Cambridge, Danceter House of Harvard University at Massachusetts.
Blake Nisen for Boston Globe via Getty Image
Harvard’s brooing struggle with Trump administration can come at a steep cost – even for the country’s richest university.
On April 14, Harvard University President Allen Garber Announced Will be an institution No compliance with administration demandsFaculty for Harvard students including “audit” and “viewpoint diversity”. Federal government, in response, $ 2.2 billion in multi-year grants and $ 60 million in multi-year contracts with university.
According to CNN and Many other news outletsThe Trump administration has now asked the Internal Revenue Service to cancel Harvard’s tax-free situation. If IRS follows, it will have serious consequences for the university. Many benefits of non-profit situation include tax-free income and tax deduction for donors on investment, education historian Bruce Kimball reported to CNBC.
Bloomberg In 2023, the value of tax profit of Harvard over $ 465 million was estimated.
If IRS determines that they are engaged in political campaign activity or are earning much more income from unrelated activities, non -profitable may lose their tax exemption. Some universities have lost their non-profit situation. One of the few examples was the Christian Institution Bob Jones University, which lost his tax exemption for racial discriminatory policies in 1983.
White House spokesman Harrison Fields told Washington Post President Donald Trump, before suggesting the truth social, started investigating Harvard that the university should be taxed as a “political unit”. The Treasury Department did not respond to the recommendation request from CNBC.
A spokesman for Harvard told CNBC that the government has no legal basis for “cancellation of Harvard’s tax exemption status”.
The spokesperson wrote in a statement, “The government has long exempted universities from taxes to support their educational mission.” “Our ability to execute our educational mission will be endangered by such an unprecedented action. This will result in reduced financial assistance to students, leaving important medical research programs, and lost opportunities for innovation. The illegal use of this device will have more widely serious consequences for the future of higher education in the US.”
The federal government has so far challenged Harvard on another front, in which the Homeland Security Department has threatened to prevent international students from enrollment. Student and exchange visitor programs are administered by immigration and customs enforcement, which falls under DHS.
International students make more than a quarter of the body. However, Harvard is economically less dependent on international students than many other American universities as it already provides required financial assistance to international students in their graduate program. Many other universities require international students to pay full tuition.
The Harvard spokesperson refused to comment to the CNBC whether the university would sue the administration on federal funds or any other basis. King and Speelding lawyers Robert Hur and Quin Imanuel’s William Burke are representing Harvard, Letter For the federal government that its demand violates the first amendment.
Harvard, the country’s richest university, has more resources than other educational institutions, which fund a long legal battle and storm season. However, its huge endowment – which has raised questions during recent events – is – Not Piggy Bank.
Why is the endowment of Harvard so big
Harvard has a settlement of about 52 billion dollars, an average of $ 2.1 million per student is in money, according to A Study By National Association of College and University Business Officers, or Naikbo, and Asset Manager Commonfund.
This size makes it larger than the GDP of many countries.
According to the university, the endowment generated 9.6% returns in the last financial year, which ended on June 30 Latest annual report,
Established in 1636, Harvard has more time to deposit property as the oldest university in the country. It is also a strong donor base, receiving $ 368 million in gift for settlement in 2024. While the university stated that more than three-fourths of gifts are an average of $ 150 per donor on an average, Harvard has a history of donating headlines from ultra-rich alumni.
Kimball blames the external assets of aristocratic universities such as Emeritus Professor, Harvard at the History of History of Kimball, Ohio State University.
The endowments of the university were traditionally invested very conservatively, but in the early 1950s, Harvard transferred his allocation to 60% equity and 40% bonds, raised an opportunity for more risk and more reverse.
“The universities who did not want to obey the risk fell back,” Kimball told CNBC in March.
Other universities soon followed the suit, leading to Yale University in the 1990s, which would become a “Yale model” to invest in alternative assets such as hedge funds and natural resources. Although it proved to be attractive, only the universities with large arrangements could spend only to be successful in alternative investments and to take proper hard work, according to Kimball.
According to Harvard’s annual report, the largest part of settlement is allocated to private equity (39%) and hedge funds (32%). Public equities form another 14% while real estate and bonds/tips make 5% in each. The remaining natural resources are divided between cash and other actual assets.
The university has made sufficient portfolio allocation changes in the last seven years, the report states. Harvard Management Company has increased the risk of settlement for real estate and natural resources by 6% in 2018. These cuts allowed the university to increase their private equity allocation. To limit equity exposure, endowment has raised its hedge fund investments.
Entrance is not a piggy
University endowment, although sometimes shocking in size, The fund is not less. The pools are actually made of hundreds or even thousands of small funds, most of which are banned by donors, which are dedicated to areas including professors, scholarship, or research.
Harvard has some 14,600 separate funds, of which 80% of which are limited to specific objectives including financial assistance and professorship. The previous financial year, settlement distributed $ 2.4 billion, of which 70% were subject to the instructions of the donors.
Scott Bok, former chairman of the University of Pennsylvania,, “Most of that money was placed for a specific purpose.” Told CNBC in March“Universities do not have the ability to open cosmic piggy bank and just hold the money in whatever they want.”
According to Morton Shapiro, former chairman of Northwestern University, some of these sanctions have been overplayed.
Bok said, “It is true that a lot of money is restricted, but it is limited to things that you are already going to spend like need-based help, studying abroad, libraries.”
How Harvard is stopping his finance
The money -rich money in Harvard is $ 9.6 billion which is not subject to donor sanctions. The annual report states that “while the university has no intention of doing so,” these assets “can be liquidated in the event of unexpected disruption under certain conditions.
Ability of $ 9.6 billion in property, approximately 20%of total funds, will come at the cost of future cash flow, as it will be less to invest in the university.
Harvard did not answer CNBC questions about increasing endowment expenses. Like most universities, it aims to spend about 5% of its settlement every year. Assuming that the fund generates higher—-ise investment returns, spending only 5% allows the principal to grow and keep coordination with inflation.
For now, Harvard is taking a tough look at his operating budget. In mid -March, the university began austerity measures, including a stagnation of hiring a temporary work and denying admission for graduate students for this upcoming decline.
Is also harvard Issue of $ 750 million in taxable bonds Due to September 2035. In this last February, the university released $ 244 million in tax-free bonds. A group of universities, including Princeton and Colgate, are also increasing debt in this spring.
So far, Moody’s has not updated its top level AAA rating to Harvard’s bond. However, when it comes to higher education, the rating agency is not so optimistic, to negative its approach in March.
