Treasury’s Tax-Exempt Rule Could Impact Giving and Borrowing Costs at Private Colleges

A proposed Treasury Department rule that could revoke the tax-exempt status of private nonprofit colleges over certain race-conscious programs and practices could have significant financial consequences for affected institutions, according to Moody’s Ratings. Moody’s identified potential losses in charitable giving, higher borrowing costs resulting from the loss of access to tax-exempt bonds, and new federal tax liabilities, although analysts said widespread loss of tax-exempt status is unlikely because institutions would likely seek to comply with a final rule. Compliance itself could also increase institutions’ legal and administrative expenses. The Treasury Department is accepting public comments on the proposal through early November, with a final rule expected to take effect in June 2027 if finalized as proposed.