Harvard spent 2025 in the spotlight between campus turmoil, research fraud, lawsuits, funding freezes, and federal scrutiny. But one of the most consequential changes to its finances has drawn surprisingly little attention, so we're opening the year with it: the new 8% endowment tax.
Harvard already pays a 1.4% tax on its endowment’s net investment income, but this July, the rate jumps to 8% under the One Big Beautiful Bill Act. The result is a permanent, recurring cost that could soon top $400 million per year. That’s more than Harvard receives each year from foundations, corporations, and other non-federal sponsors.
Harvard will have to cut. The risk is that it will cut in ways that are easy or unstrategic — flat percentages across the board, no real priorities, deference to whoever voices the loudest concerns — and then call it “prudence.”
Alumni too will hear a lot of talk about ‘inevitable cuts’ in the coming months. The real question is where those choices land, and the real test is whether Harvard can explain why those decisions are being made.
How much will Harvard owe?
Starting in FY27 (July 2026), we estimate Harvard’s endowment tax bill will be around $390 million a year — not the ~$300 million figure that’s been floating around (See our full modeling parameters here.) For scale: $390 million is roughly equivalent to a full year of tuition for ~6,600 undergraduates, or more than 90% of the entire College population. And alongside Harvard’s endowment growth, the tax grows too: we estimate it surpasses $400 million by FY28 and reaches roughly $480 million by 2036.
Where the tax creates major pain points
In its FAQ page about the tax, Harvard made its position clear: “Each dollar spent on the endowment tax is one less dollar available to support research and teaching, along with student financial aid. . . there will be less funding available for scholarships, teaching, and research.”
In practice, that squeeze will likely show up in a few predictable places where Harvard already relies most heavily on endowment-linked dollars or flexible support.
Schools that are heavily reliant on endowment payouts will feel the squeeze quickly. Schools that fund a high share of annual operations through endowment distributions may feel budget pressure quickly because the tax will shrink the same payout pool they rely on. The Divinity School, for example, draws ~72% of its operating budget from endowment returns.
Schools that are already running structural deficits will face even tougher tradeoffs. Where recurring costs already outpace reliable revenue, a growing claim on endowment funds leaves schools with less room to maneuver every year. This includes the Faculty of Arts and Sciences (FAS), with a longstanding annual deficit now topping $350 million, and the Medical School, which ran deficits in nine of ten years (2008-2018) and again in FY23 and FY24. This is also where academic tradeoffs can compound: the Graduate School of Arts & Sciences (GSAS) has warned that PhD education was already drawing on FAS endowment support at an “unsustainable” rate, and a recurring federal tax makes it harder to sustain its already-shrinking cohort size and research capacity.
Harvard’s “shock absorption” capacity will shrink. Beyond individual school budgets, the tax reduces the University’s flexible operational dollars. Over the past year, these kinds of funds have been used to keep labs, projects, and personnel afloat amid tighter federal research funding. Schools like the School of Public Health, which historically relied heavily on sponsored (mostly federal) support rather than the endowment, may need that backstop more — just as the University has less flexibility to provide it.
The tax can bite even in down markets. Harvard notes the tax can still apply even if the endowment loses money overall, because it’s based on net investment income (interest, dividends, realized gains) rather than total return. Harvard warns the structure is “especially complex and potentially harmful during volatile periods.
Why hard tradeoffs are inevitable, but ‘inevitable cuts’ aren’t the answer
There's also no clean workaround that makes Harvard’s difficult choices disappear. Raising the annual endowment payout to cover the tax means leaving less money invested, reducing future growth and flexibility. “Growing out” of the top tax bracket would require adding roughly 6,300 tuition-paying FTE students — nearly the size of the College and 25% of the entire University. While expanding the student body has been proposed before, it couldn’t happen overnight given the need for more housing.
So the money will have to come from somewhere inside Harvard’s existing budget.
