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Princeton president: I hope Congress doesn't tax our endowment

·Deputy Managing Editor

At the World Economic Forum in Davos, Switzerland, on Tuesday, Princeton University’s president, Christopher Eisgruber, told Yahoo Finance he’s been closely monitoring a debate over taxing college endowments.

Right now, college endowment earnings are exempt from federal income tax, as are donations to those endowments. But a number of people — from Malcolm Gladwell to Republican lawmakers — have been questioning endowments’ tax-free status. That status may be more at risk now that Republicans control Congress.

“I hope that the Congress doesn’t go there,” Eisbruber told Yahoo Finance Editor-in-Chief Andy Serwer, referring to taxing endowments.

Princeton’s endowment was valued at $22.2 billion at the end of its last fiscal year, making it one of the largest endowments at any US college. On its website, Princeton emphasizes that payout from its endowment funds 80% of Princeton’s scholarship budget and 50% of its operating budget.

Nassau Hall, the oldest building on Princeton's campus. Source: Wikipedia
Nassau Hall, the oldest building on Princeton's campus. Source: Wikipedia

“From our standpoint, we feel the most important thing is to be explaining what these endowments do for colleges and universities. At Princeton, they’re supporting our financial aid program. It’s more affordable to be a Princeton student today than when I was a student there,” Eisgruber said. “It’s more affordable for most students to go to a place like Princeton University than it is to go to their local state university because that endowment is paying for half of what the college or university does.”

Eisgruber added: “But as we get into a polarized period of politics, where people are looking at institutions as liberal or conservative, where you see increasing pressure on discretionary budgets, it’s something we have to pay attention to.”

For good reason. Soon, Congress will consider a proposal to mandate that a quarter of gifts to America’s richest colleges go toward middle-class financial aid, as Bloomberg points out. If colleges didn’t meet that requirement, donations would no longer be completely tax-deductible. President-elect Donald Trump would likely support and sign such a measure if it passed.

“I’m going to work with Congress on reforms to make sure that if universities want access to all of these special federal tax breaks and tax dollars, paid for by you, that they are going to make good-faith efforts to reduce the cost of college and student debt and to spend their endowments on their students,” Trump said in September, “rather than other things that don’t matter.”

These other things often include funding for the arts, specific academic departments, and potentially life-saving medical research.

More from Davos:

Marc Benioff: I’m not changing how I run my business under Trump