The Trump administration is demanding that at the least 60 U.S. faculties and universities change their insurance policies or lose out on billions of {dollars} in federal funding.
In Harvard College’s case, the federal government has accused the Ivy league college – to date with out offering any particular proof – of violating some college students’ civil rights by permitting different college students to have interaction in what the authorities characterize as antisemitic speech. The federal government has demanded broad oversight of Harvard’s admissions insurance policies, together with modifications in its hiring processes and campus tradition.
Harvard stands to lose out on greater than US$2.2 billion. It might appear to be higher insulated from this strain than many different faculties as a result of it has the nation’s largest academic endowment – a reservoir of shares, bonds and different monetary belongings that helps fund its operations, analysis and scholarships. Harvard’s endowment totaled greater than $53 billion in 2024.
As a nonprofit regulation scholar, who served within the Treasury Division’s Workplace of Tax Coverage within the Eighties, I research and write about each state and federal regulation because it applies to nonprofit organizations. I consider that the regulation permits most faculties and universities to extend spending from their endowments in gentle of the monetary pressures so a lot of them are dealing with.
Precedents for reinforcing endowment spending
Not all endowments are alike.
They are usually composed of an array of smaller funds, a few of that are topic to authorized restrictions that make it unattainable for the colleges they assist to freely use these belongings.
Universities should respect the bounds donors placed on their presents, similar to tying them to particular scholarships, funding jobs held by sure sorts of professors or supporting the development or upkeep of a selected constructing.
It’s as much as a college’s governing board to determine how a lot of the college’s endowment can be spent in a given yr.
As Harvard’s monetary report for its 2024 fiscal yr places it: “There is a common misconception that endowments, including Harvard’s, can easily be accessed like checking accounts.” That’s undoubtedly not the case.
Nonetheless, some school and college boards did permit elevated endowment spending on the peak of the COVID-19 pandemic and the Nice Recession, which lasted from late 2007 till mid-2009.
Throughout that downturn and the monetary disaster that precipitated it, the worth of endowments, together with most monetary belongings, plummeted.
About 80% of Harvard’s 14,000 separate endowment funds are reserved for “specific programs, departments or purposes.” However others are much less restricted, Harvard has said within the monetary stories it makes out there to the general public.
Whereas it’s all the time vital to proceed with care when spending cash reserved to be used on a wet day or to make sure the long-term existence of a revered establishment, most faculties and universities are freer to dip into their endowments than they could understand when circumstances get stormy.
Leeway in an vital regulation
In all states besides Pennsylvania, U.S. endowments are topic to a 2006 mannequin regulation often called the Uniform Prudent Administration of Institutional Funds Act.
Underneath this regulation, managing and investing an endowment requires the college to contemplate its charitable functions and monetary wants, whereas respecting the intentions of the donors who offered its belongings. These are state legal guidelines, not federal statutes. In most states, a college could spend as a lot of an endowment fund because it deems “prudent.”
Exercising that prudence requires the consideration of a number of elements.
They embody the needs of the establishment as an entire and the actual endowment fund, prevailing financial circumstances, and what different monetary sources the establishment can faucet. Nevertheless, in nearly one-third of states, together with California and New York, yearly spending greater than 7% of an endowment’s truthful market worth, measured by a three-year common, is presumed to be imprudent.
However that isn’t a authorized most as a result of the mannequin regulation’s drafters famous that “circumstances in a particular year” may simply void that presumption. Primarily based on my research of nonprofit regulation, together with the legal guidelines that apply to increased schooling, I’m assured that this caveat may simply apply to the Trump administration’s education-related spending cuts in 2025, simply because it did through the pandemic and the Nice Recession.
What’s extra, endowment spending fee by universities in 2024 was 4.8%. Because of this, many universities, together with these in states with a 7% cap on prudent spending, will probably have the ability to enhance their use of endowment funds to keep up their budgets at prior ranges.
As well as, residing donors can launch any restriction they positioned on the funds they gave universities which are nonetheless held of their endowments. Even when these funds are from donors who’ve died, a college can ask a courtroom to launch restrictions which have develop into impractical or wasteful.
The Uniform Prudent Administration of Institutional Funds Act additionally permits establishments to raise restrictions on all endowment funds which are greater than 20 years outdated and comparatively small. This quantity varies from state to state and sometimes ranges between $25,000 and $100,000
Archon Fung, a John F. Kennedy College of Authorities professor, addresses college students, school and different members of the Harvard College group on April 17, 2025.
AP Picture/Charles Krupa
A bias towards accumulating
Along with Harvard, different examples of the biggest increased schooling endowments embody Yale with $41 billion, Princeton with $34 billion and Columbia, which has some $15 billion. All three are among the many 60 faculties the Training Division is investigating for allegedly failing to “protect Jewish students on campus.”
Why do the boards of even these universities are inclined to hesitate to dip deeply into their endowments when their income declines?
One clarification is that as a result of endowments can improve a college’s status, its leaders and endowment donors have a bias towards accumulating quite than spending. One other is that board members have an obligation to guard their establishments’ long-term viability. Boards additionally bear a duty to protect funds for a future wet day, irrespective of how extreme the present turbulence could also be, how giant the endowment has develop into or how profitable the college’s present fundraising efforts are.
Which will clarify why Harvard is reportedly in talks with funding banks about issuing $750 million in bonds that may permit the college to fulfill its spending wants with out dipping so deeply into its endowment.
Extra assaults may very well be on the best way
On the similar time, the Trump administration’s commerce, fiscal and different insurance policies could proceed to roil monetary markets, decreasing the worth of college endowments, for months or years to come back.
The federal authorities is reportedly wanting into whether or not it could revoke Harvard’s tax-exempt standing, a drastic transfer that will don’t have any comparable precedents.
In mid-April 2025, Harvard started to push again on the Trump administration’s calls for, saying that they violate the free speech rights protected by the Structure’s First Modification and “invade university freedoms long recognized by the Supreme Court.” Harvard’s donors have responded to the resistance of the college’s leaders with a flurry of recent presents.
For my part, it’s affordable for faculties and universities to contemplate stepping up their endowment spending because of the Trump administration’s actions that would intrude with increased schooling income. Growing endowment payouts now may ease, though not totally remedy, the mounting crises that schools and universities of all types now face.
The John F. Kennedy College of Authorities, generally known as Harvard Kennedy College, is a member of The Dialog U.S.