Harvard has been blunt about what it says that implies: less funding available for teaching, research, and scholarships. We don’t doubt the pressure is real, but the allocation is still up to Harvard. ‘Inevitable cuts’ can’t substitute for defining real priorities.
These cuts won’t be one-and-done. They’ll require continuous tradeoffs, and deserve continuous explanations, year after year. The only way to sustain trust is to treat tough tradeoffs as mission strategy, not mission drift: prioritize Harvard’s core academic mission, cut with clarity, and explain decisions plainly enough to be evaluated on their merits.
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Events
Virtual — January 14 from 5:30-6:30 p.m. PT: The Harvard Club of Seattle is hosting a conversation with Sarah Karmon, Associate Vice President and Executive Director of the Harvard Alumni Association, who will provide an update on current issues, challenges, and successes at Harvard. Register here.
Toronto, Canada — January 22 from 6:00-9:00 p.m. ET: Harvard Business School (HBS) and the HBS Club of Toronto are hosting an alumni gathering with Executive Dean for Administration Angela Crispi (MBA ‘90) and Executive Director of the MBA and Doctoral Programs and External Relations Jana Kierstead. Register here.
Virtual — January 26 from 7:00-8:00 p.m. ET: As part of Harvard’s Speakers Bureau Spotlight Series, hear from Computer Science professor of practice David Malan (AB ‘99, PhD ‘07) on how one of Harvard’s largest courses, Computer Science 50, has incorporated and is being impacted by AI. Register here.
San Francisco, California — February 10 from 5:30-7:00 p.m. ET: HBS and the HBS Association of Northern California are hosting a reception for recent alumni (MBA ‘16-26) at the San Francisco Jazz Center. Registration opens soon; learn more here.
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FYIs
Harvard History Professor James Hankins Says Western History Is “Dying on the Vine” at Harvard, Leaving for UF’s Hamilton School
James Hankins, a tenured Harvard FAS history professor for four decades, described in an essay in Compact magazine why he is leaving the University to join the University of Florida’s Hamilton School for Classical and Civic Education.
Hankins describes how Western history at Harvard is being “phased out . . . or being allowed to die on the vine,” pointing to a decade-long halt in hiring tenured historians in Western fields.
As part of his decision to leave, Hankins cites the University’s PhD admissions practices in recent years. He recounts how when he wanted to admit an “outstanding” PhD prospect who “would have risen immediately to the top of the applicant pool” in prior years, he “was told informally by a member of the admissions committee that ‘that’ (meaning admitting a white male) was ‘not happening this year.’”
Hankins notes that Harvard is “on a better course” under President Alan Garber (AB ’76, PhD ’82), but “the project of renewing the study of the Western tradition” is not one he “can pursue as a member of Harvard’s history department” given the department’s hiring trajectory.
After publication, Hankins clarified that Harvard still has “17 outstanding people teaching in Western fields,” but said the department stopped hiring in those fields a decade ago and has lost nine senior historians (including him) through death, retirement, or departure.
Bill Ackman Funds Ex-HBS Professor Francesca Gino’s Legal Defense
Gino, a behavioral scientist once known for her work on honesty, was first accused in 2021 of manipulating data in four studies. After an internal investigation, HBS Dean Srikant Datar placed her on leave and the Harvard Corporation later revoked her tenure (a University first) and terminated her employment.
Ackman summarizes the details of an ongoing multi-part podcast series by Harvard Law School professor Lawrence Lessig telling Gino’s side of the story, contending that Harvard’s investigation process unfairly constrained Gino’s ability to defend herself, and Harvard failed to meet its own “clear and convincing” standard for academic misconduct.
Ackman said Harvard acted out of reputational concerns, writing that large institutions sometimes “put aside the core principles on which they are founded because they are embarrassed, because they are busy, and/or it is easier to ignore the harm they may cause to the little guy in the interest of protecting their reputation,” adding: “I am going to make sure that doesn’t happen here.”
Gino is suing Harvard for breach of contract (among other since-dismissed claims, including gender discrimination). The University has countersued. Trial is scheduled for December 2026.
