Private colleges and universities do not act like nonprofits. They charge tuition far in excess of their actual cost, they participate in political campaigns, they actively engage in commercial activities (research/patents and sports), they provide excessive compensation and generous contracts to insiders, and discriminate. For that reason, they should not benefit from avoiding taxes on their endowments.
To incentive reinvestment in education, the endowment tax should be paired with a credit (applicable only against endowment tax) for scholarship dollars awarded. Ex: if endowment tax = X but you give out scholarships in that X amount, university owes $0 tax