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The Trump administration is pressuring at least 60 universities across the United States to revise their policies regarding antisemitism or face losing billions in federal funding.
In the case of Harvard University, the government claims—so far without presenting evidence—that it has allowed antisemitic behaviors on campus, thereby infringing upon the civil rights of some students. The administration is demanding extensive oversight of Harvard’s admissions practices, along with revisions to hiring policies and campus culture.
Harvard is at risk of losing upwards of $2.2 billion in federal funds. Although Harvard possesses the largest educational endowment in the nation—valued at over $53 billion in 2024—this does not fully shield it from the government’s threats.
As a scholar specializing in nonprofit law with previous experience in the Treasury Department, I analyze how state and federal laws impact nonprofit entities. It appears that many higher education institutions can indeed tap more deeply into their endowments to address the financial challenges they face.
Understanding Endowment Spending
Endowments vary significantly between institutions. They comprise numerous smaller funds, many of which come with stipulations that restrict how the schools can utilize those assets. Institutions must adhere to donor restrictions, such as those tied to specific scholarships or faculty positions.
The university’s governing board has the authority to determine annual spending from the endowment. As highlighted in Harvard’s 2024 financial report, it is a common misconception that endowments are easily accessible funds similar to checking accounts—a notion that is misleading.
Despite this, some universities did increase endowment spending during the height of the COVID-19 pandemic as well as during the Great Recession of 2007 to 2009, when many financial assets depreciated significantly.
Around 80% of Harvard’s 14,000 endowment funds are earmarked for specific purposes. However, others are subject to fewer restrictions, as noted in the university’s financial disclosures.
While caution is crucial when deciding to spend funds destined for future use, many institutions have more flexibility in utilizing their endowments than they might realize, especially in challenging times.
Legal Framework for Endowment Management
In almost every state except Pennsylvania, endowments are governed by a 2006 model law called the Uniform Prudent Management of Institutional Funds Act. Under this legislation, universities must weigh their charitable missions and financial necessities while respecting the intentions of their donors. These are state laws, not federally mandated statutes. Most states allow universities to allocate a portion of an endowment as they consider “prudent.”
Exercising prudence requires consideration of various factors, including the institution’s overarching purposes and individual endowment specifics, alongside prevailing economic circumstances and available financial resources. However, in roughly one-third of the states, including New York and California, spending more than 7% of an endowment’s fair market value—averaged over three years—is viewed as potentially imprudent.
Despite this presumed limitation, it isn’t an absolute restriction, as the drafters noted that varying circumstances could invalidate this presumption. Based on my research into nonprofit law, it is reasonable to assume that this clause could apply in light of the Trump administration’s cuts to higher education funding in 2025, much like during past economic downturns.
Moreover, the average spending rate of endowments in 2024 was 4.8%. Consequently, numerous universities, including those in states enforcing a 7% cap on spending, may find themselves capable of increasing their withdrawal from endowments to uphold their financial viability.
Additionally, living donors retain the option to remove spending restrictions placed on gifts. In cases involving deceased donors, universities can seek court approval to lift impractical or burdensome limitations. The Uniform Prudent Management of Institutional Funds Act also allows institutions to remove restrictions from endowment funds older than 20 years, covering various amounts depending on state law, typically ranging from $25,000 to $100,000.
Factors Influencing Endowment Spending Decisions
Alongside Harvard, several other universities with significant endowments include Yale with $41 billion, Princeton at $34 billion, and Columbia with around $15 billion. All these institutions are involved in the Department of Education’s investigation regarding alleged failures to protect Jewish student rights.
What might explain the hesitance of even these prestigious universities to utilize their endowments more liberally during financial downturns? One factor could be the tendency for endowments to bolster a university’s reputation, leading leaders and donors to prioritize accumulation over expenditure. Furthermore, board members have a fiduciary responsibility to safeguard the long-term health of their institutions, which includes maintaining reserve funds for future uncertainties, irrespective of current challenges, endowment size, or fundraising success.
This may elucidate why Harvard is reportedly exploring options for issuing bonds valued at $750 million, allowing it to address immediate funding needs without significantly drawing from its endowment.
Anticipated Challenges Ahead
Moreover, the Trump administration’s fiscal and trade policies may continue to disrupt financial markets, adversely affecting the value of university endowments in the near term.
There are reports that the federal government is evaluating the possibility of revoking Harvard’s tax-exempt status, a move that would be unprecedented.
In mid-April 2025, Harvard began to publicly resist the administration’s demands, asserting that they infringe upon First Amendment free speech rights and breach academic freedoms historically acknowledged by the Supreme Court. In response, donors have shown support for the university through an influx of contributions.
It is reasonable for higher education institutions to consider enhancing their endowment spending in light of the Trump administration’s actions, which could disrupt higher education funding. Doing so might alleviate, but not entirely resolve, the financial crises that many colleges and universities now face.
Source
phys.org