Tax Reform and Higher Education in 2025

Federal tax policy plays a crucial role in shaping higher education, influencing everything from student financial aid to institutional funding. As Congress considers major tax reforms this year, lawmakers have an opportunity to advance policies that support students, families, and institutions. This page explores how the tax code affects higher education, what’s driving the push for reform in 2025, and how targeted tax policies can help higher education build America.

Higher Education and the Tax Code

The U.S. tax code contains key provisions that help students and families access postsecondary education. Taken together, these policies form a “three-legged stool” that advance three important goals: 1) encourage saving for higher education; 2) help students and families pay for college; and 3) assist with the repayment of student loans. This framework is essential to expanding access to higher education, particularly for low- and middle-income students and families.

The tax code also contains provisions that support colleges and universities in their educational and research missions. Tax-exempt status allows institutions to focus on their educational, research, and public service missions, while the tax treatment of nonprofits helps finance these missions.

The tax code also incentivizes charitable giving, which provides vital funding for student aid, groundbreaking research, and campus programs. Private donations work in concert with federal and state investments in financial aid to ensure students can access higher education regardless of their socioeconomic status.

How Higher Education Builds America

Higher Education Boosts Individuals

A college degree continues to be the best ticket to a better, more prosperous life. Research shows that individuals with degrees tend to earn substantially more during their lives than those without degrees. Studies also show that people with college degrees report higher career satisfaction, health, and overall happiness.

Access to postsecondary education—and the benefits that come with a degree—is a hallmark of our nation’s diverse system of higher education. While work to expand opportunities to meet the needs of students continues, education beyond high school has only become more widely available to all who choose to pursue it. Nontraditional students—who now make up the majority of undergraduates—are a key part of this evolving landscape.

Higher Education Strengthens Communities

Colleges and universities—whether research institutions, liberal arts colleges, regional universities, public or private, religious or secular, two-year or four-year—play a vital role in building America and addressing national needs. Beyond the personal benefits of earning a degree, higher education strengthens the workforce, fosters civic engagement, and drives economic growth. College graduates are more likely to vote, volunteer in their communities, and contribute more in taxes.

Institutions of all sizes conduct groundbreaking research in science, medicine, artificial intelligence, and advanced manufacturing—advancing innovation, economic prosperity, and national security. As anchors in their communities, colleges and universities provide essential benefits that enhance the well-being and vibrancy of their states and local economies.

This page is regularly updated. Last revised: February 21, 2025.

Higher Education Association Tax Coalition: Who We Are

American Association of Community Colleges

American Association of State Colleges and Universities

American Council on Education

Association of American Medical Colleges

Association of American Universities

Association of Catholic Colleges and Universities

Association of Governing Boards of Universities and Colleges

Association of Jesuit Colleges and Universities

Association of Public and Land-grant Universities

College and University Professional Association for Human Resources

Council for Advancement and Support of Education

Council for Christian Colleges & Universities

National Association of College and University Business Officers

National Association of Independent Colleges and Universities

Advocacy Resources: Higher Education and the Tax Code

General

Tax and Finance
American Council on Education

Comments to the House Ways and Means Committee on 2025 Tax Reform (PDF)
American Council on Education | Oct. 15, 2024

The 2025 Tax Debate: All About That Base(line)
Bipartisan Policy Center

Higher Education Builds America

Talking Points from the Higher Education Association Tax Coalition

Higher Education as a Public Good (PDF)
Higher Education as a Private Good (PDF)

Education for What (PDF)
Gallup and Lumina Foundation | 2023

Education Pays (PDF)
College Board Research | 2023

University Research
Association of American Universities

New Legislation and Research Reaffirm the Importance of Regional Public Universities for Local Economies
The Brookings Institution | Nov. 18, 2022

Higher Education Contributes to a Strong Economy
Association of Governing Boards of Universities and Colleges | June 6, 2019

Tax Reform in 2025

Expiring Provisions and Budget Reconciliation

Without congressional action, many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that directly affect individuals will expire on Dec. 31, 2025. Members of Congress and President Trump have made clear that extending the expiring provisions—and possibly considering broader reforms of the tax code—is a top priority.

The president and Republican leaders in Congress have signaled they will pursue tax reform through budget reconciliation, a fast-track process that allows the Republican-led majorities in Congress to pass a bill without Democratic support, bypassing the usual 60-vote threshold. However, reconciliation comes with strict rules, including the Byrd Rule, which limits the inclusion of policies that do not directly impact federal revenue or spending. Provisions that do not meet these requirements can be challenged and removed unless 60 senators vote to keep them.

