In a campus-wide email on May 13, Wellesley College President Paula A. Johnson described the proposed increase in the federal endowment tax as “one of the most serious threats” facing the College. If passed, this legislation could raise the tax on realized gains from college endowments from 1.4% to 14%. Johnson warned that such a policy “would be devastating for the College.”
Wellesley relies heavily on its endowment to fund the essential components of operation. Each year, the endowment covers 45% of the College’s total $280 million operating budget, and provides $60 million of the $82 million distributed in financial aid.
“The generous financial aid we provide to more than half of our student body, and [our] operating support, depend on this funding,” according to Johnson’s email.
Since tuition revenue accounts for only 40% of the budget, the College has limited capacity to cover potential endowment losses through raised tuition alone. As previously reported by the News, according to the March 24 budget memo, a 4% increase in the comprehensive fee yields only a 1.8% increase in tuition revenue, showing that tuition increases can only offset a small percentage of potential losses.
To combat this proposed legislation, Wellesley is collaborating with over two dozen small colleges to “educate members of Congress about the significant impact this increased tax would have on our ability to offer financial aid and to carry out our educational mission,” according to the email.
Despite these dangers, the College is also working to strengthen its current financial aid structure with the addition of $3 million in financial aid, approved by the Board of Trustees earlier this year. This new funding would be used “to calculate a family’s financial need in a new way that will increase aid packages for about 750 current students and many newly admitted students,” according to the March 24 memo.
Still, the College’s actions will largely depend on if the endowment tax is actually passed. In a separate email to the News, the College acknowledged that, since “details of the [14%] tax are not finalized,” the College has “no details on … how a new endowment tax might affect college operations” and “no new information on changes to financial aid since the March memo.”
Questions concerning contingency planning, student employment, and broader long-term impacts remain unaddressed. The College plans to share more details with the community as details of any finalized endowment tax increase become clearer, according to the email.
