Harvard could lose $2.2 billion for rejecting Trump’s demands. Here’s how that will impact the university
Harvard is the first university to reject President Donald Trump’s demands, which require the university to make sweeping changes in order to keep its $2.2 billion in federal funding, and is subsequently now facing a freeze on those funds, which the university has called both unlawful and unconstitutional.
The government’s demands follow a review of nearly $9 billion in federal funding to Harvard, and come amid a broad crackdown on college campuses aimed at axing DEI and limiting free speech, under the guise of eliminating so-called left-wing ideology and antisemitism. Harvard faculty have sued to block Trump from pulling their funding, and filed a temporary restraining order labeling the threats a “gun to the head.”
Harvard’s act of resistance brings up two very different but important questions, one political, and one financial: Will this set a precedent for other universities to follow, and where does Harvard get its funding, anyway?
What does Harvard’s decision mean for other universities?
First things first: Harvard University didn’t just quietly reject Trump’s overreach. University President Alan Garber made a bold show of resistance, in a letter to the campus community, stating that the government’s demands “violate Harvard’s First Amendment rights and exceeds the statutory limits of the government’s authority under Title VI,” and that “no government—regardless of which party is in power—should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue.”
Some commentators have said Harvard learned from Columbia University’s mistake. In caving to Trump‘s demands, Columbia will be forced to acquiesce in a number of ways, including hiring three dozen campus officers “who will have the ability to remove individuals from campus and/or arrest them when appropriate.” The administration also has paused federal funding for the University of Pennsylvania, Brown University, Princeton University, Cornell University, and Northwestern University, according to the AP.
Former President Barack Obama praised Harvard’s decision and encouraged other institutions to do the same. As the New York Times reported, Harvard’s stance could set a precedent for other universities, and empower law firms, the media and courts, and other targets to also push back. (In fact, on Tuesday, Columbia’s president released a statement seemingly backtracking and perhaps following Harvard’s lead: “We have not reached any agreement with the government at this point . . . We would reject any agreement in which the government dictates what we teach, research, or who we hire.”)
Where does Harvard get its money?
This leads us to our second point, where does Harvard get its funding?
It might come as a surprise, but while Harvard has a vast endowment of $53.2 billion, it relies on several other sources beyond that for its funding.
These include federal and nonfederal research grants, tuition and fees, and gifts from alumni and others. Harvard received approximately $2.4 billion from its endowment in fiscal 2024, which made up only 37.5% of its overall operating budget of $6.4 billion. The university’s $686 million in federal funding represents roughly 16% of its operating revenue.
However, Harvard can tap only 20% of its endowment for discretionary spending to go toward the money lost by Trump’s freezes. A majority of the endowment distributions are restricted by donors, both legally and from stipulations from donors, in regard to how Harvard can spend that money.
Another way Harvard is able to cover its high costs is that it does not pay federal or state taxes. Many people don’t know that most major colleges and universities, including Harvard, are tax-exempt organizations.
On Tuesday, Trump threatened to eliminate Harvard’s tax-exempt status in a post on Truth Social, saying, “Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting ‘Sickness?'”
According to its website, Harvard is exempt from federal income tax as an educational institution under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. As an educational institution, Harvard is also exempt from state income tax in Massachusetts, where it is located.