Harvard University has reported a $113 million operating deficit for the fiscal year ending June 30, 2025, marking its first such loss since 2020. The deficit occurred despite the university's endowment achieving a record high of $56.9 billion, driven by an 11.9% investment return.
The financial strain is attributed to a combination of rising operational costs, increased employee benefits, significant legal expenses, and unreimbursed federal research expenditures. This complex financial picture unfolds amid a period of intense external scrutiny and political challenges for the institution.
Key Takeaways
- Harvard University recorded a $113 million operating deficit for the 2025 fiscal year.
- The university's endowment grew by 11.9%, reaching a new high of $56.9 billion.
- Rising expenses, legal fees, and unreimbursed research costs drove the deficit.
- Operating expenses increased by 6% to $6.8 billion, outpacing a 3% rise in revenue.
- The endowment's performance was strong but long-term returns still lag behind some Ivy League peers.
A Challenging Financial Year
Harvard's leadership described the fiscal year as exceptionally difficult. In a letter accompanying the annual financial report, Harvard President Alan Garber stated, “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.”
The university's financial results show a clear divergence between its investment success and its operational budget. While the endowment, managed by the Harvard Management Company, thrived, the day-to-day finances of the university faced significant headwinds.
Operating expenses climbed by 6% to reach $6.8 billion. This increase was notably faster than the 3% growth in operating revenue, creating the budgetary shortfall. Key drivers for the increased spending included higher costs for employee benefits and substantial legal fees linked to various challenges facing the university.
Navigating External Pressures
The 2025 fiscal year was marked by significant political pressure, particularly from the White House. The administration raised concerns about issues on campus and temporarily froze $2.6 billion in federal research funding. While Harvard stated that most of the over 900 terminated research grants have been reinstated following a legal victory, the disruption and lingering uncertainty have had a lasting financial impact.
Cost-Cutting Measures and Revenue Streams
In response to the financial pressures, Harvard implemented several cost-containment strategies. These included a hiring freeze, targeted job cuts, limitations on salary increases, and the scaling back of certain projects and expenditures. For instance, Harvard’s engineering school announced layoffs, citing the new endowment tax and shifts in federal funding as contributing factors.
Despite these measures, the university's expenses continued to rise. Harvard Chief Financial Officer Ritu Kalra emphasized the ongoing uncertainty. “The reinstatements of those grants do not erase the disruption the terminations sparked, nor do they negate the uncertainty ahead. That means we can’t simply return to ‘business as usual,’” Kalra said in a statement.
On the revenue side, the university saw a bright spot in philanthropy. Harvard received a record $629 million in “current-use gifts,” which are donations that can be spent immediately. This figure represents a nearly 20% increase, or about $100 million, from the previous year. Total cash gifts, including those for the endowment, amounted to $1.3 billion.
Financial Snapshot: FY 2025
- Operating Deficit: $113 million
- Total Endowment Value: $56.9 billion
- Endowment Return: 11.9%
- Operating Expenses: $6.8 billion (+6%)
- Operating Revenue: +3%
- Current-Use Gifts: $629 million (+20%)
Endowment Performance and Strategy
The university's endowment remains a critical financial pillar, providing 37% of Harvard's operating revenue for the fiscal year. The fund's value increased by $3.7 billion, reaching its highest level ever.
N.P. “Narv” Narvekar, CEO of Harvard Management Co., noted that the 11.9% return was driven by strong performance in private equity, which produced “double digit gains,” as well as returns from public equity and hedge funds that exceeded their benchmarks.
Investment Allocation
Harvard's investment strategy heavily favors alternative assets, which constitute nearly three-quarters of the portfolio. The allocation as of June 30 was:
- Private Equity: 41% (includes 14% in venture capital)
- Hedge Funds: 31%
- Public Equities: 14%
- Real Estate: 5%
- Cash and Other: 3%
Narvekar has strategically increased exposure to private equity since taking the helm in 2016. The report mentioned that the endowment sold approximately $1 billion in private equity stakes on the secondary market during the year. Narvekar described this not as a sign of liquidity concerns but as an act of “intentional, disciplined portfolio management.”
“These transactions are not signs of constraint or liquidity concerns but rather of intentional, disciplined portfolio management — an approach that privileges flexibility and a long-term view over orthodox adherence to the existing portfolio of the university’s operations.”
Performance in a Broader Context
While Harvard's one-year return of 11.9% is strong, it is situated within a competitive landscape. According to Wilshire Trust Universe Comparison Service, the median return for U.S. college endowments with over $500 million was 11.5% for the same period. A standard 60/40 stock and bond portfolio returned 12%, while the S&P 500 gained approximately 15%.
Several peer institutions reported higher returns for fiscal year 2025. The Massachusetts Institute of Technology (MIT) reported a return of nearly 15%, and Stanford University announced gains of about 14%. The University of Pennsylvania’s 12% return was more comparable to Harvard's.
Furthermore, despite recent improvements, Harvard’s longer-term performance has faced criticism. Data compiled by Bloomberg for the period ending in June 2024 showed that the university's 10-year and 20-year annualized average returns ranked as the second-lowest among its Ivy League peers.
To ensure financial stability and sustain capital projects, the university also took proactive financial steps, including issuing $1.2 billion of long-term debt to enhance its liquidity. The combination of a record endowment and an operating deficit highlights the complex financial realities facing even the world's wealthiest universities.