The endowment tax hike proposal extends a streak of hostility against American higher education by Republican lawmakers. Rep. Mike V. Lawler (R-N.Y.) became the latest member of Congress to introduce an endowment tax bill on Friday, proposing an 8.6% point tax increase for wealthy colleges and universities, including Wellesley.

The current 1.4% tax on endowments of higher education institutions whose endowments exceed $1 billion came into effect under the Tax Cuts and Jobs Act of 2017, enacted by a Republican-controlled House and Senate during Trump’s first term. Prior to 2017, endowments of private colleges and universities were exempt from federal tax as nonprofits. 

Now, when Republicans have regained a government trifecta in Washington, the reality of an increase in endowment tax could pass quickly. 

“Tens of millions in tax”

How much would the College need to pay under a tax of this scale?

Under the 2017 law, Wellesley would be expected to pay $587,999 in federal taxes. 

If Wellesley gets hit with a 10% endowment tax rate for the last fiscal year, during which it generated $93 million in endowment returns, the College would have to pay approximately $9.3 million in total in taxes.

To put the number into context, Wellesley would have to pay nearly 33% of its 2024 annual operating revenue of $283 million in taxes if a 10% endowment tax rate is enacted. 

Assuming the endowment maintains an 8.6% average annual return since 2014, Wellesley would pay approximately $43 million in taxes by 2034 by the News’ estimate. 

Financial Aid in Peril

Before the 1.4% tax was passed in 2017, President Paula Johnson said it would take a  “damaging toll” on Wellesley’s financial aid policy to enroll a socioeconomically diverse student body and maintain one of the lowest net prices among liberal arts colleges. 

“[It] would impede our ability to fulfill Wellesley’s mission to provide an outstanding education for our students, regardless of their financial background,” she wrote on Nov. 10, 2017.

Wellesley’s cost of attendance for the academic year 2024-25 is $92,060 including tuition, room and board, meal plan, insurance and student activity fee. 

To fund financial aid for students, the College has a budget of over $84 million, with the average aid package exceeding $65,000 per year. Wellesley relies heavily on its endowment to fund financial aid and other expenses. More than 60% of financial aid sources come from endowment income and distributions, according to data compiled from the 2023-24 annual report.

According to Professor of Economics Phillip Levine, such a tax would have a “very dramatic effect” on Wellesley’s financial circumstances.

“We would have to find ways to come up with a lot of money to pay that tax,” said Levine. “Realistically. there would be substantial cuts in a lot of areas, but certainly financial aid would be one of them.”

A College spokesperson said any increase in the endowment tax would have a significant impact on all aspects of Wellesley’s operating budget, particularly financial aid. 

“The College is examining various scenarios, depending on the size of the endowment tax that’s implemented. We’ll be able to share more details with the community as details of any endowment tax increase become clearer,” said a College spokesperson.

Lobbying 

The Wellesley News has previously reported that Wellesley, Amherst, Williams and Smith College hired a Washington, DC-based government relations firm Lewis-Burke Associates. 

Lewis-Burke Associates has previously lobbied for Wellesley on bills including the Department of the Interior, Environment, and Related Agencies Appropriations Act of 2025 and the Bipartisan Workforce Pell Act. 

The College also collaborates with the American Council on Education and other small colleges to advocate tax policies. 

The purpose of working with a lobbyist is to “educate our congressional delegation about what small liberal arts colleges do, who we educate, the power of our education, the financial aid we provide, and the outcomes for our students,” said a College spokesperson.

Levine believed that the political backlash institutions like Wellesley face stems from a populist argument that portrays them as being extremely expensive and generating significant financial returns. This criticism persists despite their generous financial aid policies. 

Lawler’s bill argued that a 10% excise tax rate can increase the financial incentive for universities to spend their endowment on students and academic programs.

However, colleges already spent significantly on the two areas Lawler mentioned. According to a report by the National Association of College and University Business Officers, nearly half of all spending in 2024 went toward funding student financial aid programs and 17.7% went to academic programs and research. 

“American higher educational institutions are under attack and in much broader dimensions. This is just one example of it. It’s a tough time to be operating in the world in which we live,” said Levine.

Contact the editors responsible for this story: Ruby Barenberg, Galeta Sandercock, and Sazma Sarwar

With last year’s 4.2 percent increase in investment return, the endowment returns to steady, positive growth after a 9.6% decline in 2022.

The endowment is broken down into five main asset classes: public equity, long term alternatives, semi marketable, fixed income and cash.

Public equity investment is the asset class that brought the largest return, growing by 18.2%. This comes as the broader stock market, namely the S&P 500 index, performed well, delivering over double-digit growth year-to-date. 

The endowment also saw positive net distributions in venture, growth equity and natural resources, according to Deborah F. Kuenstner, Chief Investment Officer. 

The College gained by selling previous oil and gas investments made back in 2017 before the Board decided to “prohibit new investments in fossil fuel funds”..Venture capital, which refers to providing startups with capital to bet on their longer-term growth, is one of the strong arms of the endowment. Long before the official establishment of the Investment Office, the Board of Trustees invested in the venture capital ecosystem, and now Wellesley has a “venture portfolio with top name venture capitalists,” said Kuenster. 

As the Investment Office looks for long-term picks, Kuenstner said they are optimistic about technology sectors, whether it’s AI-related development in cybersecurity, data management and data storage, or scientific breakthrough in biotechnology. 

The endowment does not currently have private credit, a 1.7 trillion market of loans provided by non-bank lenders. It also does not hold any other forms of currencies other than US dollars, even as the investing world rushes to double down on private credit and explore cryptocurrencies. 

No liquidity crunch

Wellesley’s private equity investment surpassed $1 billion in market value since 2021, according to the College’s annual reports published in the last three years. 

