Why Harvard's Endowment Can't Easily Replace Federal Funding

why can't Harvard simply utilize its substantial endowment to offset the loss of federal funding? Experts in finance and higher education explain that endowments are not a straightforward substitute for government funding due to various constraints. These include donor stipulations, legal obligations, and the specific priorities of research projects.

Catharine Bond Hill, former president of Vassar College, likened the situation to a family experiencing a sudden income reduction. She emphasized the need to re-evaluate spending priorities in response to the loss of a significant revenue stream, such as the potential freeze in federal grants.

The Trump administration announced a freeze on $2.2 billion in grants to Harvard, citing the university's stance on certain demands. Harvard, in turn, stated its commitment to its independence and constitutional rights, refusing to concede to the administration's requests.

Harvard's endowment, the largest among U.S. universities, reached $53.2 billion in 2024. However, this financial advantage doesn't necessarily translate to an easy replacement for lost federal funding. The median endowment for 658 U.S. colleges and universities was significantly lower, at $243 million, with a substantial percentage having endowments of $100 million or less.

The nature of endowments themselves presents limitations. Hill, now managing director of Ithaka S+R, described endowments as financial assets invested in various areas. A significant portion of this money comes from donors, who often specify how their contributions should be used.

These donations are not intended for immediate spending but are designed to generate earnings over time, supporting the donor's specific interests within the university. This creates a "collection of contracts" with donors, as Liz Clark, vice president of policy at the college business officers group, explained.

At Harvard, a significant portion of the endowment's annual distribution is directed to specific programs or departments, leaving a smaller percentage for discretionary spending. While still a considerable amount, this discretionary funding can be quickly depleted, potentially leading to financial trade-offs.

Federal funding plays a crucial role in research, often originating from agencies like the National Institutes of Health and the National Endowment for the Arts. These grants frequently come with national strategic priorities. The funding supports various aspects of research, including materials, staffing, and infrastructure.

The impact of federal funding freezes on universities remains uncertain. However, the consequences for research could be significant. As Cecilia Orphan, an associate professor at the University of Denver, pointed out, research conducted at institutions like Harvard often has global implications, and a reduction in funding could lead to its cessation or significant diminishment.