Part 9—What’s Changing with Accountability, Oversight, and Endowment Tax

Recent updates to federal higher education law include three major changes that will reshape how colleges are funded, how students are protected, and how wealthy institutions are taxed. These reforms aim to increase transparency, ensure better outcomes for students, and rebalance how federal support interacts with institutional wealth.

Here is what families, counselors, and education professionals need to know.

New Accountability Standards for College Programs

What's changing: Starting July 1, 2026, colleges and universities will face new restrictions on using federal student loan funds for degree programs that consistently fail to provide graduates with adequate earning potential.

How it works:

• Earnings Test: If graduates from a program earn less than their peers with only a high school diploma or bachelor's degree (depending on the program level) in two out of three consecutive years, that program may lose eligibility for federal student loan funding.

• Enhanced Transparency: Schools must now publish clearer, more detailed data on program costs, typical loan debt amounts, and graduate employment outcomes for each degree program. This gives families concrete information about return on investment before enrollment.

• Early Warning System: If a program fails the earnings test for one year, schools must notify current and prospective students that the program is at risk of losing federal aid eligibility.

Why it matters: These measures protect students from investing time and money in programs that do not lead to viable career opportunities or livable wages, while encouraging schools to improve underperforming programs.

New Excise Tax on Large Private College Endowments

What's new: A graduated excise tax now applies to investment earnings from the largest private college endowments—but only affects institutions meeting specific size and wealth criteria.

Which schools are affected:

• Private, non-profit colleges and universities only (public institutions are exempt)

• Schools with at least 3,000 tuition-paying students

• More than half of students must be U.S.-based

• Endowment value must exceed $500,000 per student

Tax structure based on endowment wealth:

Endowment Per Student	Tax Rate on Investment Earnings
$500,000 – $750,000	1.4%
$750,001 – $2,000,000	4%
Over $2,000,000	8%

What gets taxed:

• Investment income and capital gains from endowment funds

• Interest earned on student loans held by the institution

• Royalties from federally funded research or patents

• Income from related foundations if used to support the college

Compliance requirements: Affected institutions must provide detailed annual reporting on student enrollment and other additional information. The law gives the IRS authority to close loopholes and prevent tax avoidance.

Why it matters: This measure generates revenue from institutions with substantial wealth while encouraging them to use more endowment funds directly for educational purposes rather than simply growing investments.

Regulatory Stability: Maintaining Current Loan Forgiveness Standards

What's changing: Implementation of newer, more complex rules around federal student loan forgiveness has been delayed, providing regulatory stability for the next decade.

How it works:

• Extended Timeline: The regulations introduced in November 2022 are on hold for all loans made before July 1, 2035. Instead, the rules from July 2020 will continue to apply.

• Borrower Defense Process: The procedures for canceling loans due to school fraud or misrepresentation remain consistent with pre-2022 standards.

• Closed School Discharge: Students whose schools shut down will continue to follow the discharge process established in 2020.

Why it matters: Borrowers considering loan forgiveness under these circumstances will face older, stricter standards for the next decade.

What This Means Moving Forward

These three changes work together to create a more accountable and transparent higher education landscape:

• For Students and Families: Better information about program outcomes helps inform college and major selection decisions.

• For the System: Wealthy institutions contribute more to federal revenue while maintaining incentives to use resources for education.

• For Colleges: Clear performance standards encourage investment in programs that truly serve students' career goals.

Understanding these changes is essential for making informed decisions about college selection, program choice, and financial planning for higher education.

Ready to Navigate These Changes?

The evolving landscape of higher education funding and accountability can feel overwhelming, but you do not have to figure it out alone. Whether you are planning for college, evaluating program options, or managing existing student loans, having expert guidance makes all the difference.

Contact us today to discuss how these changes might affect your specific situation and explore strategies that align with your educational and financial goals. We stay current on policy developments so you can focus on what matters most—achieving your educational objectives.

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This concludes our nine-part series examining the major higher education provisions in recent federal legislation. As implementation details continue to emerge and agencies provide additional guidance on these changes, we will keep you informed with updates.