Harvard is staring at a billion-dollar budget shortfall from its clash with Trump

Mint

7 hours ago

Harvard University would face a budget shortfall of about a billion dollars a year if President Trump follows through on all of his plans and threats spanning research funding, tax policy and student enrollment, according to an analysis by The Wall Street Journal.
That grim math helps explain why Harvard has taken steps toward negotiating with the administration after months of defiance. The Journal's estimate, based on publicly available data, is for a worst-case scenario in which Harvard loses all federal research funding, federal student aid and its ability to enroll international students, and Congress hikes its annual endowment tax to 8%.
A sustained shortfall of that magnitude would severely strain Harvard's ability to manage its $6.4 billion annual operating budget. Though Harvard has a $53 billion endowment, more than 80% of the money is subject to donor restrictions, meaning it can't be touched to patch budget gaps without inviting lawsuits.
'They've got enough money to keep going for a while, but eventually they're going to have to make substantial cuts," said Robert Kelchen, a professor at the University of Tennessee, Knoxville, who studies education finance. 'You would change the future of the institution."
The Trump administration has sought to make Harvard a poster child in its fight against institutions it says haven't taken concerns about antisemitism and diversity programs seriously. Harvard has said it is working to promote intellectual openness in the classroom and to enroll students willing to engage across perspectives. Talks between the two sides were under way as recently as mid-June, according to a social-media post by the president.
The Trump administration on Monday told Harvard the university had violated federal civil-rights law over its treatment of Jewish and Israeli students, risking further funding. Asked about the pressure on Harvard's finances, a senior White House official said the school will receive no money 'until it ends its discriminatory and deeply embarrassing practices. The private sector is welcome to step in and support Harvard."
The university said in a statement: 'Harvard has made significant strides to combat bigotry, hate and bias. We are not alone in confronting this challenge and recognize that this work is ongoing."
Harvard has rejected Trump's demands for change and twice sued the administration, challenging the withdrawal of research funding and the ban on international students. A federal judge has halted the ban, a decision the Trump administration has said it would appeal.
Lawmakers were working this week to complete comprehensive tax legislation that included the increase in the endowment levy. Trump has also asked the Internal Revenue Service to revoke the university's tax-exempt status, a move that could slow donations and slap the university with a costly property tax bill.
Harvard President Alan Garber has told donors and others he is worried that the government's pullback from funding basic research jeopardizes Harvard's standing as a premier research institution globally. He has cited the Nature Index, a ranking of research entities in which Harvard places highly and many of the other top spots are held by Chinese institutions.
The administration has already cut off multiyear grants for Harvard amounting to $700 million a year in research dollars. That money supports research on such topics as breast cancer, colon cancer, pediatric HIV, and limb regrowth following amputation, a Harvard official wrote in a June court filing. Harvard 'cannot cover the funding gap itself," he wrote.
Harvard still has more financial levers to pull than many other schools, with around $3 billion in cash reserves and the ability to borrow more. The school often runs a budget surplus. Operating revenue in the 2024 fiscal year exceeded expenses by $45 million. The university borrowed $750 million in April to help cover budget gaps and has earmarked $250 million of its cash to fund affected research as a stopgap measure. Some of its schools and centers are seeking corporate funding.
Meanwhile, Garber has been trying to drum up gifts to a new Presidential Priorities Fund to give the university 'flexibility to address pressing needs and fresh opportunities as they arise." The university has also set up a presidential fund for donors who want to support research at the school. 'I am grateful to everyone who stands with Harvard as we continue to pursue our mission," Garber wrote in a fundraising appeal in May.
Some major donors have rallied, with the billionaire investor Len Blavatnik recently making a nearly $19 million gift to Harvard Medical School to fund life-sciences research, according to people familiar with the matter.
Other big donors who paused giving after the Oct. 7, 2023, attacks led by Hamas on Israel have kept their distance, saying they want to see Harvard move faster to combat antisemitism or promote free expression on campus. The 1636 Forum, a group founded by two alumni, has been urging donors to keep giving to Harvard but specify where any contributions they make go.
Another avenue open to Harvard is for its governing body, the Harvard Corporation, to approve a one-time increase in how much the school draws from the endowment, without touching restricted money. (In recent years, the endowment has funded more than a third of Harvard's annual operating budget.)
The Trump administration's actions have already led Harvard to cut back. It has frozen new hires, and Harvard's Kennedy School of Government is laying off staff and shrinking department budgets.
'Harvard is peering over the precipice," said Ted Mitchell, president of the American Council on Education, a trade group for higher education. If the school's court battles against the Trump administration don't succeed, he said, 'Harvard and American education will suffer a severe, perhaps irreparable blow."
Harvard's investment commitments to private equity, which includes venture capital and investments in fast-growing private companies, create other financial obligations. Private-markets fund managers can request hundreds of millions of dollars of previously committed cash from Harvard at any time. The school has agreed to hand over more than $12 billion over the next decade as investment opportunities emerge.
Harvard's exposure to private-equity funds, which generally promise high returns but are less liquid than investments in stocks or bonds, grew to 39% in 2024 from 20% in 2019, according to the school's financial reports. Part of the increase was driven by the sector's blockbuster returns in 2021. Income from private-equity investments began slowing in 2022 as rates rose and the market for initial public offerings froze. Harvard has shrunk its footprint in other illiquid areas such as real estate and natural resources.
The university has been willing to sell some of its private-equity holdings at a discount. Harvard this spring sold $1 billion in private-equity assets for 7% less than what its books said they were worth, according to people familiar with the matter, in a process that started last year. Its slate included stakes in managers Harvard doesn't currently plan to invest with, one of the people said.
Even a decisive court victory can only go so far in protecting Harvard's federal funding, said Aziz Huq, a law professor at the University of Chicago. Trump might not have the legal authority to take away research dollars that already have been promised to Harvard. But going forward, his administration could simply not promise the money again.
'It's that threat that's looming," he said.
Methodology: WSJ estimated the cost of an 8% tax on annual investment income by comparing it with the current endowment tax rate of 1.4%. The estimated $90 million potential loss in international student tuition was calculated by multiplying the number of undergraduates in 2024 coming from outside the U.S., who typically pay full costs, by last year's price of tuition, room and board. Also included in the loss estimate for college and graduate school is about $20 million in federal financial aid that is potentially at risk.
Write to Heather Gillers at [e-mail] and Juliet Chung at [e-mail]