“We would like to tell you that the uncertainty of the past two years is behind us. It is not,” write Harvard Chief Financial Officer Ritu Kalra and Treasurer Timothy Barakett in the University’s newly released Financial Report for FY2026, which ran from July 1, 2025, through June 30, 2026.
That sounds like the opening to a difficult financial year. And yet, by several measures, FY26 was a strong one for Harvard. Its endowment grew by $11 billion to a record $68 billion, aided by a 27.1% investment return. The University also reported a $100 million operating surplus after a $113 million deficit the previous year, partly by cutting payroll and research spending, even as interest, depreciation, and legal costs rose.
But beneath those strong results, Harvard’s funding sources are changing. Federal research has accounted for a shrinking share of Harvard’s revenue since 2006, a decline accelerated by the 2025 federal funding freeze and a smaller pool of federal research funding in FY26.
Endowment distributions and current-use gifts now account for nearly half of Harvard’s operating revenue — though much of that money is restricted to donor-specified purposes, limiting Harvard’s ability to redirect it to other needs. This growing reliance on philanthropy coincides with an increase in the federal tax on endowment investment income from 1.4% to 8%. It’s a change Harvard estimates could cost $300 million or more annually, money that could otherwise go toward supporting teaching and research.
Keep reading for 1636 Forum’s key takeaways from the report.
Harvard’s surplus this year masks a deficit in unrestricted funds — and structural gaps like the FAS structural deficit still remain.
Harvard reported a $100 million surplus after reducing expenses 2.2% while revenue rose 0.9%. But that surplus reflected a $179 million surplus in donor-restricted operations — funded by money donors earmarked for specific purposes — and a $79 million deficit in unrestricted operations, where Harvard has more flexibility over spending. Still, the unrestricted deficit improved from $212 million in FY25.
FY25’s deficit also looks smaller in hindsight. Harvard received an additional $116 million from the federal government for research the University conducted in FY25, after a September 2025 district court found the funding freeze unlawful. Had that money arrived and been recognized in FY25, the University would have roughly broken even rather than reporting a $113 million deficit. In FY26, Harvard recorded the reimbursement as outside its operating results, so it didn’t contribute to this year’s $100 million operating surplus.
The University’s FY26 surplus also doesn’t erase longer-term structural deficits like the Faculty of Arts and Sciences’ (FAS) annual shortfall of more than $350 million. (Read our explainer on why.)
Federal research revenue fell 26% over two years, accelerating a longer-term decline.
Federal research revenue is the money that agencies like the National Institutes of Health pay Harvard to cover the costs of research the University conducts: direct costs like researchers’ salaries and lab supplies, plus a share of overhead like buildings and administration. Harvard normally records this revenue as it spends money, not when the government pays, so the figure largely reflects how much federally funded research Harvard actually did in a year.
Harvard’s federal research revenue fell from $686 million in FY24 to $506 million in FY26, including a 19.5% decline in FY26 alone.
Federal research revenue’s share of Harvard’s operating revenue fell 6.7 percentage points over 18 years from FY06 to FY24, from 17.3% to 10.6%. In the next two years alone, it fell another 3.1 points, to 7.5%, a decline nearly half as much as in the previous 18 years.
Few peers have published their FY26 financials, but MIT’s results show a roughly 14% decline in federally funded campus research from FY24 to FY26, compared with Harvard’s 26% decline.
At the same time, Harvard reports that it spent existing federal grants at a slower pace, citing “fewer new awards, slower spending on existing awards, and delays in research activities” following the spring 2025 funding freeze. Over two years, its ‘contracted but not-yet-spent’ grant funding declined 19%, compared with a 26% drop in federal research revenue. The report doesn’t indicate whether the slowdown reflects a temporary response to the funding disruptions or a longer-term change.
Giving has rebounded from its FY24 slump.
In inflation-adjusted terms (all in FY26 dollars*), Harvard received $1.56 billion in new gifts in FY26, compared with $1.51 billion in FY23 (the last full fiscal year before October 7, 2023) and $1.25 billion in FY24, when several major donors stopped giving to Harvard over its response to campus antisemitism.
In inflation-adjusted terms, both kinds of gifts rebounded. Gifts to the endowment have risen 35% since FY24, to $526 million, but remain 15% below FY23. Current-use gifts rose 22%, to a record $684 million, 30% above FY23. The rest of Harvard’s $1.56 billion in gifts was mostly research grants from foundations and other private sponsors ($233 million) and gifts for buildings ($107 million).
The rebound also coincides with a broader rise in American philanthropy: according to Giving USA, U.S. charitable giving to education rose an inflation-adjusted 8.9% in 2025, and overall giving rose 3%.
