Harvard's Financial Struggles: A Deficit Year and a Growing Endowment
Harvard University faced a significant financial challenge in the 2025 fiscal year, reporting its first budget deficit since the pandemic. Despite a 12% growth in its endowment, the institution encountered an operating loss of $113 million. This marks a stark contrast to the $45 million surplus recorded in the previous year. The primary cause of this deficit was the Trump administration's suspension of federal research grants, which had a substantial financial impact.
Harvard's endowment, valued at $56.9 billion, saw a 11.9% increase, but this growth is not without challenges. The University's federal sponsored revenue took a hit, dropping by 8% to $629 million due to the grant suspension. Without these cuts, it would have experienced a 9% increase. However, the endowment's robust returns, the highest since the post-pandemic economic recovery, have been crucial in navigating the uncertainty caused by the political disruptions.
The financial report highlights the University's efforts to adapt to these challenges. Harvard's Treasurer, Timothy R. Barakett, and Chief Financial Officer, Ritu Kalra, acknowledged the financial consequences of the White House's actions, emphasizing the University's quick and determined response through cost-cutting measures. These included wage increases pauses, layoffs, and a hiring freeze, affecting at least four faculties.
Despite these austerity measures, operating expenses still rose by $367 million in fiscal year 2025, primarily due to salary hikes, legal fees, and technology investments. The endowment, accounting for 37% of operational revenue, spent $2.5 billion in the past fiscal year, with $250 million in contingency reserves supporting researchers.
Harvard's endowment management has undergone significant changes under the leadership of HMC CEO N.P. Narvekar. The fund has shifted towards external managers and private equity holdings, with a 41% allocation to private equity in 2025. This shift, along with the sale of $1 billion in private equity stakes, has been a strategic move. However, the upcoming endowment tax hike, from 1.4% to 8%, poses a significant challenge for the following fiscal year, potentially costing the school around $300 million.
Harvard's financial journey in 2025 showcases the delicate balance between growth and adversity, with the University's resilience and strategic decisions playing a pivotal role in its financial future.
