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December 18, 2017

The final Republican tax bill includes a new tax on large private college endowments. About thirty schools will be affected, including six in Massachusetts.

Harvard, MIT, Smith, Wellesley, Amherst and Williams all will have to pay the tax because their endowments are worth more than $500,000 per student.

Ted Mitchell is president of the American Council on Education, which represents more than 1,800 college presidents. Mitchell says the endowment tax is a big step in the wrong direction.

“It’s very short-sighted,” Mitchell said. “This is really money. It’s coming out of funds that are being used to support student financial aid, money that’s being used to support student services, money that’s being used to support research.”

Mitchell says the endowment tax will undermine research and financial aid while stoking populist skepticism about elite colleges.

"I do think there is an anti-elitist attitude abroad in the land and I think that, sure, a thumb in the eye of the 30 richest institutions in the country has a little bit of attitude," Mitchell said.

Above all, though, Mitchell says the endowment tax is bad public policy.

"Rather than penalize a Harvard or another well-endowed institution, a better public policy idea is to encourage contributions to all kinds of institutions, and here, too, I'm quite worried that the tax bill is taking us in the opposite direction."

That’s because the tax bill doubles the standard deduction – something tax experts predict will reduce charitable giving to colleges and universities.

College leaders worry the new tax could eventually be expanded to hundreds of schools.

The tax legislation, which Congress plans to vote on this week, also preserves three education-related tax breaks.

Students and graduates still in debt can celebrate because the final bill drops a House proposal that would have eliminated the deduction for interest on college loans.

It also drops a controversial plan to tax the tuition waivers that graduate students receive typically in exchange for working as teaching or research assistants.

And the bill keeps private bonds tax-exempt, which colleges say allows them to finance renovations and new dorms in an affordable way.

Earlier: How The Republican Tax Overhaul Targets Large College Endowments

On Campus Radio speaks with Ted Mitchell, president of the American Council on Education (@ACEducation), about how proposed changes to the tax code will affect fundraising and investment in public and private higher education.

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