professor of economics and education at Columbia’s Teachers College, told the Spectator that such legislation places downward pressure on university finances.

“There is going to be less money floating around for the institution to do anything that it was planning to do,” she said, warning that institutional resources, including those allocated for financial aid, may become more constrained.In fiscal year 2024, Columbia’s endowment stood at $14.8 billion. Of that, approximately 24% was allocated to student support. The university reported that $648.4 million from the endowment was distributed to support students, faculty, and university initiatives, with a 5.2% effective spending rate.With almost half of institutional endowment spending nationally going toward financial aid, according to the National Association of College and University Business Officers, any policy shift that affects endowment flexibility could eventually influence how generously universities support their students.

Beyond endowments: Pell Grants and student loans

The bill also includes changes to federal student aid programs that could complicate affordability for students across the country.

While it sets aside $10.5 billion to address a deficit in the Pell Grant program and expands access for students in short-term training programs, it also introduces tighter eligibility requirements.Students will no longer qualify for Pell Grants if their total financial aid from other sources already covers the full cost of attendance. The bill also disqualifies students whose aid index, calculated via the Free Application for Federal Student Aid (FAFSA), is more than double the maximum Pell award for the year.Early drafts of the legislation proposed cutting the maximum Pell Grant from $7,395 to $5,710 and redefining the full-time credit load from 12 to 15 credits. These measures were ultimately removed by the Senate, but their appearance at all raised concerns among student advocates.“These are provisions that take away options from low-income students,” Scott-Clayton noted. “They may seem technical, but over time, they can lead to reduced access and higher financial strain.”The bill also institutes a lifetime borrowing limit of $257,500 for all federal student loans, while eliminating Graduate PLUS loans and capping Parent PLUS loans. Two new repayment plans, standard and income-based, will replace existing options beginning in 2026.

Columbia’s future financial balancing act

While Columbia has maintained steady endowment growth in recent years, including an 11.5% return in 2024, experts warn that future eligibility under the new tax framework remains uncertain.

Minor fluctuations in enrolment or endowment size could push the university into taxable territory.Roger Lehecka, a former dean of students at Columbia College, told the Spectator that even the threat of taxation can constrain institutional planning. “This is something that will damage, in a fundamental way, financial aid,” he said.Despite Republican messaging that the bill aims to hold elite universities accountable, Lehecka believes the endowment tax lacks equitable redistribution.

“If the goal is to help lower-income institutions or students, then the revenue from this tax should be directed to them,” he said. “But that’s not how things turned out.”

What students should take away

For current and future Columbia students, the key takeaway is not whether the university is taxed in 2025 or 2026. It is whether the broader shifts in federal higher education policy will limit the financial flexibility universities once relied on to support students.Even with generous aid models and large endowments, Columbia is not immune to changes in federal funding policy, especially when those policies are shaped by unpredictable political motives. While no tuition hikes or aid cuts have been announced, the uncertainty alone may prompt institutions to become more cautious.As debates over elite endowments and financial aid continue, student affordability remains a pressure point. For now, Columbia may have avoided a tax bill. But the bigger question lingers: What happens to student aid when universities are forced to recalibrate under political and fiscal pressure?TOI Education is on WhatsApp now. Follow us here.