Extending the expiring provisions will be expensive—the Congressional Budget Office estimates approximately $4.6 trillion over the next decade. President Trump may also push to enact certain tax-related campaign promises, like no taxes on tips. Republican leaders may need to make changes to the current $10,000 cap of the State and Local Tax Deduction (SALT) to garner key votes to pass the tax bill. Simultaneously, lawmakers who are reluctant to add to the federal deficit will push for significant spending cuts—some of which will be controversial—as part of the tax reform effort.

Higher Education Tax Policies Under Consideration

Congressional Republicans are considering changes to the tax code that could negatively impact students, institutions, and the broader higher education sector. The House Budget Committee has outlined numerous policies to help offset the cost of the GOP tax bill. Click here to see all higher education-related provisions in the committee’s 51-page document.

The key tax proposals affecting higher education include:

Saving and Paying for College
Charitable Giving and Philanthropy
Tex-Exempt Status and Finance
Energy and Sustainability

Advocacy Resources: Tax Reform in 2025

2017 Tax Reform and Higher Education
American Council on Education

WCEY Guide to Washington in 2025 (PDF)
Washington Council Ernst & Young

Budget Reconciliation, Simplified
Bipartisan Policy Center | Aug. 28, 2024

Saving and Paying for College

Overview

While there is no substitute for federal student aid, the tax code also helps expand access to postsecondary education, particularly for low- and middle-income students. However, Republican lawmakers are considering eliminating key tax benefits that help students afford college.

One major proposal would repeal the tax exemption for scholarships and fellowships (see 26 U.S.C. § 117(d)(5)), a critical provision that supports access to higher education—especially for graduate students and the research endeavor.

At the same time, other important tax reforms, such as repealing the taxability of Pell Grants, are not currently being advanced. Eliminating taxes on Pell Grants would simplify the tax code and improve access for low-income students.

House Budget Committee Policies Under Review (with 10-year savings)

AOTC

Eliminate the American Opportunity Tax Credit ($59 billion): The AOTC provides a partially refundable tax credit of up to $2,500 for eligible education expenses during the first four years of college. Up to $1,000 is refundable for filers with no tax liability. The credit begins phasing out for individuals earning $80,000 ($160,000 for joint filers). This proposal would eliminate the AOTC entirely.

Lifetime Learning Credit

Eliminate the Lifetime Learning Credit ($26 billion): The LLC allows taxpayers to claim 20 percent of the first $10,000 spent on qualified tuition and related expenses, with a maximum credit of $2,000 per year. Unlike the AOTC, the LLC is available for all years of postsecondary education with no limit on the number of years claimed. This proposal would eliminate the LLC.

Scholarship Income

Eliminate the Exclusion of Scholarship and Fellowship Income ($54 billion): Currently, scholarship and fellowship payments used for qualified expenses like tuition are not taxable. Additionally, Section 117(d) allows institutions to provide tax-free tuition reductions for employees, spouses, dependents, and certain graduate students. This proposal would tax all scholarship and fellowship income.

Loan Interest

Eliminate Student Loan Interest Deduction ($30 billion): Currently, taxpayers earning less than $75,000 ($155,000 for joint filers) can deduct up to $2,500 in federal student loan interest payments each year. This proposal would eliminate the deduction.

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Advocacy Resources: Saving and Paying for College

Talking Points from the Higher Education Association Tax Coalition

Charitable Giving and Philanthropy

Overview

Philanthropy plays a vital role in helping colleges and universities achieve their teaching, research, and public service missions. Endowments and other charitable donations support student financial aid, faculty, libraries, laboratories, student services, and other critical education-related activities.

Some Republican lawmakers are considering policies that would weaken these resources, making it harder for institutions to assist students and strengthen their programs. In particular, some members of Congress would like to increase the so-called “endowment tax” on certain private colleges and universities.

Enacted in 2017, this tax is an unprecedented and damaging policy which takes money directly away from student financial aid, teaching, and innovative research. Currently, about two-thirds of endowment spending supports financial aid and academic programs. Increasing or expanding the tax would have a devastating impact on U.S. competitiveness by undermine the ability of colleges and universities to support financial aid and pursue new breakthroughs in science and technology that strengthen our nation.

Additionally, the proposals do not include reinstating the universal charitable deduction, even though it has broad public support and could help reverse declines in charitable giving since the 2017 tax law changes.