Looking ahead, Harvard also had donations promised but not yet received. Harvard ended FY26 with $2.81 billion in unconditional pledges, up 10% from FY25. These are firm commitments Harvard already counts as gifts, valued below their full amount because some won’t be paid for years and some may never be paid. Conditional pledges, which depend on certain requirements being met (like other fundraising targets or project milestones), aren’t counted as gifts until those requirements are met. They totaled $274 million at face value, down from an unusually high $444 million in FY25 but still more than double the roughly $110 to $120 million Harvard reported in each of the four years before. Both conditional and unconditional pledges can be restricted to donor-specified purposes or unrestricted.
Philanthropy now provides nearly half of Harvard’s operating revenue, but much of it is restricted to varying degrees.
Harvard categorizes two funding streams as “philanthropy” funding its operations: (1) current-use gifts, which can be spent soon after they arrive, and (2) the annual distribution from its endowment — the payout from past gifts (mostly for professorships, scholarships, or other donor-specified purposes) and their investment returns. New gifts to the endowment are invested rather than counted immediately as operating revenue.
Philanthropy now accounts for 48% of Harvard’s operating revenue, up from 46% in FY25 and about 38% in FY06. Over the same two decades, federal research moved in the opposite direction, falling from 17% to 7.5% of operating revenue. About two-thirds of that decline came before the FY25 funding cuts.
Much of this funding comes with restrictions, though some are broader than others. More than 80% of Harvard’s $2.6 billion annual endowment payout (distribution) is restricted to donor-specified purposes, which can range from a single program to broad categories like financial aid. Of the $643 million in current-use gifts Harvard recorded as operating revenue (after donors moved about $41 million to the endowment), those without donor restrictions fell 21% in FY26, from $203 million to $160 million, while restricted gifts rose 13%, from $426 million to $483 million.
The decline in unrestricted giving followed an unusually strong FY25. Unrestricted current-use gifts had risen 54% that year, from $132 million in FY24 to $203 million. In May 2025, President Garber launched the Presidential Priorities Fund, appealing to alumni for flexible financial support as Harvard confronted federal research funding cuts. Despite the FY26 decline, unrestricted current-use gifts remained an inflation-adjusted 15% above their FY24 level.
For the fourth straight report, Harvard says that about 25% of College families pay nothing toward the cost of attendance. In March 2025, Harvard announced an expansion of financial aid beginning in the following school year, raising the income threshold for families paying nothing from $85,000 to $100,000 and making tuition free for families earning up to $200,000. Although Harvard’s reported share of families paying nothing has remained unchanged, undergraduate scholarships per College student rose about 6%, from about $37,500 in FY25 to $39,800 in FY26, as total scholarships edged upward from about $262 million to $266 million while enrollment fell.
Harvard cut payroll and payments to research partners, but rising interest and depreciation offset 40% of those savings.
Operating expenses fell $152 million, or 2.2%, in FY26 — only the third annual decline since FY06, following FY10 (the financial crisis) and FY21 (COVID-19).
Harvard’s workforce shrank about 5%, according to its Fact Book, amid a University-wide hiring freeze, attrition, restructuring, and a wage freeze for non-union staff, and salary and benefit expenses fell $123 million.
Even so, payroll costs remained 11% higher than in FY23 — though only about 2% higher in inflation-adjusted terms, mostly because of rising benefit costs. Compared to FY23, Harvard’s administrative and professional staff headcount remained about 6% larger, while its faculty was about 4% smaller. Most of the administrative layoffs at FAS took effect after FY26 ended, so their full savings (roughly $20 million annually) won’t appear until FY27.
Payments to research partners also fell $81 million, or 39%, as research activity slowed. But interest expense rose $50 million, or 19%, to $313 million, after Harvard issued $1.25 billion in bonds in FY25. Depreciation — an accounting expense for the aging and use of buildings and equipment — rose $32 million. Together, those increases offset $82 million of the $204 million reduction in payroll and payments to research partners.
A University spokesperson told The Crimson that Harvard spent about $210 million on legal fees in FY26, up 67% from $126 million in FY25 and more than tenfold from $19.5 million in FY23. The financial report cites elevated legal expenses as one reason its operating margin was only 1.5%.
Harvard’s endowment returned 27.1%, its best year since FY21, while its investment-income tax bill surged ahead of the new tax hike.
Harvard Management Company (HMC), which manages Harvard’s endowment, generated a 27.1% investment return in FY26, up from 11.9% in FY25.
Harvard’s gains this year also come with a growing tax burden. The federal tax on endowment investment income rose from 1.4% to 8% at the start of FY27 on July 1. The tax applies to the profit Harvard makes when it sells investments for more than it paid. Harvard now estimates $1.7 billion in future taxes on gains from investments it has yet to sell, compared with a $270 million estimate a year earlier, under the old rate. As Harvard realizes those gains over time, Kalra and Barakett note, “the resulting taxes will reduce resources otherwise available to support faculty, students, and academic programs.”
Harvard’s tax on investment income more than quadrupled in FY26, from $47 million to $207 million, even though the rate remained 1.4% — pointing to a sharp increase in taxable investment profits, not just paper gains, before the higher rate took effect. The report doesn’t say whether Harvard accelerated sales to take advantage of the lower rate.
