The Trump administration has recently targeted Harvard University’s finances, and experts warn that this could have substantial negative consequences.
Over the past week, the administration has threatened Harvard University’s funding from multiple angles: freezing billions in federal funds and potentially revoking its non-profit tax status and its ability to enroll foreign students.
More than $2.2 billion in federal grants and contracts have been frozen, and even more funds could be diverted if the administration’s other pressures materialize. Harvard Medical School is preparing for potential layoffs, and the School of Public Health, which received three stop-work orders on research this week, is winding down two leases in off-campus buildings.
While Harvard is the nation’s oldest and wealthiest university with a substantial $53.2 billion endowment – a significant financial reserve that could help mitigate any cuts – experts and a review of Harvard’s financial records highlight the challenges involved in accessing that endowment and the severity of the Trump administration’s pressure.
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Sandy Baum, a senior fellow at the Urban Institute specializing in higher education finance, stated, “This threat is immense. It’s not something to be dismissed, and it won’t affect Harvard alone.”
Despite its massive endowment, Harvard reports that it funds nearly two-thirds of its operating expenses from other sources, including federal research grants and student tuition.
Advertisement Feedback Following the administration’s funding freeze, the university has seen a surge in donations, with $1.14 million collected in under 48 hours, according to a giving update by Harvard Alumni Affairs and Development reported by the student newspaper The Harvard Crimson. However, this amount is significantly less than the funds that were withdrawn.
Harvard, which has become a symbol of resistance against the Trump administration after refusing to comply with policy demands, now faces the challenge of weighing its options.
“One of the misconceptions is that people think, ‘Harvard is so rich, it doesn’t matter.’ The reality is that while Harvard is wealthy, it doesn’t have an unlimited amount of money, and not all of its funding is readily accessible,” Baum explained.
Why Universities Don’t Readily Access Their Endowments
Endowments cannot be accessed like bank accounts. They are intended to be maintained in perpetuity and are largely restricted.
Approximately 80% of Harvard’s $53.2 billion endowment is earmarked for financial aid, scholarships, faculty chairs, academic programs, or other projects, according to the university. The remaining 20% is intended to ensure the institution’s long-term sustainability.
Accessing the endowment may be impractical for several reasons, including legal restrictions and the fact that some unrestricted funds are tied up in illiquid assets, such as hedge funds, private equity, and real estate, which cannot be easily sold.
Endowment gifts are intended to benefit both current and future generations of students, meaning Harvard can only spend a small fraction each year.
Like many universities, Harvard has adopted an annual payout rate of about 5-5.5% of its endowment’s annual market value, which in fiscal year 2024 resulted in approximately $2.4 billion to fund its operations. The Harvard Corporation, which oversees the university, has the authority to adjust this percentage.
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“If there ever was a time to tap into the endowment, it’s now, because if they don’t, they risk losing their character as an institution,” said Baum, who also acknowledged the risks involved. “It’s clear that no matter how much money you have, spending at an incredibly rapid rate will deplete it.”
Harvard has not disclosed whether it intends to increase its reliance on the endowment as it considers its next steps. A news outlet has reached out to the university for comment.
Drawing down on the endowment could mean less funding for future generations of Harvard students, a scenario universities prefer to avoid, according to George S. McClellan, professor of higher education at the University of Mississippi and co-author of “Budgets and Financial Management in Higher Education.”
“Generally, it’s considered very unfavorable to dip into the ‘corpus’ of the endowment,” McClellan explained, using the term for the “body” of the endowment funds. “It’s one of the last things a higher-ed institution wants to do.”
However, universities have faced financial challenges in the past and have made adjustments. In 2020, during the Covid-19 pandemic, the Harvard Corporation increased the endowment distribution rate by 2.5% to provide the university with more accessible funds.
A general view of signage for Harvard Medical School on Wednesday at Harvard Medical School in Boston. Erica Denhoff/Icon Sportswire/AP The University’s Significant Annual Expenditures
The university’s revenue primarily comes from philanthropy, which accounted for 45% of its $6.5 billion total operating revenues in 2024. Another 21% came from education, including tuition and housing, and 16% from federal and non-federal research grants, according to the university’s 2024 financial update.
Nearly all of the university’s revenue is spent. Operating expenses totaled $6.4 billion in fiscal year 2024: approximately 52% went towards salaries and benefits, 17% towards space, and 19% towards supplies and services, according to the university.
Staffing constitutes a significant portion of the university’s budget: about one-third of Harvard’s expenses last year, or $2.6 billion, went towards wages and salaries for faculty and staff, according to the university.
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Following Trump’s re-election, the university began taking steps to bolster its finances.
Last month, Harvard implemented a temporary hiring freeze to “preserve our financial flexibility until we better understand how changes in federal policy will take shape and can assess the scale of their impact.”
Universities have increasingly turned to the bond market to raise cash, with $12.3 billion in bonds issued in the first three months of the year, the largest single quarter since the start of the financial crisis when $12.4 billion was raised in the first three months of 2009, according to Municipal Market Analytics.
Harvard alone has raised $1.2 billion in bonds since the beginning of the year, according to the data analysis.
“When the future is uncertain, it’s prudent to set aside sufficient funds to bridge the gap until things become clearer,” said Lisa Washburn, managing director of Municipal Market Analytics.
Potential Impact of a Change in Tax-Exempt Status
In addition to freezing funds, the Trump administration has explored revoking Harvard’s tax-exempt status, according to sources familiar with the matter.
Experts say it is difficult to quantify the impact of changes to Harvard’s tax status.
“Estimating the tax rate is very challenging,” said Baum from the Urban Institute. “The question is: What would they be taxed on? It’s not like they are generating profits.”
Harvard could potentially have to pay taxes on property it owns in Boston and Cambridge, and donations to the university would no longer be tax-deductible, making them less attractive for wealthy donors’ tax planning strategies. The cost of fundraising could also increase significantly.
“They wouldn’t be able to issue tax-exempt bonds,” said Washburn of Municipal Market Analytics. “They maintain a large program with a significant footprint. Attracting the best professors and researchers and having the best labs all comes at a cost.”
The administration has also threatened to revoke Harvard’s Student and Exchange Visitor Program certification, which allows the university to host international students.
Experts say that if Harvard cannot host international students, this could also lead to a decline in revenues.
International students often pay full tuition at universities. They comprise 27.2% of Harvard’s enrollment in the 2024-25 academic year, according to university data.
What’s at Stake
Experts say that reduced funding could mean less financial aid or less research being conducted. The university will have to carefully weigh its options.
“They have to decide whether to reduce financial aid, increase class sizes, or limit faculty research. These are painful choices for any administration and terrible choices for society,” said Gregory Mankiw, an economics professor at Harvard University.
Federal funding constituted a large portion of Harvard’s research budget in fiscal year 2024.
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