The surge in the College’s private equity investment comes as the wider industry grows significantly thanks to cheap cash in a near-zero interest rates environment. 

Since the Federal Reserve started hiking interest rates, private equity firms have struggled to strike deals and return cash to their investors who were eager to cash out their previous bets.

While the returns fall short of expectations in a normal private market environment, the College does not have “a liquidity crunch,”  a shortage in easily accessible assets to pay back debts, compared to peer institutions.

“Our private portfolio is quite mature,” said Kuenstner. “We have funds that are of older vintage where the assets are pretty mature. In some cases in venture funds, the positions had already been converted to public equities and there was room for distribution.”

In other words, the College has made “mature commitments” where the portfolio could include later-stage companies that allow the College to profit when those companies go public. 

Funding the renovation

The endowment supports the College’s operation. This year, it provides approximately 43% of operating revenue. 

In recent years, Wellesley has started a handful of construction projects across campus to renew older buildings and systems. From Clapp Library to the overhaul of residential halls, the College funded these critical repairs with debts, fundraising and the endowment fund. 

In April 2022, the Board also approved a special draw from the endowment to make critical repairs to buildings including Pendleton East, the Stone Center and the Davis Museum.

One of the priorities was to make sure the College can finance such projects while supporting usual operations. 

“In addition to generating the regular draw, which is around $100 and $125 million, we have to also generate a big part of the special project,” said Kuenster.

Overall, the endowment strategy is meant to support long-term financial strength of the College.
“This is a portfolio set up to produce results over the long run. It is not set up to be tactical,” said Kuenster.

Contact the editors responsible for this story: Sazma Sarwar and Lyanne Wang

The 9.6% endowment decline, which brought the endowment’s total value to $2.94 billion, came in sharp contrast to the record-breaking 46.5% returns the College enjoyed last fiscal year. The loss also represents the second-worst annual investment return Wellesley College has seen in the last 20 years.  

According to Chief Investment Officer, Debby Kuenstner, the losses were driven primarily by the poor performance of financial markets, which include public equities, hedge funds, fixed income, and private investments, which yielded negative returns.

The loss is not unexpected, according to Kuenstner. “When we had the 46.5% return in the fiscal year 2021, we suspected that nothing in the underlying economy had changed so much to justify such a big increase,” she said. “So our belief was that the fiscal and monetary policy during that period had pulled returns forward and that there would be some correction.”

The loss is not unexpected, according to Kuenstner. “When we had the 46.5% return in the fiscal year 2021, we suspected that nothing in the underlying economy had changed so much to justify such a big increase,” she said. “So our belief was that the fiscal and monetary policy during that period had pulled returns forward and that there would be some correction.”

Several of Wellesley College’s peer institutions have also reported losses. Williams College’s endowment saw an 11.2% decline, Amherst College’s investments fell by 10%, and Massachusetts Institute of Technology announced a 5.3% loss.

Endowment explained 

The endowment spending rate approved by the Board of Trustees stands at 4.25%. Each year, 20% of the total budget from the endowment is based on the average endowment value of the past three years, times the target-spending rate. The other 80% is derived from last year’s amount of spending, adjusted for inflation. 

Inflation rises, but spending remains unaffected

Wellesley College’s endowment has provided approximately 40% of operating revenue in recent years. Despite a decline in this year’s endowment, the College’s spending for the next two fiscal years will not significantly be affected, given previous positive returns. 

“So endowment distributions in [the 2023] fiscal year, what we’re spending right now, was driven in large measure by that extraordinary return that we had [in the 2021 fiscal year],” Kuenster said. 

She also estimates that there will be a spending bump in the 2024 fiscal year. 

Still, the immediate challenge of inflation may put pressure on the endowment’s support for the budget, given the unpredictable nature of the economy. 

“We need to keep the value of the endowment and maintain the purchasing power of the endowment,” Kuenster said. “Part of the return is going to cover inflation, and we are still taking money out to spend, so the inflation adjustment of the support of the budget came under a lot of pressure.” 

The endowment will also fund the College’s large-scale reconstruction project around academic and administrative buildings. 

“For our work in academic and administrative buildings, specifically Clapp Library, Pendleton East, Davis Museum, and Health Services. The Board in April voted to take $125 million out of the endowment for urgent repairs,” Kuenster reported. 

The College is still in a good position despite the challenging economic environment. “Over the long term, we have had top quartile investment returns,” she said.

During the Dean’s corner, Dean of Students Sheilah Shaw Horton announced the second COVID-19 booster clinic, which was held on Nov. 11 in Tishman Commons. Many changes were made to ensure the success of this second attempt at providing the new booster for students on campus. Additionally, Horton announced  the start of “First-Gen Week” at the College, in which campus-wide celebrations and activities will be held throughout the week to celebrate students who are the first in their families to attend college. Lastly, Horton addressed the issue of the several alcohol-related medical emergencies that occurred over Halloween weekend. She implored students to practice responsible drinking and announced that she is collaborating with the Office of Health and Wellness to promote safer drinking among students. 

Endowment Presentation 

Vice President for Finance and Administration and Treasurer, Piper Orton, gave a presentation on the College’s Endowment and its implications for current and future plans. Orton first detailed the cost of a Wellesley College education on an individual student basis, noting that the cost per student in 2022 was approximately $104,000, with the net cost after financial aid being roughly $43,000. She explained that each year, the College has to “find a gap” between the $104,000 cost and $43,000 net cost, and that it primarily comes from the endowment budget; the revenue acquired from both the endowment and tuition comprise the majority of the College’s income. Orton then provided a breakdown of the unique factors that financially impact Wellesley College differently as compared to peer institutions.