According to HMC chief executive Narv Narvekar, gains in venture capital, public equities, and hedge funds drove the strong performance. Harvard disclosed in an August regulatory filing that it held a $2.2 billion direct stake in SpaceX, whose rising valuation also helped drive exceptional endowment returns at the University of North Carolina system (37.8%) and WashU (37.3%) — the highest returns reported so far.
Among other Ivy Plus universities that have reported FY26 endowment returns, Harvard’s return lagged behind Stanford’s (31.7%) and Penn’s (27.4%) but outperformed Princeton’s (23.7%), Brown’s (19.6%), and MIT’s (10.3%). Despite Harvard’s strong year, the University’s 10-year annualized return was 11.1% by our calculation, which was below all five of those peers (11.3% to 13.6%).
Have questions about Harvard’s FY26 finances that we didn’t answer? Send them our way!
*Dollar amounts aren't adjusted for inflation unless noted.
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FYIs
Harvard Faculty Senate Submits Final Bylaws for Approval by University Faculties, With Garber and Manning’s Endorsement
Harvard’s faculty senate planning body finalized its proposed bylaws on October 8, with the endorsement of President Alan Garber (AB ‘76, PhD ‘82) and Provost John Manning (AB ‘82, JD ‘85). The proposed 43-member senate would serve as a largely advisory body representing faculty across Harvard’s schools, meant to provide cross-University faculty input to Harvard’s central administration and governing boards.
The planning body delayed submitting its bylaws earlier this year to negotiate revisions with University leadership. According to The Crimson, the final proposal would give Garber, Manning, and faculty deans ex-officio seats in the senate and allow the president to veto amendments. It would also require a two-thirds vote for the senate to issue statements on University-wide matters and establish a 60% faculty turnout requirement for elections.
The bylaws now require approval from Harvard’s nine faculties, including Harvard Business School, which was the only school that didn’t participate in the planning body. FAS aims to vote in December; if approved, senators would take office in July 2027. If the bylaws are approved, they would be subject to a review in five years.
Harvard College’s New Grade Cap Prompts Arts and Performance Courses To Consider Stricter Grading Rubrics, Pass-Fail Options
Harvard College’s arts and performance-based courses are adjusting their grading practices ahead of the new cap on A grades, which will officially take effect in fall 2027. The policy caps A grades at 20% of course enrollment plus four additional students, with no cap on A- grades or below.
According to The Crimson, 150 of the 152 courses offered by Harvard’s Theatre, Dance, and Media (TDM); Music; and Art, Film, and Visual Studies (AFVS) departments in the 2024-25 academic year would have exceeded the new cap. That year, 91% of students in a TDM course received a flat A grade, compared with 60.2% College-wide.
Some professors are introducing more detailed grading rubrics and measurable criteria, including attendance, timeliness, and written assignments. TDM professor David Levine described the department’s traditional approach as “vibes-based training,” with grading that has been “more vague and more arbitrary” than in most Harvard courses.
According to TDM chair and professor Derek Miller, a challenge is that performance-based courses don’t always have a clear progression from introductory to advanced classes, meaning students with widely varying experience levels may enroll in the same course. Miller said the department will reward effort as well as talent: an experienced actor who remains highly skilled throughout a course “can earn the A minus,” while a beginner who takes risks and makes exceptional progress could earn an A.
Federico Cortese, conductor of the Harvard Radcliffe Orchestra, suggested that performance-based courses could instead adopt satisfactory/unsatisfactory grading. “I’m not against what they are doing,” he said of the new grade cap. “How it applies to art is a different story.”
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Boston Globe: “How Students Led a Push to Improve Harvard’s Intellectual Climate” — op-ed by Ariel Kohn (AB ‘26)
The Crimson: “To the Editor: HMS Cannot Become a Soapbox” — letter by HMS professor and Council on Academic Freedom at Harvard member Richard Schwartzstein
The Crimson: “Death to (Bad) Sections” — op-ed by Adnan Bin Alamgir (AB ‘29)
The Crimson: “Harvard’s Dearth of Writing Feedback” — op-ed by Amelia Barnum (AB ‘28) and Adam Chiocco (AB ‘27)
The Crimson: “Don’t Kill the Take-Home Paper” — op-ed by Michael Isayan (AB ‘29)
The Crimson: “AI Isn’t the Problem. We Are.” — op-ed by Zakiriya Gladney (AB ‘27) and Louis-Francois Belanger (AB ‘28)
The Crimson: “Admin Loves Musing on AI. It’s My Turn.” — op-ed by Henry Haidar (AB ‘28)
The Crimson: “How (Not) to Meet the AI Moment” — op-ed by biophysics PhD student Juan Carlos Fernandez del Castillo
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Chicago Maroon: “University Writing Advisory Group Recommends Device-Free Classes and Campus Spaces”
The Free Press: “Why Jewish Families Fled This Elite Prep School” — by Ashley Rindsberg
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