Harvard has an endowment of over US$50 billion. So why do federal cuts of a few billion matter?

Harvard, the nation's oldest and richest university, is weighing its next moves after refusing to make key changes the White House has demanded. (Sophie Park/Bloomberg/Getty Images via CNN Newsource)

Harvard University’s finances have become the latest target of the Trump administration – and experts say the hits could hurt.

In 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 US$2.2 billion in federal grants and contracts have been frozen and even more could be siphoned away if the other pressures materialize. Harvard Medical School is preparing for possible 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 richest university with a massive $53.2 billion endowment – a deep coffer that could help cushion any cuts – experts and a review of Harvard’s financials show the challenges with digging into that endowment and the seriousness of the Trump administration’s pressure.

“This threat is huge. It’s not by any means something to shrug off and it’s not going to be only Harvard,” said Sandy Baum, senior fellow at the Urban Institute who specializes in higher education finance.

Even with its mammoth endowment, Harvard says it has been funding nearly two-thirds of its operating expenses from other sources, including federal research grants and student tuition.

The university has seen a surge in donations following the administration’s funding freeze, with $1.14 million collected in under 48 hours, student newspaper The Harvard Crimson reported, citing a giving update by Harvard Alumni Affairs and Development, though the amount is far less than the funds that were pulled.

Now Harvard, which has emerged as a symbol of the Trump resistance after refusing to follow policy demands, will need to weigh its options.

“One of the hard things is everybody thinks ‘Harvard, they’re so rich it doesn’t matter.’ The fact is, Harvard is rich. It does put them in a better position to manage this situation, but they don’t have an indefinite amount of money, and not all of their funding is accessible,” Baum said.

Why universities don’t dig into their endowments

Endowments can’t be accessed at any time like bank accounts. They have to be maintained in perpetuity and are largely restricted.

About 80% of Harvard’s $53.2 billion endowment is earmarked for financial aid, scholarships, faculty chairs, academic programs or other projects, according to the school. The remaining 20% is intended to sustain the institution for years to come.

Tapping into the endowment may be impractical for several reasons, including that some of it is legally restricted, but also because some of the unrestricted money is tied up in illiquid assets, such as in hedge funds, private equity and real estate that can’t be easily sold.

Endowment gifts are intended to benefit both current and future generations at the university, meaning Harvard can only spend a small fraction each year.

Harvard, like many universities, has directed an annual payout rate of about 5-5.5% of its endowment’s annual market value, which in fiscal year 2024 resulted in roughly $2.4 billion to fund its operations. The Harvard Corporation, which runs the university, controls whether to increase or decrease that percentage.

“If there ever has been a moment to dip into the endowment, it’s right now because if they don’t, they’re going to lose their character as an institution,” said Baum, who added that decision is not without risks. “It’s obvious no matter how much money you have, if you spend at an incredibly rapid rate, it’s going to go down.”

Harvard has not said if it intends to reach deeper into its endowment as it weighs its next moves. CNN has reached out to the university for comment.

Drawing down on the endowment could mean less money for future generations of Harvard students – a possibility universities prefer to avoid, according to George S. McClellan, professor of higher education at the University of Mississippi and the co-author of “Budgets and Financial Management in Higher Education.”

“It’s generally considered a very bad thing if you have to dip into what’s called the ‘corpus’ of the endowment,” McClellan said, using a term for the “body” of the endowment funds.

“Generally speaking, that’s one of the last things a higher-ed institution wants to do.”

Universities have however faced tough times before and adjusted. In 2020, as the Covid-19 pandemic took hold, Harvard Corporation, which runs the university, dipped deeper into the endowment, approving a 2.5% distribution rate increase to the amount of money the university could tap into.

The university spends billions each year

The university’s revenue predominately comes from philanthropy, which accounted for 45% of $6.5 billion in total operating revenues in 2024. Another 21% of revenue 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 the money it takes in goes out. The university’s operating expenses came to $6.4 billion in fiscal year 2024: About 52% of that was spent on people’s salaries and benefits, 17% on space, and 19% on supplies and services, according to the university

Staffing makes up a huge portion of the university’s budget: about one-third of Harvard’s expenses last year, or $2.6 billion, went toward wages and salaries for faculty and staff, according to the university.

Following Trump’s re-election, the school began taking steps to shore up its finances.

Last month Harvard instituted a temporary hiring freeze it said was “meant 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 flocked to the bond market to raise cash at a near record pace with $12.3 billion in bonds issued in the first three months of the year, making it the biggest 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 since the beginning of the year in bonds, according to the data analysis.

“If you don’t know what’s going to happen tomorrow, you’re going to want to have enough money set aside to bridge you until things become clearer,” said Lisa Washburn, managing director of Municipal Market Analytics.

What a change in tax-exempt status might mean

In addition to freezing funds, the Trump administration has sought to turn up the pressure on the university by making plans to rescind the tax-exempt status, two sources familiar with the matter told CNN this week.

Changes to Harvard’s tax status are hard to quantify, experts say.

“It’s very hard to estimate tax rate,” said Baum from the Urban Institute. “The question is: What would they be taxed on? It’s not like they’re making 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 optimal for wealthy donors’ tax planning strategies. The cost of raising money could also skyrocket.

“They wouldn’t be able to issue tax exempt bonds,” Washburn of Municipal Market Analytics said. “They’re maintaining a huge program with a huge footprint. If you want to bring in the best professors, the best researchers and you want to have the best labs, that all costs money.”

The administration has also threatened to take away Harvard’s Student and Exchange Visitor Program certification, which allows the university to host international students.

If Harvard can’t host international students, that could also dip into revenues, experts say.

International students often pay full tuition at universities. They make up 27.2% of Harvard’s enrollment in the 2024-25 academic year, university data shows.

What’s on the line

Fewer funds might mean fewer people receiving financial aid or less research being done, experts say. The university will need to weigh its options.

“They have to figure out whether to give less financial aid, have bigger classes, tell faculty they can do less research. They have to figure out which of the many dimensions of their mission they’re going to cut back on,” said Gregory Mankiw, an economics professor at Harvard University. “Those are painful choices for any administration. These are terrible choices for society.”

Federal funding accounted for a large chunk of Harvard’s research money in fiscal year 2024.

“Federal funding is the University’s largest source of support for research, playing a pivotal role in enabling studies that deliver widespread societal benefits,” the university said in its 2024 report.

The cuts are already being felt.

Harvard’s School of Public Health, where 46% of the budget comes from federal funding, lost more than $60 million in funding for a tuberculosis research project.

The school made some layoffs in recent months, saying they were due to cuts in federal funding that hit before the freeze.

And Harvard Medical School, which was already in a budget deficit from previous years, is expecting that to get worse “due to tariffs, inflation, rising costs, and anticipated cuts and delays in federal research support,” according to a spokesperson for the medical school.

And the school is bracing for deeper cuts: 40% of its students are international, a spokesperson for the school said.

“The situation now is certainly extraordinary. We still don’t know how big the impact will be on Harvard’s finances,” he said. “We’ve been around since 1636 so we’ve seen lots of things. I have no doubt Harvard will be a great institution 30 years from now but in the next few years it will be really bumpy.”