As the country’s oldest university sets the stage for a showdown against President Donald Trump that could decide the future of American higher education, its world-famous endowment is catching the spotlight.
Harvard University sued the federal government on Monday after Trump threatened to pull $9 billion in funding unless the school agreed to a set of demands that included broad changes to its admissions, discipline and management policies.
The Trump administration says its actions, which include a threat to revoke Harvard’s tax-exempt status, are a response to unchecked antisemitism on campus. Those standing in defense of Harvard and other institutions, including some local Jewish groups, claim antisemitism is being used as a veil for a larger master plan to control and dictate colleges and universities across the country.
Harvard University is generally seen as the wealthiest university in the world with a $53.2 billion endowment. The enormous sum is considered synonymous with the school’s eminence as the first higher education institution in the U.S.
As Harvard stands to potentially lose billions from the federal government — pending the ongoing and likely lengthy court case — some, including a former Harvard president, have publicly pondered if using the endowment during this unprecedented time is exactly what it’s meant for, at its core.
However, according to Harvard, there is a “common misconception” that endowments can be accessed like bank accounts.
“In reality, Harvard’s flexibility in spending from the endowment is limited by the fact that it must be maintained in perpetuity and that it is largely restricted,” the university’s website says.
That, said Bruce Kimball, emeritus academy professor at Ohio State University and co-author of Wealth, Cost, and Price in American Higher Education, has always been a point of tension for the public. As endowments at wealthy, elite universities have risen in value, so has their tuition, leaving many to ask why the burgeoning funds aren’t used to bring costs down.
The simple answer is 80% of Harvard’s endowment funds are restricted — donor-directed to specific programs, departments or purposes. Unrestricted funds account for approximately 20%.
Kimball, who lives in Newton and holds two degrees from Harvard, explained that endowments contain red tape-galore when it comes to universities accessing them for impromptu or emergency reasons.
A Harvard spokesperson declined to comment in response to questions from MassLive about the university’s endowment.
What is Harvard’s endowment?
Harvard’s endowment has existed for almost four centuries and is the university’s largest financial asset.
It is “a perpetual source of support for the university and its mission of teaching and research,” according to the school, and is managed by Harvard Management Company, a nonprofit financial firm owned by Harvard.
In 2017, then-Harvard President Drew Gilpin Faust said the endowment’s commitment is to make Harvard “as close to immortal as any earthly institution might be.”
Made up of more than 14,000 individual funds, the endowment’s two largest categories support faculty and students, including professorships, and financial aid for undergraduates, graduate fellowships, and student life and activities, according to the university.
A statue of John Harvard overlooks Harvard Yard at Harvard University in Cambridge.(Will Katcher/MassLive)
The endowment has grown substantially in recent decades. In 2013, it stood at $31 billion, meaning it’s increased by more than $20 billion in 12 years to reach today’s $53 billion-plus.
During the fiscal year ending June 30, 2024, the endowment distributed $2.4 billion, contributing to 37% of Harvard’s total operating revenue that year, the university’s annual financial report says.
In the report, Vice President for Finance Ritu Kalra and Treasurer Timothy R. Barakett wrote that “safeguarding the University’s financial resilience is vital,” referencing the endowment.
“Our financial resources, built over years through disciplined planning and sound financial management, allow Harvard’s schools and units to withstand shocks,” they wrote.
Could the endowment fill the federal funding gap?
Lawrence Summers, an economist and former Harvard president who previously served as U.S. Treasury secretary, recently set the stage in an article published by The New Yorker that the university could tap into its endowment in this historic moment.
“Harvard’s endowment is not there just to be envied or admired,” Summers said. “It’s there to be used, and it is hard to imagine a better use than maintaining the continuity of its operations at a moment of great threat like the present.”
The New Yorker article positioned Harvard’s endowment as a “war chest” as the school leads the higher education community in resisting the Trump administration.
However, Kimball said accessing the pot of wealth isn’t an easy venture, and the school has other tools to draw upon first.
Harvard and other elite universities have aggressively invested much of their endowments in illiquid assets, Kimball explained, meaning they’re assets that can’t easily be converted to cash without a significant loss in value.
He argued that Harvard would be better off selling bonds to weather the Trump storm, ultimately positioning itself to more accurately recover damages at the end of its lawsuit against the federal government.
“If you’re covering your damages due to the canceling of grants by the bonds that you floated, you can very accurately identify what are the damages as how much money you’re actually paying to cover those things,” Kimball said. “Whereas if you’re trying to sell a lithium mine in Chile or a copper mine in Zambia, the damages are very hard to calculate.”
If Harvard ultimately decides to use unrestricted endowment funds to cover lost federal dollars, the most accessible way would be drawing upon the fund’s annual income, versus dipping into the principal balance, Kimball said.
Last year, approximately 11% of Harvard’s operating revenues came from the federal government, according to its 2024 financial report.
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Read the original article on MassLive.
Read the original article on MassLive.