Research cuts, tax threats: Harvard’s battle with Trump could impact budget

Harvard University may soon face a budget squeeze as President Donald Trump’s administration pursues changes to federal research funding, student visa policies and tax regulations that impact higher education. The Wall Street Journal outlined a worst-case scenario in which Harvard could lose billions in federal support, putting pressure on one of the wealthiest universities in the country and raising concerns of a potential budget shortfall.

Endowment tax could rise to 8%

In addition to cuts in federal funding, lawmakers in Congress are weighing an increase in the tax on large university endowments, potentially raising the current 1.4% rate to as much as 8%.

An endowment tax is a levy on investment earnings from a university’s endowment — a fund made up of donations that schools invest to support scholarships, faculty salaries, research and campus operations.

While elite schools like Harvard have endowments worth tens of billions of dollars, they rely on these investment returns to support annual budgets.

Restrictions limit Harvard’s $53 billion fund

While Harvard’s endowment is valued at more than $53 billion, the university is limited in how it can utilize that money. Much of the endowment is restricted, tied to donor agreements that earmark funds for specific purposes such as scholarships, research in certain fields or faculty positions. That means only a portion of the endowment is available for general operating expenses.

Harvard University’s operating expenses rose by $515 million — a 9% increase — reaching $6.4 billion for fiscal year 2024. The university attributes the growth largely to higher compensation costs, expanding IT services and continued campus maintenance.

The WSJ reported Harvard President Alan Garber is raising alarms. He said slashing federal research dollars could shake Harvard’s reputation as a global research powerhouse. Garber also pointed to the Nature Index, where Harvard still ranks high, but Chinese institutions are closing in fast.

To cope with financial challenges, Harvard has paused hiring, stopped merit pay increases and instructed departments to prepare for budget reductions. Even Garber is taking a 25% pay cut to help manage costs. Despite these efforts, the university’s operating surplus shrank from $186 million in fiscal year 2023 to $45 million in 2024, signaling tightening financial resources.

Harvard borrows $750 million to fill the gap

Already, the Trump administration has cut off $700 million a year in multi-year research grants. That funding backed major studies, from breast cancer and colon cancer to pediatric HIV and limb regrowth after amputation. In a June court filing, a Harvard official wrote bluntly: the university “cannot cover the funding gap itself.”

With $3 billion in cash reserves and a history of running surpluses, including a $45 million surplus in its 2024 budget, the school has moved quickly. In April, it borrowed $750 million and set aside $250 million from reserves to keep critical research afloat. Now, some of its schools are turning to corporate sponsors to help bridge the gap.

Federal officials issue civil rights violation

On Monday, June 30, Harvard was found by a federal task force to be in violation of civil rights laws for what the Trump administration said was the university’s poor treatment of its Jewish and Israeli students. This marks the latest move in a growing standoff between Harvard and the White House. The administration recently froze billions in federal research grants and contracts. It also demanded new oversight of how Harvard admits students and hires faculty.

In a statement to multiple media outlets, the Ivy League institution said, “Harvard has made significant strides to combat bigotry, hate and bias. We are not alone in confronting this challenge and recognize that this work is ongoing. We remain committed to ensuring members of our Jewish and Israeli community are embraced, respected, and can thrive at Harvard.”

The letter Harvard President Alan Garber received on June 30 was from three federal agencies, including the Department of Justice and the Department of Education. The letter claimed that the university violated Title VI of the Civil Rights Act, which prohibits discrimination based on race, color or national origin.

The Joint Task Force to Combat Anti-Semitism called it a “violent violation” of civil rights law. The letter came with a formal Notice of Violation, a legal step that could lead to a federal lawsuit or force the school to reach an agreement with the Trump administration.

University fights back with lawsuit

Harvard is suing the federal government, arguing that the freeze on its research funding is unlawful and constitutes government overreach. The case could set a legal precedent for how far the federal government can regulate elite universities.