U.S. colleges and universities have raised more money through bond issuances so far, which is reconsidering their financial strategies over any of the past decade, with political pressure and uncertainty surrounding uncertainty in federal funding. Earlier this month, Harvard University was the world’s largest university endowment foundation with a $434 million tax-free bond to cushion potential cuts in Washington. Overall, universities increased by 40% through debt financing compared to the same period last year, according to data compiled by Bloomberg.
The surge was due to the Trump administration’s cancellation of $400 million in funding to Columbia through the higher education community, sending shock waves to Columbia University. The White House criticized the school for failing to adequately protect students from “anti-Semitic violence and harassment.” The move is part of a broader crackdown on the Diversity, Equity and Inclusion Program (DEI) Program – Colombia is the first one that officials have shown to be probably many. The Trump administration is currently investigating DEI initiatives and campus policies at more than 50 universities.
Federal funding remains the main pillar of elite college budgets. Between 2018 and 2022, eight IVY Alliance schools, along with Stanford and MIT, jointly received $33.1 billion in federal research grants and contracts. While these institutions do not rely entirely on government support, such cuts can still drill holes for meaningful loopholes in their financial plans. For example, Harvard University funded $6.4 billion in operating expenses in fiscal 2024 and provided tuition income, donations and other revenue. It received $686 million from the federal government, accounting for more than 10% of its operating expenses.
Despite its savvy investment reputation, Ivy League donations have lagged behind the market in recent years. In the fiscal year ended June 30, 2024, they returned an average of 8.3%, performing below 500 S&P 500 points by 15.2 percentage points. Harvard University’s donations fell slightly to $50.7 billion at the end of fiscal 2023, down from $500.9 billion a year ago, as schools withdraw more from endowments than investments received.
What assets does the university donate to invest in?
The key reason for the poor performance of Ivy League donations is that they allocate a large amount of allocations to private markets, especially private equity and venture capital assets, that have struggled in a high interest rate environment in recent years. According to financial data company Old Well Labs, most Ivy League schools dedicate about 30% of their portfolio to these asset classes, which is much larger than the average university.
With pressure on endowment and federal policy returns, universities increasingly turn to bond markets in search of stability. Thanks to long-term fiscal discipline, schools like Harvard still enjoy the highest credit rating and relatively low borrowing costs. Last March, the university maintained its AAA rating and raised $750 million through bond sales to offset a 15% drop in alumni contributions.
While these debt tools help universities maintain operations with minimal disruption, challenges may surface as these elite schools expand financial aid. Harvard University recently announced that it will give up tuition for families earning less than $200,000 a year and join peers like the University of Pennsylvania and MIT. However, both Harvard and MIT have implemented a recruitment freeze, driven by federal review and financial uncertainty.
