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The obvious examples include the funding-cutoff threats made to Columbia University ($400 million), the University of Pennsylvania ($175 million), Harvard University ($9 billion!), Brown University ($510 million), Princeton University ($210 million), Cornell University ($1 billion), and Northwestern University ($790 million). Those ad hoc threats are extensive, but they overlook the broader financial risk that dozens of institutions face by more-systematic policy interventions. These include potential cuts to National Institutes of Health and National Science Foundation funding, along with a tax on the endowments of wealthy private institutions. I focus on these three policies because they have the greatest potential to significantly disrupt the financial workings of a large number of institutions.
In total, 79 institutions find themselves subject to large costs associated with at least one of these policies. Some unlucky institutions are subject to all three — a triple whammy. Collectively, these 79 colleges are on the hook for almost $10 billion in additional annual costs.
To be clear, the exact details of each policy change are unclear. NIH funding cuts are perhaps the most definitive. A policy of capping payments associated with “indirect costs” at 15 percent of direct costs was implemented, although it is frozen and is being contested in the courts. Even if the courts throw out these cuts implemented by executive order, they could be replaced by legislation from a Republican-led Congress.
No specific NSF cuts have officially been introduced, but a two-thirds reduction in funding has been proposed, turning $9 billion a year into potentially just $3 billion. The NSF funds scientific research that is often conducted in an academic environment. Those funds flow through the institutions where those researchers are employed and help support their operations. Large cuts to the NSF budget would weaken those institutions. Science magazine reports, ominously, that since January 20 the money the NSF hands out has already plummeted.
As for the endowment tax, several options have been put forward. One of them, proposed by the House Ways and Means Committee, imposes a tax of 14 percent on the net investment returns of private colleges with endowments greater than $500,000 per student. Other legislation includes taxes of 10 percent and 21 percent, along with potential reductions in the endowment threshold. These are down from a truly catastrophic 35-percent tax proposed by Vice President JD Vance, then a senator of Ohio, in the last Congress. I focus on the 14-percent House proposal as a current middle ground.
To investigate the implications of these changes on college and university budgets, I obtained data from three sources. Data on NIH funding cuts by institution is available from the NIH and has been previously examined in The Chronicle. The NSF posts data on funding levels to support research, education, and equipment by institution. I use the total across categories and assume a uniform two-thirds reduction across institutions (recognizing that the specific cuts will depend on the exact nature of the research being conducted on a campus). Data on endowments and enrollments at all colleges and universities are available from the Integrated Postsecondary Education Data System. I applied a 14-percent tax rate on an average investment return of 7.5 percent to estimate the implications of an endowment tax on the targeted private institutions. It is unlikely that endowments will rise at that rate this year given recent developments, but this estimate is a reasonable expectation going forward based on longer-term averages.
When these institutions are listed by total cost, the triple whammy is clear for several institutions. The first 10 listed (Harvard, Yale, Stanford, Princeton, Penn, MIT, Duke, WashU, Northwestern, and Vanderbilt) all face large costs within each category. They are on the hook for hundreds of millions of dollars annually if these policies are all implemented. Aside from their large endowments, these institutions also tend to have medical schools, which make them more exposed to NIH funding cuts. Similarly, all 10 have engineering schools, adding to their exposure to NSF funding cuts. The existence of a large endowment, a medical school, and an engineering school generates the triple whammy.
Many of the institutions on the list are research-intensive, public institutions (labeled as “R1” in the Carnegie Classification system). By legislation, they are not subject to the endowment tax because they are in the public sector. (Besides, only the University of Michigan and the University of Virginia have endowments close to the endowment-per-student threshold because they enroll so many students.) But they typically have medical schools, subjecting them to large NIH funding cuts. Many also have engineering schools with substantial support from the NSF. They face a double whammy, with exposure in the vicinity of $50 million to $200 million annually.
Then there are the highly endowed private liberal-arts colleges. These institutions are less research intensive by design. They largely miss the hit associated with NIH and NSF funding cuts and are purely subject to the endowment tax. They face a single whammy, facing estimated costs of upwards of $40 million per year. But in the context of their much smaller budgets, these costs loom large.
Interesting patterns emerge when these data are sorted differently. For instance, the size of these institutions varies greatly, ranging from just a few thousand to tens of thousands of students. Their levels of exposure change when institutions are categorized by cost per student. Very highly endowed private research institutions and liberal-arts colleges face the greatest financial threats on that basis because of the extent of their potential endowment tax. Some will experience funding cuts of tens of thousands of dollars per student — the size of which indicates the extensive support their endowments provide to fund their operations.
An alternative ranking would compare these costs to their budgetary expenses. In this ranking system, highly endowed private liberal-arts colleges are often at or near the top of the list. Several of these institutions are at risk of losing 10 to 20 percent of their budgets. Devastating cuts to their academic programs would be required. Institutions that run medical facilities are typically downgraded in this ranking because they face large nonacademic costs (and revenues).
All these institutions will experience extensive financial hardship if these policies are implemented. The damage may occur in different ways, but all of them will suffer extensive harm. These institutions are also widely scattered across the country. The map below displays the states where they are located. In total, 33 of the 50 states house these institutions. Some Mountain West and Southern states are spared. Beyond that, the financial repercussions will spread across the country.
None of my calculations should be interpreted as exact. I have made some assumptions that may not bear out as these policy changes develop. And there may be additional policies introduced, like restrictions on international students, that could worsen the magnitude of the impact. Medicaid cuts could harm institutions in the public sector if states move funds away from higher education and toward health care. And then there are still the ad hoc policies targeting certain institutions.
But the general scale of the problem is clear, and it is extremely large and difficult to overcome. Princeton has proposed issuing bonds to potentially offset at least some of the damage, but that is a short-term solution. Bonds are debt that will eventually need to be repaid. Additional fund-raising could also help fill in the gaps. But an endowment tax would reduce the value of charitable giving to colleges since some portion of the return on those funds now would go to the government. If and when these policies are fully enacted, colleges will have few options but to make extensive cuts to their operating budgets.
These cuts will have lasting effects on these institutions and will reverberate through society. They will hamper the investments these colleges make in the leaders of our next generation. Advances in medicine, science, and technology will slow. The negative effect on economic activity will be substantial. And the economic opportunity that these institutions offer to lower-income students will be limited. None of this is in our nation’s interest. Why are we doing this?
