The Battle of Harvard with Trump creates a thorny financial situation

Harvard’s brewing conflict with Trump administration could have a high cost – even for the richest university in the country.

On April 14, the president of the Harvard University, Alan Garber, announced that the institution would not comply with the requests of the administration, in particular to “audit” the students and the teachers of Harvard for the “diversity from the point of view”. The federal government, in response, appeared $ 2.2 billion in multi -year subsidies and $ 60 million in multi -year contracts with the university.

According to CNN and several other media, the Trump administration has now asked the internal Return Service to revoke Harvard tax exemption. If the IRS follows, it would have serious consequences for the university. The numerous advantages of non -profit status include income tax on investment tax and tax deductions for donors, said education historian Bruce Kimball told CNBC.

Bloomberg estimated the value of Harvard tax advantages exceeding $ 465 million in 2023.

Non -profit organizations can lose their tax exemptions if IRS determines that they are committed to political campaign activities or gain too much income from unrelated activities. Few universities have lost their non -profit status. One of the few examples was the Christian institution Bob Jones University, which lost its tax exemption in 1983 for discriminatory racial policies.

The White House spokesman Harrison Fields told Washington Post that IRS had started investigating Harvard before President Donald Trump suggested on Truth Social that the University should be taxed as a political entity. “The Treasury Department did not respond to a request for CNBC comments.

A Harvard spokesperson told CNBC that the government had “no legal basis to cancel Harvard’s tax exemption”.

“The government has long exempt 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. This would lead to a decrease in financial aid for students, the abandonment of critical medical research programs and the loss of innovation possibilities. The illegal use of this instrument would have more largely consequences for the future of higher education in America.”

The federal government has put Harvard on another front, the Ministry of Internal Security leading to preventing international students from registering. The program of students and exchange visitors is administered by immigration and the application of customs, which is DHS.

International students represent more than a quarter of the Harvard student body. However, Harvard depends less financially on international students than many other American universities, as it already offers financial assistance based on international students in its undergraduate program. Many other universities require international students to pay full tuition fees.

Harvard spokesperson refused to comment on the CNBC to find out if the university would continue the administration on federal funds or any other reason. Lawyers Robert Hur of King & Spalding and William Burck of Quinn Emanuel represent Harvard, declaring in a letter to the federal government that his requests violate the first amendment.

Harvard, the richest university in the country, has more resources than other university institutions to finance a long legal battle and resist the storm. However, its massive endowment – which raised questions during recent developments – is not a piggy bank.

Harvard has an endowment of nearly $ 52 billion, with an average of $ 2.1 million in fundraising, according to a study by the National Association of College and University Business Officers, or Nacubo, and the director of Commonfund assets.

This size makes it larger than GDP in many countries.

The endowment generated a yield exercise of 9.6% during the last financial year, which ended on June 30, according to the latest annual report of the University.

Founded in 1636, Harvard had more time to accumulate assets as an old university in the country. He also has a robust donor base, receiving $ 368 million in grade in 2024. While the university noted that more than three-quarters of the gifts were on average $ 150 per donor, Harvard has history of donations to make former ultra-rich students.

Kimball, professor emeritus of philosophy and history of education at Ohio State University, attributes the disproportionate wealth of elite universities as Harvard to the desire to invest in more risky active ingredients.

University allocations were traditionally invested in a very prudent manner, but in the early 1950s, Harvard moved his allowance to 60% of shares and 40% of bonds, taking more risks and creating the opportunity of more increase.

“Universities that did not want to assume that the risk has been late,” Kimball told CNBC in March.

Other universities quickly followed suit, with the University of Yale in the 1990s, which would become the “Yale model” to invest in alternative assets such as hedge funds and natural resources. Although this has proven to be lucrative, only universities with large endowments could afford to take the risk and the reasonable diligence which was necessary to succeed in alternative investments, according to Kimball.

According to the Harvard annual report, the largest pieces in the endowment are allocated to investment capital (39%) and Hedge Funds (32%). Public shares constitute another 14% while real estate and bonds / advice represent 5% each. The rest is divided into cash and other real assets, including natural resources.

The university has made substantial portfolio allocation changes over the past seven years, notes the report. The Harvard Management Company has reduced the exposure of the endowment to real estate and natural resources by 25% in 2018 to 6%. These cuts allowed the University to increase its investment capital allowance. To limit exposure to shares, the allocation has increased its investment in hedge funds.

University allocations, although pruning in size, are not melting snow funds. The pools are in fact made up of hundreds, even thousands of smaller funds, the majority of which are limited by donors who are dedicated to areas, including teachers, scholarships or research.

Harvard has some 14,600 separate funds, 80% of which are limited to specific purposes, including financial assistance and teachers. Last financial year, the endowment distributed $ 2.4 billion, 70% of which were subject to donor directives.

“Most of this money was invested for a specific purpose,” said Scott Bok, former president of the University of Pennsylvania, in CNBC in March. “Universities do not have the capacity to open the proverbial piggy bank and take money in the same way.”

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

“It is true that a lot of money is restricted, but this is limited to things that you will already spend as a help for needs, studies abroad, libraries,” said Bok previously.

Harvard has $ 9.6 billion in funded funds that are not subject to donor restrictions. The annual report notes that “although the university does not intend to do so”, “these assets” could be liquidated in the event of unexpected disruption “under certain conditions.

Liquidate $ 9.6 billion in assets, almost 20% of the total funds endowed, would have the cost of future cash flows, because the university would be less to invest.

Harvard did not respond to CNBC requests on the increase in endowment expenses. Like most universities, it aims to spend about 5% of its endowment each year. Assuming that the fund generates investment yields to a high figure, 5% expenses allow the principal to grow and monitor the rate of inflation.

For the moment, Harvard carefully examines his operating budget. In mid-March, the university began taking austerity measures, including a temporary job break and refusing admission to graduate students on the waiting list for this next fall.

Harvard also issues $ 750 million in taxable bonds in September 2035. Last February, the university issued $ 244 million in tax exempt bonds. A multitude of universities, including Princeton and Colgate, also increases debt this spring.

So far, Moody’s has not updated his high -level AAA note for Harvard’s obligations. However, with regard to higher education as a whole, the rating agency is not so optimistic, which reduces its perspectives to negative in March.