Harvard University last week reported its first deficit since the pandemic after what the university's President Alan Garber called an "extraordinarily challenging" year.
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The triple-A rated school reported an operating deficit of $113 million, its first since 2020, the report shows. Its endowment rose to $56.9 billion. On top of an 11.9% return on its endowment, Harvard received a record $629 million "current-use gifts," an increase of about 20% over the previous year.
Amid the administration's move to terminate federal funding — which rattled long-time Harvard investors and prompted the university to "sticker" bond documents on its $750 million tax-exempt borrowing in April — the university ended up with $629 million in federal funds, an 8% decline from 2024.
The university, which had sued the Trump administration after it froze $2.2 billion of federal funding, won a victory in September when the court ruled the government's freeze of research funding and termination of grants was unconstitutional. Most of the terminated awards were reinstated and the university has received reimbursement for most of the awards, it said in the report. The government has said it would appeal.
S&P Global Ratings said Harvard's operating deficit was unsurprising.
"Harvard's deficit operating performance in fiscal 2025 was in line with expectations given revenue and expense pressures, including those on federal funding," analyst Jessica Goldman said in an email. "In our opinion, operations will continue to be supported by current-use gifts, endowment income, and ongoing expense management efforts."
Harvard has also sued the federal government over its effort to limit international enrollment, and that lawsuit is pending.
In addition to the funding freezes, the administration threatened to
"Even by the standards of our centuries-long history, fiscal year 2025 was extraordinarily challenging, with political and economic disruption affecting many sectors, including higher education," Garber wrote in a letter accompanying the financial report.
A fresh headwind faces the university starting in January when its endowment will be taxed at a rate of 8%, up from 1.4%. The endowment tax was passed as part of the Republican's One Big Beautiful Bill Act. The endowment makes up 37% of Harvard's total operating revenue.
"Looking forward, daunting challenges await: the declining trajectory of federal research support, the forthcoming increase in the endowment tax, the still-unfolding challenges to our ability to host international students and scholars and ongoing litigation — all against the backdrop of serious geopolitical and economic pressures and the potential for significant inflation," CFO Ritu Kalra said in the report. "Structural changes and reductions across our Schools and units will be necessary, and they will not be easy."
Harvard paper, which enjoys triple-A ratings and stable outlooks from S&P and Moody's Investors Service, traditionally is among the most expensive in the muni market. But the bonds began to decline earlier this year under Trump's pressure campaign. They have since gain back most of their declines. That echoes similar moves by the broader
Roughly $5.5 million of Harvard's tax-exempt bond due in 2034 with a 5% coupon sold Monday for 118 to yield 2.59%. That's up from 112 in early June, and roughly on par with prices last year before Trump won the election.
Another $1.3 million of the university's tax-exempt bonds due in 2032 with a 5% coupon sold Friday for 116.3 to yield 2.47%. That's up from 110.9 in early June, and roughly on par with prices last June, before Trump took office.
A 2024 bond with a 4% coupon due in 2036 sold for 109.7 on Oct. 16. That's up from 101.6 on May 20 and 106.4 on March 19 and 108.3 on Nov. 4.
Harvard has $8.29 billion of outstanding bonds, of which $2.95 billion are tax-exempt, according to the financial report. That's up from $7.13 billion in fiscal 2024.
