Congress Passes Major Tax Reconciliation Bill

July 03, 2025

Congress completed action on a signature initiative of President Trump this week, a major reconciliation measure that includes significant tax provisions, changes to mandatory programs including federal student aid, supplemental funding for defense and immigration enforcement, and numerous other provisions. The legislation has a major budgetary impact as it contains over $4 trillion in tax cuts and around $2 trillion in mandatory spending cuts in other programs to offset some of these costs; it also raises the federal debt limit by $5 trillion. Like past reconciliation bills, the bill was partisan and passed with only Republican votes and by narrow margins in both chambers. It is expected the President will sign the bill in the coming days.

While there are broad policy changes, below are key policy changes in legislation in areas with impact on the University.

Tax Provisions

Endowment Tax: Although not a significant revenue source, the endowment tax was the focus of outsized attention. The legislation that passed the House raised the tax on Harvard and few other institutions to 21 percent, but ultimately the Senate moderated the increase and pared back the affected schools. The tax on net investment earnings will apply to private institutions with more than 3,000 (formerly 500) tuition paying students at the following tiers:

1.4 percent (the current rate) – for institutions with endowment assets of between $500,000 – $750,000 per student, measured on a full-time equivalent basis including international students
4 percent -- for institutions with endowment assets of between $750,000 - $2 million per student
8 percent -- for institutions with endowment assets above $2 million per student (including Harvard)

It adds new categories of investment income, including student loan interest and federally subsidized royalty income. These provisions, which will take effect next year, are estimated to save $760 million over 10 years.

Executive Compensation Tax for Nonprofits: This provision expands the 2017 executive compensation tax applied to tax-exempt organizations to include all employees earning more than $1 million.

Higher Education Provisions

Significant changes are made to the federal student financial aid programs that are estimated to reduce federal spending on these programs by approximately $300 billion over 10 years. These changes include eliminating the Grad PLUS Loan program, lowering aggregate caps on borrowing, adjusting student and institutional eligibility for federal aid programs through a new earnings-based test, consolidating student loan repayment plans, and adjusting Pell Grant eligibility.

Loans: While the bill eliminates the Grad PLUS program for all future borrowers, it maintains other loan programs, albeit with new limitations on annual and aggregate limits. Terms for undergraduate Stafford loans remain mostly the same as current law. For Parent PLUS borrowers, the loans will be capped at $20,000 annually per student and $65,000 in aggregate. At the graduate level, unsubsidized Stafford loans for graduate students will be capped at $20,500 annually and $100,000 in aggregate, although law and medical students have higher caps at $50,000 annually and $200,000 in aggregate. The bill also includes a new lifetime limit for all loans of $257,500, not including Parent PLUS borrowing. The new limits and caps will be phased in the next three years.

The bill also makes major changes to loan-repayment options for new borrowers, required for all new loans issued after July 1, 2026, but available as an option to all borrowers beginning after July 1, 2028. The bill includes one standard repayment plan with between a 10- and 25-year term based on the amount of outstanding principal, and one income-driven repayment (IDR) plan that replaces six other plans. The new IDR plan continues to be calculated based on adjusted-gross income but will no longer include income protection for certain basic needs and requires a minimum payment of $10 monthly.

Eligibility for federal aid programs: The bill creates a new earnings-based test to determine Title IV eligibility by academic program, structured similarly to the Department’s gainful employment rule in place for certificate programs. The test applies to students who complete, measured as a cohort four years after completion. For undergraduates, the majority of the cohort would need to be earning more than the median earnings of 25-34 year olds with only a high-school diploma in the same state as the program. At the graduate level, the test is similar but measured against the lowest of the median earnings of a working adult with a bachelor’s degree in the state, a working adult with a bachelor’s degree in the same field in the same state, or a working adult with a bachelor’s degree in the same field nationwide. Any program that fails this test in two-out-of-three years would lose Title IV eligibility.

Pell: Although the House’s reconciliation draft included a controversial proposal to limit the access of part-time students to Pell, the final bill takes a more modest approach in limiting Pell eligibility on the margins. The first would prohibit students who receive full cost-of-attendance scholarships from receiving Pell Grants—a policy that could affect students on athletic scholarships as well as those at schools like Harvard that offer comprehensive need-based grant aid. The second would prohibit students whose families have considerable wealth but not necessarily annual income from qualifying for Pell Grants, closing the so-called “Pellionaires” loophole. The bill also makes changes to the treatment of certain assets like family farms or foreign income in determining financial-aid eligibility.

In addition, the bill addresses a looming shortfall in the Pell program’s budget with a $10.5 billion infusion of mandatory funding. That influx of mandatory cash will also help offset the cost of an small expansion of the program included in the bill to provide Pell grants to students in short-term programs (between 150 and 599 clock hours) at accredited institutions.

Immigration

The bill transforms immigration enforcement and border security through significant new investments for border security operations and interior enforcement, which covers everything from physical barriers and technology (including new screening and vetting technology) to new facilities to personnel. Of interest to higher education, it initiates or increases a number of minimum fees for immigration visas and humanitarian related applications. Of note, the bill also includes the following –

$250 visa integrity fee, which will be assessed on all nonimmigrant visa applicants, like students and scholars, and could be reimbursed if the applicant meets the terms of their visa and other unspecified conditions.
$550 minimum fee to submit an employment authorization application for asylum applicants, those on parole, and those on Temporary Protected Status. An additional $275 fee would be required to renew or extend.
$40 electronic travel authorization fee (up from $21) for nationals of countries who are not required to have a visa to visit the US.

All fees are indexed to inflation, and they are in addition to existing fees.

What’s ahead: With this major bill complete, Congress is expected to return to a more typical summer focus on spending bills for the next fiscal year. The Administration has proposed very spare budgets for most agencies, including huge cuts to science agencies like 40% at NIH and 55% at NSF as well as significant rescissions of current year funding, which is also pending before Congress. For Fiscal Year 2026, the House has begun to consider some of their funding bills but has not yet brought forward any of those with the deepest cuts. The Senate is still in the early stages of its work with hearings ongoing. Appropriation committee leaders are trying to avoid the necessity of stopgap funding bills and the potential of a large omnibus at the end of the year.

As always, if you have any questions or concerns, pleased feel to be in touch with Suzanne Day (suzanne_day@harvard.edu), Kara Haas (kara_haas@harvard.edu), or Peter DeYoe (peter_deyoe@harvard.edu).