Federal budget reductions, even totalling several billion dollars, still hold significance against Harvard's endowment surpassing $50 billion, questioning their actual impact.
Harvard's Turbulent Financial Tides: Facing the Trump Administration's Assault
The Trump administration has set its sights on Harvard University's coffers, and the reverberations are sever. The Ivy League powerhouse finds itself under siege, with billions in federal funds on ice and potential threats to its non-profit status and foreign student enrollment.
With nearly $2.2 billion in federal grants and contracts frozen, Harvard Medical School is beginning to feel the strain, contemplating layoffs, and the School of Public Health, recently slapped with three stop-work orders on research, is tightening its belt, winding down two leases in off-campus buildings.
Harvard, America's oldest and wealthiest university, boasting a staggering $53.2 billion endowment, may seem impervious to financial shocks. Yet, experts assert that the storm brewing is far from a mere bump in the road.
"This is enormous. It's not something to shrug off; it's not confined to just Harvard," said Sandy Baum, a senior fellow at the Urban Institute focusing on higher education finance.
Despite its colossal endowment, Harvard relies heavily on external sources for sustenance, including federal research grants and student tuition. The university, resolute in its opposition to policy demands and emerging as a symbol of resistance, now faces a tricky decision.
"One of the toughest aspects is that people think, 'Harvard — they're rich, it doesn't matter.' Harvard may certainly possess plentiful funds, but it's not swimming in an endless sea of money. Not all its funding is accessible due to commitments and restrictions," Baum observed.
Why Tapping into Endowments Can Backfire
Endowment funds can't be liberated at will like a regular bank account. They're meant to endure in perpetuity, primarily restricted for the benefits of current and future generations at the university.
Approximately 80% of Harvard's endowment is reserved for financial aid, scholarships, faculty chairs, academic programs, or other projects, according to school records. The remaining 20% is intended to extend the university's life for generations to come.
Dipping into the endowment presents challenges, such as legally restricted funds and illiquid assets, like hedge funds, private equity, and real estate, difficult to offload quickly.
The university cautiously distributes an annual payout of about 5-5.5% of its endowment's annual market value, with the Harvard Corporation empowered to adjust this percentage.
"If there's ever been a time to plumb the endowment, it's now. If they don't, they risk losing their institutional identity," Baum suggested, acknowledging that such a move carries risks. "It's apparent that no matter how much wealth you possess, spending at an accelerated pace will hasten depletion."
Harvard has stayed mum on its intentions regarding deeper endowment dives, awaiting the storm to clear. CNN reached out to the university for comment.
Deleting from the endowment could mean less aid for future Harvard students, a predicament universities tirelessly endeavor to avoid, according to George S. McClellan, a higher education professor at the University of Mississippi and co-author of "Budgets and Financial Management in Higher Education."
"It's generally regarded as a very poor move to meddle with the core of the endowment," McClellan stated. "Generally speaking, that's the last thing a higher-ed institution wants to do."
Harvard, however, has weathered such storms before, adjusting its endowment distribution rate in 2020 as the Covid-19 pandemic gripped the nation.
The University's Revenue Sources and Expenditures
Harvard draws most of its revenue from philanthropy, which accounted for 45% of its $6.5 billion in overall operating revenues in 2024. The remaining 55% came from education, including tuition and housing, and federal and non-federal research grants, according to the university's 2024 financial update.
Nearly all the money the university takes in goes right back out. In fiscal year 2024, operating expenses totaled $6.4 billion: 52% on salaries and benefits, 17% on space, and 19% on supplies and services, according to university records.
Salaries and wages take up a considerable portion of the university's budget, with 33% spent last year on faculty and staff wages, according to university data.
Following Trump's re-election, the university began taking steps to fend off financial instability, instituting a temporary hiring freeze, which it stated was "designed to preserve our financial flexibility until we better understand how policy changes will unfold and can evaluate the scale of their impact."
