Harvard's battle with the Trump administration is creating a thorny financial situation

Harvard's brewing conflict with the Trump administration could cause steep costs – even for the richest university in the country.

On April 14, the President of Harvard University, Alan Garber, announced that the institution would not meet the requirements of the administration, including the students and the Harvard faculty for “point of view diversity”. In response, the federal government froze $ 2.2 billion in long -term fairs and $ 60 million in multi -year contracts with the university.

According to CNN and several other news stores, the Trump administration has now asked the Internal Revenue Service to withdraw Harvard's tax-free status. If the IRS follows, this would have serious consequences for the university. The many benefits of non-profit status include tax-free income on investments and tax deductions for donors, educational historian Bruce Kimball told CNBC.

Bloomberg estimated the value of Harvard's tax benefits of more than $ 465 million in 2023.

Non -profit organizations can lose their tax exemptions if the IRS determines that they are involved in political campaign activity or earn too much income with non -related activities. Few universities have lost their non-profit status. One of the few examples was the Christian institution Bob Jones University, who lost its tax exemption in 1983 for racial discriminatory policy.

Washington Post spokesperson Harrison Fields of the White House that the IRS Harvard began to investigate before President Donald Trump suggested Truth Social that the university should be taxed as a “political entity.” The Ministry of Finance did not respond to a request for comments from CNBC.

A Harvard spokesperson said CNBC that the government “has no legal basis to withdraw the tax -free status of Harvard.”

“The government has long been exempt from taxes to support their educational mission,” the spokesperson wrote in a statement. “Such an unprecedented action would endanger our ability to perform our educational mission. It would lead to a reduced financial aid for students, leaving critical medical research programs and lost opportunities for innovation. The illegal use of this instrument would increase serious consequences for the future of higher education in America.”

The federal government has challenged Harvard on another front, in which the Ministry of Interior Security threatens to prevent international students from registering. The student and exchange visit program is managed by immigration and customs enforcement, which falls under the DHS.

International students are more than a quarter of Harvard's student body. Harvard, however, is less financially dependent on international students than many other American universities, because it already offers needs-based financial assistance to international students in its non-bred program. Many other universities require that international students pay full tuition fees.

The Harvard spokesperson refused to comment on CNBC about whether the university would sue the administration about the federal funds or other grounds. Lawyers Robert Hur van King & Spalding and William Burck of Quinn Emanuel represent Harvard and say in a letter to the federal government that her demands violate the first amendment.

Harvard, the richest university in the country, has more resources than other academic institutions to finance a long legal battle and resist the storm. However, the enormous donation – who asked questions during recent developments – is not a Piggy Bank.

Harvard has a donation of almost $ 52 billion, an average of $ 2.1 million in beneficial funds per student, according to a study by the National Association of College and University Business Officers, or Nacubo, and Asset Manager Commonfund.

That size makes it bigger than GDP of many countries.

The donation generated a return of 9.6%, which ended on 30 June, according to the last annual report of the university.

Harvard, founded in 1636, had more time to collect assets as the oldest university in the country. It also has a robust donor base, which receives $ 368 million in gifts to the donation in 2024. While the university noticed that more than three-quarters of the gifts had an average of $ 150 per donor, Harvard has a history of giving donations of Headline donations of ultra-rich alumni.

Kimball, emeritus professor of philosophy and history of education at Ohio State University, attributes the great wealth of elite universities such as Harvard to the willingness to invest in riskier assets.

University donations were traditionally invested in a very conservative way, but in the early 1950s Harvard shifted his allocation to 60% shares and 40% bonds, which took more risk and created the chance of more upside down.

“Universities who did not want to assume that the risk fell behind,” Kimball told CNBC in March.

Other universities soon followed, with Yale University in the 1990s that pioneering what the “Yale model” would become of investments in alternative assets such as hedge funds and natural resources. Although it turned out to be lucrative, only universities with large donations could afford to take the risk and due diligence that was needed to succeed in alternative investments, according to Kimball.

According to Harvard's annual report, the largest chunks of the donation are assigned to Private Equity (39%) and hedge funds (32%). Public shares form another 14%, while real estate and bonds/tips each form 5%. The rest is divided between cash and other real assets, including natural resources.

The university has made substantial changes to the portfolio entry allocation over the past seven years, the report notes. The Harvard Management Company has reduced the exposure of the donation to real estate and natural resources to 6% in 2018. With these cuts, the university was able to increase its private equity allocation. To limit the exposure to shares, the donation has increased its investments in the hedge fund.

University donations, although occasionally amazing in size, are not slush funds. The swimming pools actually consist of hundreds or even thousands of smaller funds, the majority of which are limited by donors to be devoted to areas such as professors, trade fairs or research.

Harvard has approximately 14,600 individual funds, 80% of which are limited to specific purposes, including financial assistance and professors. Last tax year, the donation divided $ 2.4 billion, 70% of which was subject to guidelines of donors.

“The majority of that money was submitted for a specific goal,” Scott Bok, former chairman of the University of Pennsylvania, told CNBC in March. “Universities do not have the opportunity to break open the proverbial Piggy bank and simply the money how they want to grab.”

Some of these limitations are over -played, according to the former president of Northwestern University, Morton Schapiro.

“It is true that a lot of money is limited, but it is limited to things you will spend on needs -based help, studying abroad, libraries,” Bok said earlier.

Harvard has $ 9.6 billion in endowing funds that are not subject to donor restrictions. The annual report notes that “although the university is not going to do this,” these assets “can be liquidated under certain circumstances in the case of an unexpected disruption”.

The liquidation of $ 9.6 billion in assets, almost 20% of the total endowing funds, would be at the expense of future cash flow, because the university would have less to invest.

Harvard did not respond to CNBC's questions about the increasing expenses for donations. Like most universities, it wants to spend around 5% of its donation every year. Assuming that the High-Single Figure Fund generates investment returns, the issue of only 5% can grow the principal sum and keep pace with inflation.

For the time being Harvard looks closely at the operational budget. In mid -March, the University started to take austerity measures, including a temporary recruitment break and refusing access to graduated student waiting list for this coming fall.

Harvard also gives $ 750 million in taxable bonds from September 2035. Last February, the university spent $ 244 million in tax -free bonds. A whole series of universities, including Princeton and Colgate, also increase debts this spring.

So far, Moody's has not updated his top-tier AAA rating for Harvard's bonds. However, when it comes to higher education as a whole, the ratings agency is not that optimistic, so that his prospects are reduced negatively in March.