The Trump administration’s recent proposal to revoke the tax-exempt status of private nonprofit colleges over their diversity efforts could bring steep financial consequences for institutions, according to a report out this week from Moody’s Ratings.

Analysts with the ratings agency said widespread loss of tax status was “unlikely,” on the assumption that most institutions would probably try to comply with the proposed rules. However, even compliance could raise their legal costs and other expenses.

If colleges did lose status, the main revenue hit would be on fundraising as donors would no longer be able to make tax-exempt gifts, the analysts said. Additionally, losing the ability to issue tax-exempt bonds would be “substantially negative” for institutions, they added.

While the Moody’s team did not make detailed speculative estimates about the IRS plan’s costs to colleges, it is clear the change would be financially bad for the higher education sector.

Chief among those costs would be the potential loss of philanthropic dollars. Among Moody’s portfolio of rated institutions, gifts represented 6.6% of gift revenue in fiscal 2025 — a significant potential loss should donors move their giving to tax-exempt organizations to preserve their own write-offs.

“Philanthropic gifts are also a vital source of capital funding for new academic, residential and athletic facilities across higher education, and a decrease in large gifts for capital projects could further stress the balance sheets and debt capacity of institutions operating in a difficult environment,” analysts said.

Meanwhile, the added costs for institutions that lost their status of having to rely on taxable bonds would also likely be heavy. “An entity could ultimately have to absorb millions in additional debt service costs over the long term given the higher cost of capital of taxable debt,” the analysts said.

As for the federal tax bills colleges might face, they would likely vary dramatically among institutions. Moody’s described the overall magnitude of those bills as “somewhat uncertain.”

Read the full article about revoking the tax-exempt status of private colleges by Ben Unglesbee at Higher Ed Dive.