Why faculties like Harvard cannot use endowments to interchange federal funding
So why can’t Harvard simply dip additional into its famously steep endowment?
Because the Trump administration introduced a $2.2 billion freeze in grants to the college this week after the varsity rejected its calls for, some critics have questioned why the Ivy League establishment and different rich colleges like it could’t simply make up for federal funding that method.
Finance and better schooling specialists say endowments aren’t a easy alternative for presidency funding due to restrictions associated to donor earmarking, legality and analysis priorities.
“If there’s a significant income that has disappeared, which is the risk from the administration, it’s like several household with a shock to their earnings stream,” mentioned Catharine Bond Hill, former president of Vassar Faculty. “You’d should determine the way you had been going to allocate your spending priorities.”
The Trump administration mentioned in an announcement Monday that it will lower the $2.2 billion in multiyear grants and $60 million “in multi-year contract worth” to Harvard due to what it considers the college’s “troubling entitlement mindset.”
The freeze was introduced hours after the varsity mentioned it wouldn’t concede to the administration’s calls for, which embrace auditing viewpoints of the scholar physique and proscribing the acceptance of worldwide college students who’re “hostile to the American values and establishments.
“The college is not going to give up its independence or relinquish its constitutional rights,” the college’s X account mentioned in an announcement Monday. “Neither Harvard nor every other non-public college can enable itself to be taken over by the federal authorities.”
Harvard has the biggest endowment amongst U.S. universities, at $53.2 billion in 2024. That’s larger than the gross home merchandise of just about 100 international locations. Yale College has the second-highest endowment, hovering round $41.4 billion.
However these elite colleges don’t characterize the norm. A 2024 Nationwide Affiliation of Faculty and College Enterprise Officers examine of 658 U.S. faculties and universities discovered that the median endowment was $243 million. And 30% of the collaborating universities had endowments of $100 million or much less.
Whereas Harvard little question has substantial funding, it doesn’t imply it could depend on its endowment to make up for loss, specialists say. Hill, managing director of the analysis and consulting group Ithaka S+R, in contrast the endowment to a pot of economic property which are invested in quite a lot of issues, from shares and bonds to actual property.
A lot of that pot of cash, Hill mentioned, comes from donors, together with alumni, foundations, area people members or anybody else seeking to help the establishments’ spending. And it’s not for use instantly.
“They don’t give it as a pot of cash to be spent this 12 months,” Hill mentioned. “They offer it as an endowment, in order that the earnings can be utilized over time to help the factor that the donor is within the college doing in perpetuity.”
There are additionally different restrictions. Liz Clark, vp of coverage on the school enterprise officers group, mentioned that basically, endowments may be seen as a “assortment of contracts” with donors.
“Donors might have given to help scholarships, they might have given to help college positions, maybe they donated to help a particular space of scientific inquiry or medical analysis,” Clark mentioned. “The college has a obligation to uphold that contract and settlement.”
At Harvard, for instance, donor phrases direct 70% of the annual distribution of its endowment to particular packages or departments or different functions. That leaves round 25%, Hill mentioned, for discretionary spending authorized by the board. It’s nonetheless a big quantity; nevertheless, Hill mentioned that “you’ll be able to burn via that fairly rapidly.” And the varsity might should make monetary trade-offs.
“That board-designated cash might have been earmarked to help need-based monetary assist for undergraduates,” Hill mentioned. “In the event that they spend it down on protecting this analysis shortfall, they will actually do it for some time, however when it’s gone, it’s gone. It could imply that they’ve to scale back spending in another areas the place that cash was getting used.”
Federal funding has additionally traditionally performed a essential function in analysis, specialists mentioned. Cecilia Orphan, an affiliate professor of upper schooling on the College of Denver, mentioned the funding usually comes from the Nationwide Institutes of Well being, the Nationwide Endowment for the Arts and different main companies.
And people sources usually include nationwide strategic priorities connected to them, Orphan mentioned. The Nationwide Science Basis, for instance, has been making concerted efforts to extend the nation’s competitiveness in STEM, she mentioned.
When a college receives a grant, Orphan mentioned, it’s normally damaged up in quite a lot of methods to help issues like supplies for analysis, staffing prices or building of bodily areas to conduct analysis.
“It is vitally troublesome for a college like Harvard or Columbia to conduct that type of cutting-edge analysis with out that type of infrastructural help that’s separate from the precise analysis itself,” Orphan mentioned.
Consultants say it stays to be seen how universities will adapt to such federal funding freezes. However, Orphan mentioned, the impression on analysis could possibly be devastating.
“The bigger implication here’s a college like Harvard is doing analysis that has world profit throughout quite a lot of areas, together with most cancers analysis and weapons growth and different strategic issues that we would have as a rustic and the world has,” Orphan mentioned. “While you lower the analysis funding, that signifies that analysis will stop or will probably be drastically diminished.”