Federal Government Agrees To Reconsider Frozen DEI-Related NIH Grant Submissions
The federal government reached an agreement with the American Public Health Association (APHA) and other plaintiffs to re-review a set of grant applications that were frozen, denied, or withdrawn under White House directives targeting research tied to DEI, “gender ideology,” and Covid-19.
Filed December 29 in Massachusetts District Court, the agreement is part of APHA v. National Institutes of Health (NIH), which challenges NIH’s grant terminations and the treatment of stalled applications tied to those directives.
Under the agreement, NIH must issue decisions on continuations of existing grants immediately, and on already-reviewed but denied applications by January 12. The agreement does not require NIH to fund any specific application.
In August, the Supreme Court ruled in NIH v. APHA that efforts to restore terminated NIH grant funding generally must be brought in the Court of Federal Claims, not federal district court. This agreement requires NIH to re-review stalled applications and issue new decisions on their merits, rather than ordering NIH to pay out any specific grants.
In early December, Bhattacharya visited MIT and the Broad Institute of MIT and Harvard in meetings organized by Representative Jake Auchincloss (AB ’10), where Boston-area researchers engaged with him during a public Q&A. Auchincloss arranged the visit to improve researchers’ morale, writing that “the NIH and Massachusetts need one another” and that their relationship should be built on “trust, dialogue, and accountability.”
More News
More News at Harvard
Boston Globe: “What the Republican ‘siege’ on New College means for the future of Harvard”
Wall Street Journal: “Trump Took On Harvard. The Fight Isn’t Over.” — video recounting Harvard’s year of challenges from, and shifting relationship with, the federal government, featuring an interview with Secretary of Education Linda McMahon
The Crimson: “NLRB Finds Harvard Violated Federal Labor Law in Dispute with Police Union”
JNS: “Harvard must learn from Northwestern” — op by Shabbos Kestenbaum (MTS ‘24)
American Optimist: “Gov. Chris Sununu on AI vs Harvard, DOGE 2.0, and a Balanced Budget Amendment to the Constitution” — Palantir co-founder Joe Lonsdale’s podcast, featuring former New Hampshire Governor Chris Sununu on how he told Harvard students to consider high-demand vocational professions
New York Times: “At Harvard and Elsewhere, the New Campus Orthodoxy Is Even More Stifling” — op-ed by Alex Bronzini-Vender (AB ‘28)
Maish Yarush’s Substack: “Harvard’s Amnesia Problem: A Truly Revolting and Disgusting Story” — by Maish Yarmush, Founding Director of Massachusetts General Hospital’s Center for Engineering in Medicine and Surgery
Wall Street Journal Free Expression: “Campus Catholicism Is Having a Moment” — op-ed by Mary Julia Koch (AB ‘23) featuring students’ experiences at Harvard
More News Beyond Harvard
Wall Street Journal: “Ph.D.s Can’t Find Work as Boston’s Biotech Engine Sputters”
The Hoya (Georgetown): “GU Philosophy Department Halts Ph.D. Admissions Amid Budget Cuts”
The Chronicle (Duke): “Duke set out to cut $364 million. Here’s where it stands at the end of 2025.”
Daily Princetonian: “Princeton researchers weigh cost of impending federal funding rule requiring public access”
Holland & Knight: “Back in Business: EEOC's Restored Quorum Explained and a Look Forward to 2026”
Harvard Law Review: “Zionism and Title VI” — by HLS Professor Stephen Sachs (AB ‘02)
Chronicle of Higher Education: “The Campus Civility Collapse” — by Marie Newhouse (PhD ‘13)
The Dispatch: “The Worst of Both Worlds for Free Speech” — by Foundation for Individual Rights and Expression (FIRE) President Greg Lukianoff
Wall Street Journal: “The Professor’s Sly ‘Land Acknowledgment’” — editorial by the Wall Street Journal Editorial Board