Republican tax bill spares Northwestern’s $9.8 billion endowment


Daily file photo by Daniel Tian

Northwestern’s endowment will not immediately be affected by the Tax Cuts and Jobs Act. The bill enacts a 1.4 percent excise tax on net investment for some private colleges.

Alan Perez, Reporter

Northwestern narrowly escaped a new endowment income tax as Republicans passed the most sweeping rewrite of the tax code in decades, bringing into question the future of University expenditure and investment activity.

The Tax Cuts and Jobs Act, a bill passed along party line and signed into law Friday after weeks of revisions, enacts a 1.4 percent excise tax on net investment income for private colleges with more than 500 students and assets with a market value of at least $500,000 per full-time student.

A previous House version of the bill set the minimum qualification at $250,000 per student, which would have placed NU within range. Negotiations after different House and Senate versions of the bill were passed, however, conceded to the higher Senate benchmark.

Director of media relations Jonathan Yates said while it seems Northwestern’s $9.8 billion endowment will remain untaxed, it is still not clear to the University what figures will be used to calculate the number of full-time students.

The number of full-time students as defined by the University — those taking three or more units — would have qualified NU for the tax, but the bill includes part-time students when computing full-time equivalent students. The University currently reports approximately 20,500 full-time equivalent students, Yates said, meaning Northwestern’s roughly $480,000-per-student endowment has yet to reach the tax threshold.

But Northwestern could face the tax if the value of its assets increases by about $500 million.

“It’s still not clear what the annual financial impact will be,” Yates said. “We do think it will eventually impact us.”

Maureen Fenty, business administrator for investments at Northwestern, said the office is still investigating the law’s impact and will know more in January.

While a potential change in NU’s investment activity remains unclear, critics have said the tax would significantly detract from important expenditure allocations, including financial aid efforts for low-income students.

A spokesman for the University was not immediately available to answer questions about future spending.

Other provisions of the law will likely have a more direct impact on individual students. Discharged student loan debt due to death and total, permanent disability will now be exempt from taxes.

Additionally, the law eliminates the individual health insurance mandate, a key provision of the Affordable Care Act.

Luke Figora, NU’s assistant vice president for risk management, said the 2010 health care law initially led students to enroll in “attractive” individual insurance plans on the ACA marketplace. But those plans tend to “dry up,” he said, and students have begun moving back to the Northwestern Student Health Insurance Plan because it provides better access to local health care systems, such as NorthShore University HealthSystem.

“I think there’s a chance we’re going to continue to see more of that with the repeal of the individual mandate,” Figora said. “These individual insurance markets will continue to struggle over the next couple years.”

Health experts predict the repeal of the mandate will cause insurance premiums to rise as young and healthy individuals leave the market, meaning the cost of NU’s student health insurance may increase.

Figora said any change in the price of the plan remains unclear, though the University is undergoing a proposal process that could result in a new insurance provider with a new cost. The request for proposal, he said, is a recurrent process to solicit bids from providers and will conclude in March.

Nevertheless, NU will still require half-time and full-time students to buy health insurance with coverage comparable to its own plan.

Students will have continued access to the Northwestern Student Health Insurance Plan, currently provided by Aetna. And though students who do not acquire outside insurance will no longer be penalized by the government, students who do not show proof of required coverage will be automatically enrolled and billed for the plan, as in the past, Figora said.

“The lack of insurance can be a barrier to access to care,” he said. “Northwestern has always felt very strongly that we want to remove any barriers to access to care for our students. … There have been no discussions to date that would change that policy.”

Additionally, previous House versions of the bill would have repealed tax exemptions for graduate student tuition waivers and deductions on paid interest on student loans.

The bill signed by the president keeps these provisions intact.

The repeal of tuition waivers “would have been just absolutely devastating to graduate students — not just at Northwestern, but nationally,” Yates said. “We’re extremely happy that was removed.”

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