Fact check: Harvard's endowment is taxed, has limitations on spending

The claim: Harvard has a $54 billion untaxed hedge fund called an 'endowment'

On Aug. 24, President Biden announced he would cancel at least $10,000 in student loan debt for millions of borrowers. Many have voiced their disapproval of Biden's plan.

In an Aug. 25 Facebook post, conservative student group Turning Point USA claimed universities have piles of tax-free money and questioned why those institutions aren't paying for student loan forgiveness. The post made the claim through a screenshot of a tweet from its founder and president, Charlie Kirk.

"Harvard is sitting on top of a $54 BILLION hedge fund they call an ‘endowment’ that they pay zero taxes on," the post reads. "Yale has $31 Billion. Stanford $29 Billion. Princeton $26 Billion. ‘Elite’ schools sit on a goldmine but the middle class will foot the bill for student loan forgiveness."

The post, from an Aug. 24 tweet by Kirk, garnered more than 1,400 shares in its first six days. The original tweet garnered more than 18,900 likes in its first week.

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The claim is false.

Harvard maintains an endowment – not a hedge fund – and it pays taxes on it, a Harvard spokesperson said. In addition, hedge funds and endowments are very different things, experts say. Unlike a hedge fund, an endowment accepts charitable donations, and its revenue is used for philanthropic purposes, not to return money to investors.

USA TODAY reached out to Turning Point and Kirk for comment. Turning Point didn't respond, and a spokesman for Kirk provided no evidence supporting the hedge fund claim.

Harvard Yard on the campus of Harvard University in Cambridge, Mass., on March 12, 2020.
Harvard Yard on the campus of Harvard University in Cambridge, Mass., on March 12, 2020.

Harvard's endowment, which is taxed, is different from a hedge fund

Harvard's endowment, which was $53.2 billion at the end of fiscal year 2021, is not a hedge fund by any definition of the term.

The U.S. Securities and Exchange Commission defines a hedge fund as a pool of investors' money seeking to make money for those investors. Meanwhile, a college endowment, which is a combination of charitable donations, gifts and investment income, is used to further the work of a university and its programs.

"It would be wrong to compare any endowment with a hedge fund," Tom Kehoe, an Alternative Investment Management Association spokesperson told USA TODAY.

"Endowments are a type of investor that allocate to hedge funds and other investments, whether that be traditional or alternative," Kehoe said. "A hedge fund is a pool of money managed by professional fund managers who use a wide range of strategies and sophisticated risk management tools to help manage investors portfolio risk and protect investors money."

Harvard's endowment supports the university's teaching, financial aid, research and more, according to the university's website.

And contrary, to the post's claim, endowments are taxed.

A sweeping tax bill signed into law in 2017 by then-President Donald Trump created a new tax on large endowments at colleges and universities. This new policy marked the first time that investment income at higher institutions would be subject to taxes. It imposed an annual 1.4% excise tax on private nonprofit colleges and universities enrolling at least 500 students with endowment assets exceeding $500,000 per student.

Harvard is one of the schools required to pay this tax.

Jason Newton, a Harvard spokesperson, said the 1.4% tax is just one of many taxes the university regularly pays. In 2019, for example, the endowment paid an estimated $37.7 million in taxes, according to the university's financial report. The university did not detail the endowment tax bill for 2020 and 2021, instead reporting it among other liabilities on the school's Form 990 report for those years.

Fact check: Canceling student loan debt would cost the federal government billions

Harvard's $53.2 billion endowment was the largest in the country in fiscal year 2021. That year, Yale's endowment value was $42.3 billion, Stanford's was $37.8 billion and Princeton's was $37.7 billion.

This claim has also been debunked by PolitiFact.

Our rating: False

Based on our research, we rate FALSE the claim that Harvard has a $54 billion untaxed hedge fund called an "endowment." A spokesperson for the university said it pays taxes on its endowment. Also, a university endowment is not the same as a hedge fund. Unlike a hedge fund, an endowment accepts charitable donations and can be used only to further the work of the university.

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This article originally appeared on USA TODAY: Fact check: Harvard's endowment is taxed, not a 'hedge fund'