Congressional Republicans are considering a significant hike in the excise tax on the endowments of rich universities as part of a broader tax reform effort. Most private universities with more than $500,000 in endowment assets per student are subject to a 1.4 percent excise tax on their net investment income. Some Republicans have proposed raising that tax rate to 21 percent, in line with the corporate income tax rate.

Though a few dozen wealthy universities have grudgingly paid the 1.4 percent tax, the suggested 15-fold increase in the tax rate could realign schools’ incentives more fundamentally. It might behoove some institutions to increase enrollment in order to drive endowment assets below $500,000 per student, the threshold at which the tax kicks in.

Using data that universities report to the Education Department, I find 42 private institutions that met the criteria for the endowment tax at the end of fiscal year 2023. While the actual number of schools subject to the tax fluctuates from year to year due to changes in the market value of endowments and how the IRS counts students, the list is illustrative of the sorts of schools that must typically pay the tax.

Every single one of these schools could theoretically increase its enrollment and avoid the endowment tax. Brown University in Rhode Island, for example, has endowment assets of $547,685 per student and 11,323 students enrolled. If Brown’s enrollment rose by 10 percent to 12,403, endowment assets would fall below the 500,000-per-student threshold. Brown could thus avoid the endowment tax. (Note that in practice enrollment targets may differ, since endowments’ market values will fluctuate—as we saw this very week.)

Other universities might have a tougher time with this strategy. Yale University in Connecticut has endowment assets of $2,315,032 per student; it would need to increase enrollment from 17,601 to 81,494 (363 percent) to avoid taxation. Other elite colleges face a similar problem: dodging the endowment tax would require the average school on the list to more than double its enrollment. That’s a tall order, and schools would need to balance the tax benefits of that approach against other financial considerations.

Wealthy schools prize their exclusivity; low acceptance rates fuel the prestige and mystique that allow them to charge sticker prices above $90,000. But a large hike in the endowment tax would strengthen the financial incentive for expanding enrollment: the Tax Foundation estimates that wealthy schools could pay around $70 billion over the next decade if the 21 percent rate comes to pass.

Ironically, taxing endowments might pressure universities to pursue the social good those endowments are supposed to fulfill: expanding opportunity for disadvantaged students. There’s little evidence schools are using endowment funds for this purpose today. A paper by economist George Bulman found that when endowments grow, “wealthier colleges and universities do not increase the number of students they serve or the fraction of students receiving aid, and only modestly increase the generosity of aid packages. “Overall,” Bulman concludes, “colleges and universities appear to use greater endowment wealth to increase spending and to become more selective, resulting in higher institutional rankings, but do not increase the size or diversity of their student bodies.”

Lightly taxing endowments is supposed to free up resources for colleges to do socially beneficial things. Yet that requires society to place an extraordinary amount of trust in elite institutions to act altruistically rather than pursue their own narrow self-interest. Poll after poll shows that Americans’ confidence in higher education is declining. Perhaps a higher endowment tax will provide the nudge colleges need to do better.