Penn is expected to face a 4% federal excise tax on its endowment income starting July 1, 2026 — a move that University officials have warned could significantly hinder its ability to support student financial aid, faculty research, and capital growth.
Passed in July 2025 as part of the One Big Beautiful Bill, the legislation establishes a three-tiered endowment tax system for the nation’s wealthiest private universities. Penn will fall in the middle bracket of 4% — marking a 185% increase from its current rate.
In a statement to The Daily Pennsylvanian, Division of Finance Communications Director Annie Weinstein wrote that the tax will have a “material impact” on the University’s finances. She stated that the exact amount of taxes Penn owes year to year will vary as it is based on the University’s net investment income, which fluctuates with “market performance, realized gains, and other investment activity.”
“We do know that the higher rate will affect funding for things like student aid, faculty, and research, and remain committed to mitigating these effects through prudent financial stewardship,” Weinstein wrote to the DP.
According to Penn’s Office of Investments, the endowment “provides critical support to the University’s mission and programs by funding financial aid, teaching, research, healthcare, and more.”
Weinstein wrote that the tax is calculated based on Penn’s “endowment per student per capita,” which considers part-time students on a “full-time-equivalent basis.” She added that it is not “possible to provide a precise number” for Penn’s “student-adjusted endowment,” because that figure is calculated based on the Internal Revenue Service’s annual asset valuation.
The 4% tax bracket applies to schools with a student-adjusted endowment between $750,000 and $2 million. In an Oct. 12 interview with the DP, Executive Vice President Mark Dingfield described Penn as “right in the middle of that range.”
Penn’s current endowment tax is derived from the 2017 Tax Cuts and Jobs Act, which levied a 1.4% excise tax on private universities with endowments of more than $500,000 per student. In the 2024 fiscal year, Penn’s endowment grew by 7.1%, increasing from $21 billion to $22.3 billion as of June 30, 2024.
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Dingfield explained that the endowment tax applies to “all realized investment gains” within the University, which means that even assets beyond the endowment “would be subject to the same broad-based tax.”
He added that the “vast majority” of the endowment is “legally restricted to specific purposes.” Some contributions, for example, come from donors who attach the funding to specific schools or programs.
“The income from funds directed to or established for a particular school are required to be used by that school in accordance with the donor’s intent and the fund’s stated purpose,” Weinstein wrote. “Endowment distributions are generally categorized under one of several key areas, which include instruction, healthcare, financial aid, and research and other forms of academic support.”
She highlighted that each school is responsible for managing the funding it receives from the endowment.
“There’s very little that the administration says across every school,” Provost John Jackson Jr. told the DP in an Oct. 2 interview. “Our job is to talk with them about their approaches to dealing with some of these potential deficits.”
After being designated to a school, endowments are typically directed toward supporting “professorships or school-specific areas,” Dingfield said, adding that schools individually “decide how to prioritize the use of those [funds].”
A Penn administrator familiar with the endowment structure told the DP that while the University will be subject to the 4% tax, even that number is not “written in stone.” Penn is still “awaiting guidance from the IRS” about the implementation of the tax.
Weinstein similarly emphasized that Penn will refrain from making reactive decisions in light of an increased rate.
“Penn manages its endowment to ensure long-term strength and stability, rather than respond to short-term tax considerations,” Weinstein wrote. “The University will continue to comply fully with all applicable tax laws and regulations and will maintain investment and spending strategies that sustain funding for financial aid, faculty support, and research well into the future.”
Dingfield also noted that Penn will not “be forced to make rapid [or] rash decisions as a result of any one federal policy change.”
“We need to really be careful about prioritizing how we’re using those funds and making sure we’re really using them effectively to support the areas of highest priority, like financial aid,” Dingfield said. “Even though there may feel like there’s a lot of day-to-day disruption, on a long-term basis, I think we’re going to be just fine.”