House Budget Committee Policies Under Review (with 10-year savings)

Eliminate<br>Estate Tax

Eliminate the Estate Tax ($370 billion in 10-year costs): The federal estate tax applies to estates that exceed a certain value. Charitable donations are among the tax’s allowable deductions, which generates significant charitable giving. Repealing this tax would remove an incentive for high-net-worth individuals to give to charity, significantly reducing charitable contributions.

Eliminate Health Org<br> Deduction

Eliminate Deduction for Charitable Contributions to Health Organizations ($83 billion): Currently, taxpayers can deduct contributions to qualifying health organizations from their taxable income. Eliminating this deduction would discourage charitable giving to health organizations, reducing funding for medical care, critical research, and public health programs, ultimately harming vulnerable populations and limiting medical advancements.

Extend<br> Endowment Tax

Extend the Endowment Tax (H.R. 8913) ($275 million): This bill would extend the endowment tax to more institutions by broadening the base of how the tax is calculated. It does so by excluding non-U.S. citizens and permanent residents from the endowment-per-student calculation, extending the tax to approximately 10-15 institutions not currently covered by it.

Increase<br> Endowment Tax

Increase the Endowment Tax to a Rate of 14 Percent ($10 billion): The TCJA imposed a 1.4 percent excise tax on investment income, primarily on the charitable resources at certain private nonprofit colleges and universities. This proposal would increase the tax rate tenfold to 14 percent, further undermining institutional missions without lowering tuition, improving access, or addressing student debt.

Advocacy Resources: Charitable Giving and Philanthropy

Understanding College and University Endowments
American Council on Education | Oct. 23, 2024

An Overview of College and University Endowments
American Council on Education | Oct. 23, 2024

Overview of the Charitable Act (S. 317, H.R. 601)
Council for Advancement and Support of Education (CASE)

2024 NACUBO-Commonfund Study of Endowments

Talking Points: Endowments
Higher Education Association Tax Coalition

Letter on the University Accountability Act and the Protecting American Students Act
American Council on Education | July 8, 2024

Charitable Giving Coalition

Tax-exempt Status and Finance

Overview

The tax-exempt status of public and private nonprofit colleges and universities is essential to their ability to serve students and the broader society. It helps institutions provide greater access at lower cost to millions of students and conduct innovative research in fields like healthcare and artificial intelligence.

However, rather than strengthening higher education, some proposed policies—such as eliminating nonprofit status for hospitals and ending tax preferences for tax-exempt bonds—would harm institutions, students, and local communities.

House Budget Committee Policies Under Review (with 10-year savings)

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Eliminate Nonprofit Status for Hospitals

Eliminate Nonprofit Status for Hospitals ($260 billion): Nonprofit hospitals reinvest revenue into community health services, medical research, and education, including through partnerships with higher education institutions that train future healthcare professionals. Eliminating the nonprofit status for hospitals could reduce essential community services, strain hospital finances, increase taxpayer burdens, and disrupt medical education programs.

End Tax Preferences for Other Bonds

End Tax Preferences for Other Bonds ($114 billion): Colleges and universities need multiple tools to respond to student and institutional needs as they build for the future. Protecting and enhancing access to low-cost financing can strategically help institutions make capital investments or take other steps to enhance their campuses in a time of scarce resources. However, this proposal does the opposite, eliminating the exclusion of interest earned on private activity bonds (so-called “tax-exempt bonds”), Build America bonds, and other non-municipal bonds.

Advocacy Resources: Tex-Exempt Status and Finance

Congress Must Uphold Nonprofit Hospitals’ Tax-Exempt Status
Association of American Medical Colleges | Dec. 3, 2024

Energy and Sustainability

Overview

Colleges and universities, early leaders in promoting green infrastructure, have long been committed to helping build sustainable communities. The Inflation Reduction Act included an array of tax credits that help institutions advance their campus climate initiatives and investments, as well as join global efforts to combat climate change.

Republican lawmakers are considering eliminating portions of the Inflation Reduction Act, stripping institutions of vital resources, which will result in lost American jobs and make communities and our nation less resilient.

House Budget Committee Policies Under Review (with 10-year savings)

Repeal Green Energy Tax Credits ($796 billion): The Inflation Reduction Act established Elective pay energy tax credits (also known as “direct pay”) that benefit tax-exempt organizations like colleges and universities for investing in an array of renewable energy technology projects, including solar, wind, geothermal, energy storage, infrastructure upgrades, and electric vehicles. This proposal would repeal these credits.