Universities have sought solace in the bond market, issuing bonds in record numbers. Harvard alone has raised $1.2 billion in bonds since the beginning of the year, according to data analysis.
"If you don't have any idea what tomorrow holds, you'll want to have enough money set aside to see you through until things become clearer," said Lisa Washburn, managing director of Municipal Market Analytics.
Implications of a Tax-Exempt Status Revocation
In addition to freezing funds, the administration has signaled plans to rescind Harvard's tax-exempt status. Changes to Harvard's tax status are tricky to judge, experts contend.
"Estimating tax rates is difficult. The question is: What would they be taxed on? They're not generating profits," said Baum from the Urban Institute.
Harvard may be subject to taxes on property situated in Boston and Cambridge, and charitable contributions to the university would no longer be deductible, impeding wealthy donors' tax planning strategies. Increased fundraising costs could come into play as well.
"They wouldn't be able to issue tax-exempt bonds," Washburn of Municipal Market Analytics stated. "They run a vast program with a substantial footprint. To attract the best professors, the best researchers, and to sport the finest facilities, that all comes at a price."
The administration has also threatened to revoke Harvard's Student and Exchange Visitor Program certification, which allows the university to welcome international students. Losing this certification could impact revenues, experts claim.
International students frequently pay full tuition at universities, making up 27.2% of Harvard's enrollment in the 2024-25 academic year, according to university data.
What's at Stake
Less funding could result in fewer students receiving financial aid or reduced research output, experts say. Harvard will need to weigh its options.
"They've got to determine whether to reduce aid, increase class sizes, or tell faculty they can do fewer research projects. They've got to decide which avenues of their mission they'll scale back on. These are agonizing decisions for any administration. Such choices come with societal costs," said economics professor Gregory Mankiw of Harvard University.
Federal funding supported a significant chunk of Harvard's research money in fiscal year 2024.
"Federal funding is the University's most substantial source of research support, playing a pivotal role in enabling studies that foster widespread societal benefits," the university stated in its 2024 report.
The blows are already being felt, with Harvard's School of Public Health, heavily reliant on federal funding, losing over $60 million in funding for a tuberculosis research project. The school made some layoffs in recent months due to cuts in federal funding that hit before the freeze.
Harvard Medical School, already grappling with a budget deficit, anticipates these issues to worsen "due to tariffs, inflation, escalating costs, and anticipated cuts and delays in federal research support," according to a spokesperson for the medical school.
The university braces for deeper cuts, as 40% of its students are from abroad, according to a spokesperson for Harvard.
"The present scenario is certainly extraordinary. We're still in the dark about how extensive the impact on Harvard's finances will be. We've been around since 1636, and we've weathered storms before. I have no doubt Harvard will be a remarkable institution 30 years from now. However, the next few years are likely to be stormy," the spokesperson noted.
- The Trump administration's assault on Harvard University's finances has raised concerns, as the Ivy League institution contemplates layoffs and faces potential threats to its non-profit status and foreign student enrollment.
- Despite its $53.2 billion endowment, Harvard relies heavily on external sources for sustenance, including federal research grants and student tuition, and tapping into the endowment presents challenges due to legally restricted funds and illiquid assets.
- In the realm of education-and-self-development and general-news, experts argue that dipping into the endowment could mean less aid for future Harvard students, a predicament universities strive to avoid, while during the business of politics, Harvard may find itself at a crossroads as it weighs its options to ensure its continuity.
- The university has been impacted by the freeze on nearly $2.2 billion in federal grants and contracts, with Harvard Medical School and the School of Public Health feeling the strain, contemplating layoffs and tightening their belts.
- As the administration signaled plans to rescind Harvard's tax-exempt status, changes to the university's tax status are tricky to judge, and Harvard may be subject to taxes on property situated in Boston and Cambridge, and charitable contributions to the university would no longer be deductible, potentially impeding wealthy donors' tax planning strategies.
