Harvard’s battle with Trump creates thorny financial situation

Harvard’s beer elaboration conflict with the Trump administration could have a strong cost, even for the richest university in the country.

On April 14, the president of Harvard University, Alan Garber, announced The institution would do it Do not meet the demands of the administrationEven to “audit” students and the Faculty of Harvard for the “diversity of views.” The federal government, in response, froze $ 2.2 billion in subsidies of several years and $ 60 million in contracts of several years with the university.

According to CNN and Multiple other mediaThe Trump administration has now requested the internal tax service that revokes Harvard’s tax. If the IRS continues, it would have serious consequences for the university. The many benefits of the non -profit state include tax free income on taxes and tax deductions for donors, said Education Historian Bruce Kimball to CNBC.

Bloomberg He estimated the value of Harvard’s tax benefits exceeding $ 465 million in 2023.

Non -profit organizations can lose their tax exemptions if IRS determines that they participate in the activity of the political campaign or obtain too many income from unrelated activities. Few universities have lost their non -profit state. One of the few examples was the Christian institution Bob Jones University, which lost its tax exemption in 1983 due to racially discriminatory policies.

White House spokeswoman, Harrison Fields, told the Washington Post That the IRS began investigating Harvard before President Donald Trump suggested in Truth Social that the university should be taxed as a “political entity.” The Department of the Treasury did not respond to a request for comments from CNBC.

A Harvard spokesman told CNBC that the government “does not have a legal basis to terminate Harvard taxes.”

“The government has long exempted tax universities to support their educational mission,” the spokesman wrote in a statement. “Such an unprecedented action would endanger our ability to carry out our educational mission. It would result in diminished financial aid for students, the abandonment of critical medical research programs and innovation opportunities.

The Federal Government has challenged Harvard in another front, with the Department of National Security threatening to prevent international students from registering. The student and exchange visitors program is administered by the application of immigration and customs, which falls under the DHS.

International students represent more than a quarter of Harvard’s student body. However, Harvard depends less financially on international students than many other American universities, since it already offers financial assistance based on the need for international students in their undergraduate program. Many other universities require international students to pay full registration.

Harvard spokesman declined to comment to CNBC on whether the University would sue the Administration for federal funds or any other reason. King & Spalding and William Burck’s Robert Hurck’s lawyers from Quinn Emanuel are representing Harvard, declaring in a letter To the federal government that its demands violate the first amendment.

Harvard, the richest university in the nation, has more resources than other academic institutions to finance a long legal battle and climate to the storm. However, its mass endowment, which has asked questions during recent developments, is not a pig bank.

Harvard has an endowment of almost $ 52 billion, with an average of $ 2.1 million in funds endowed with a student, according to a study by the National Association of Business Officers Colleges and University, or Nacubo, and Manager of the Commonfund Association.

That size makes it larger than the GDP of many countries.

The endowment generated a 9.6% yield the last fiscal year, which ended on June 30, according to those of the University Last annual report.

Founded in 1636, Harvard has had more time to accumulate assets such as the oldest university in the country. It also has a basis of robust donors, which receives $ 368 million in gifts to the endowment in 2024. While the University pointed out that more than three quarters of the gifts averaged $ 150 per donor, Harvard has a history of donations of owners of ultra -rich students.

Kimball, Professor Emeritus of Philosophy and History of Education at Ohio State University, attributes the huge wealth of elite universities such as Harvard to the will to invest in more risky assets.

The university endowments were traditionally invested in a very conservative way, but in the early 1950s, Harvard changed its allocation to 60% of actions and 40% of bonds, assuming more risks and creating the opportunity for more rise.

“The universities that did not want to assume that the risk was left behind,” Kimball told CNBC in March.

Other universities soon followed their example, with Yale University in the 1990s pioneer in what would become Yale’s “model” to invest in alternative assets such as coverage funds and natural resources. Although it was lucrative, only universities with great endowments could afford to assume the risk and due diligence necessary to succeed in alternative investments, according to Kimball.

According to Harvard’s annual report, the largest parts of the endowment are assigned to private capital (39%) and coverage funds (32%). Public actions constitute another 14%, while real estate and bonds/tips represent 5% each. The rest is divided between cash and other real assets, including natural resources.

The University has made substantial changes of portfolio allocation in the last seven years, the report points out. Harvard Management Company has reduced the exposure of the real estate and natural resources from 25% in 2018 to 6%. These cuts allowed the university to increase its assignment of private capital. To limit exposure to equity, the endowment has increased its investments in coverage funds.

University endowments, although occasionally they are amazing, are NO GANKING FUNDS. The pools are actually formed by hundreds or even thousands of smaller funds, most of which are restricted by donors to devote themselves to areas that include chairs, scholarships or investigations.

Harvard has about 14,600 separate funds, 80% of which are restricted to specific purposes, including financial aid and the chair. The last fiscal year, the endowment distributed $ 2.4 billion, 70% of which was subject to the donor directives.

“Most of that money was put for a specific purpose,” said Scott Bok, former president of the University of Pennsylvania in March. “Universities do not have the ability to open the Piggy Bank proverbial and simply take money as they want.”

Some of these restrictions are exaggerated, according to the former president of the Northwestern Morton Schapiro University.

“It is true that a lot of money is restricted, but it is restricted to things that you will spend as a help based on need, study abroad, libraries,” Bok said previously.

Harvard has $ 9.6 billion in funds endowed with donor restrictions. The annual report indicates that “although the university has no intention of doing so,” these assets “could be settled in case of unexpected interruption” under certain conditions.

Liquidating $ 9.6 billion in assets, almost 20% of the total endowed funds, would reach the cost of the future cash flow, since the university would have less to invest.

Harvard did not respond to CNBC consultations about the increase in endowment expenditure. Like most universities, their goal is to spend about 5% of their endowment every year. Assuming that the fund generates high -digit investment yields, spending only 5% allows the main to grow and maintain the rhythm of inflation.

For now, Harvard is analyzing its operational budget. In mid -March, the University began taking austerity measures, including a temporary hiring break and denying the admission of students waiting for graduated students for this next fall.

Harvard is also Issuing $ 750 million in taxable bonds with which September 2035. Last February, the University issued $ 244 million in tax exempt bonds. A series of universities, including Princeton and Colgate, are also increasing the debt this spring.

Until now, Moody’s has not updated its first -class AAA rating for Harvard Bonds. However, when it comes to higher education as a whole, the grades agency is not so optimistic, reducing its perspective to negative in March.